IPA/GIFT F INANCE AND I NVESTMENT D EEP D IVE D AY AUDIT PANEL N OVEMBER 4, 2015.

IPA/GIFT FINANCE AND INVESTMENT DEEP DIVE DAY

AUDIT PANELNOVEMBER 4, 2015

AGENDA ITEMS1. ROLE OF FINANCE COMMITTEE MEMBERS 2. FINANCE COMMITTEE PART IN INTERNAL CONTROLS 3. IMPORTANCE OF MANAGEMENT LETTER AND

INTERNAL CONTROLS4. FUND REVIEW SPREADSHEET – VERIFY GRANTS AND

ADMIN FEES5. 1023 EZ GRANTEES 6. 990 DONOR REPORTING OVER $250 7. OUTSIDE CONSULTANT FOR ACCOUNTING WORK VS.

CFO 8. OVERVIEW OF FUNCTIONAL COSTS PROCESS9. OVERVIEW OF PROPOSED FASB CHANGES10.Q & A


ROLE OF FINANCE COMMITTEE MEMBERS

BIG PURPOSE:

The accounting, financial, and investment “experts” of the board


ROLE OF FINANCE COMMITTEE MEMBERSBIG PURPOSE: Drives selection committee1. Skills

2. Experience

3. Objectivity

4. Active role


ROLE OF FINANCE COMMITTEE MEMBERSKey Responsibilities:1. Ensure good accounting records

2. Review, evaluate and assess financial reporting

3. Oversee investment strategy and performance


ROLE OF FINANCE COMMITTEE MEMBERSAdditional Responsibilities:1. Financial and Investment Policies

2. Assess/approve contractual relationships

3. Risk assessment process/oversight

4. Oversight of operating budget

5. Analysis of areas having financial impact


FINANCE COMMITTEE PART IN INTERNAL CONTROLS

When is this appropriate to consider?


FINANCE COMMITTEE PART IN INTERNAL CONTROLS

When to involve the Finance Committee:1. Significant payments/payouts (approval)

2. Employee credit card/expense reporting

3. Independent financial report access

4. Journal entries reported

5. Bank reconciliations and check registers


MANAGEMENT LETTERRequired audit communications• Our responsibility as it relates to internal control • Qualitative aspects of accounting practices

New accounting policies Use of estimates

• Difficulties encountered • Audit adjustments or potential adjustments • Disagreements with management


MANAGEMENT LETTER

Required audit communications (continued)• Management representations• Consultations with other accountants • Other audit findings or issues• Other information in the financial statements

Internal control matters• Significant deficiencies• Material weaknesses• Control deficiencies and other recommendations


INTERNAL CONTROLSGeneral controls• Documentation of policies and procedures

Segregation of duties• Ensuring important functions are independent

from one another• Limitation based on size• Compensating controls

Board involvement• Timely review of appropriate financial reporting• Education on operational and financial matters


SPECIFIC CONTROLS TO CONSIDER1. Dual signatures2. Pre- or post-approval of checks3. Bank statement review and timely reconciliations4. Use of budgets5. Special event issues6. Financial reporting controls7. Policies – conflict of interest, whistleblower, document retention,

disaster recovery, credit cards, etc.8. Regular board meetings with written minutes9. Fidelity bonding insurance


FUND ANALYSIS TOOLAnalyze activity on a fund level to ensure:• Contributions and grants credited to correct fund• Proper amount of administrative fees charged• Fund receiving proper investment return

Summary of activity by fund• Progression from opening fund balance to ending• Contributions, grants, investment return,

administrative fees, otherFIMS: Columnar Financial StatementPearl: Must specifically request


FUND ANALYSIS TOOL


Fund Beg Bal Contr. Inv Ret Grants Admin Fee

Other End Bal % of Inv Ret

% of Grants

Admin Fee %

A 100,000 2,500 7,000 5,000 1,000 -0- 103,500 6.9% 4.9% 1.0%

B 50,000 -0- 3,500 2,500 500 -0- 50,500 7.0% 5.0% 1.0%

C 125,000 80,000 14,000 6,500 1,200 500 205,800 5.4% 3.9% 0.7%

D -0- 75,000 3,800 -0- 450 -0- 79,300 9.6% 0.0% 1.1%

E 25,000 -0- 1,800 1,250 375 -0- 25,175 7.2% 5.0% 1.5%

F 80,000 15,000 2,500 25,000 1,350 -0- 71,150 3.3% 33% 1.8%

IRS FORM 1023-EZ• Introduced July 1, 2014 to help small charities

Three pages instead of the standard 26 pages Must be filed online Shorter approval process timeline

• Gross receipts < $50,000 for first three years

• Total assets valued < $250,000

• Cannot be an LLC or private foundation


IRS FORM 1023-EZ• Specific purpose exclusions apply

• Application fee did not change - $400

• Online application is printable with filing signature Pay.gov receipt for application fee

• Determination letter & Exempt Org. Select Check Tool


IRS FORM 1023-EZSHOULD WE GRANT TO AN ORGANIZATION WHO RECEIVED THEIR 501 (C)(3) USING THE 1023-EZ?

WHAT DOCUMENTATION SHOULD BE REQUIRED FROM THE GRANTEE?


DONEE SUBSTANTIATION- SECTION 170(F)(8)Proposed Regulations• Implement the exception to the “contemporaneous written

acknowledgement” requirement• Would apply to charitable contributions of $250 or more

Donee organization would file information returns Returns due by February 28 (voluntary to start)

Privacy and Identity Theft Concerns• Would require collection of donor Social Security numbers• Legal requirements to retain and protect from identity theft• Public comments through December 16th


FUNCTIONAL COST PROCESS - FORM 990

• Avoid using static percentages• Operating expenses = 8% of distributions• Programs should be 60% - 80% of total• Operating and fundraising =< 25% of revenue• 37% of nonprofits report zero fundraising expense• 13% of nonprofits report zero operating expense• Cost Sustainability Tool coming…


CFO VS OUTSIDE CONSULTANTThe pros of hiring a consultant• Full-time position and salary not required• No significant training• Broad base of experiences to pull from

The cons of hiring a consultant• Not available for other tasks/duties• May not have their undivided attention• Availability outside scheduled hours


FASB NFP FINANCIAL STATEMENT EXPOSURE DRAFT• Issued April 22, 2015• Comment period ended August 20, 2015• Public Roundtables held in Sept/Oct• Board deliberations• Effective date for adoption not yet determined


STATEMENT OF FINANCIAL POSITIONCurrently 3 classes of net assets

Unrestricted Temporarily Restricted Permanently Restricted

Proposed 2 classes of net assets Without Donor Restrictions With Donor Restrictions


STATEMENT OF ACTIVITIES• Present the change in each of the 2 classes of net assets• Additional subtotals for “without donor restrictions”

column Operating excess, before transfers Operating excess, after transfers

• Subtotals are to reflect inflows and outflows directed to carrying out a NFP’s purpose for existence and available for current-period operating activities

• Non-operating follows – includes items such as interest expense, investment return, actuarial changes, etc.


TRANSFERS• Governing board designations, appropriations, and similar

actions that place (or remove) self-imposed limits on the use of resources that make them unavailable (or available) for current-period operating activities Ex: Grant from a board-designated endowment fund Ex: Designation of assets for use in a future period – operating

reserve

• Gifts for acquisition or construction Revenue increasing net assets with donor restrictions Release of donor restriction within operations and report a

transfer out of current operations


STATEMENT OF CASH FLOWS• Currently – many use indirect method• Proposed – use direct method • Certain cash flows will also be classified differently than

current guidance Ex: Purchases and sales of long-lived assets will be classified as

operating activity rather than as investing


OPERATING EXPENSES• Currently – required to be shown only on functional basis

(except for certain types of NFPs)• Proposed – shall be presented by both natural expense

classification and functional expense classification in one location Can be either on the face of the statement of activities, as a

separate statements or the notes to the financial statements


ENHANCED DISCLOSURES• Transfers – purpose, amounts, types

• Composition of net assets with donor restrictions

• Management of liquidity; financial assets available to meet net-term demands for cash

• Underwater endowment funds – stays in “with donor restriction” classification


COMMENTS RECEIVED• Desire to maintain as much consistency as possible between NFP

and For-Profit reporting• Concern regarding cost to implement changes• Net Assets - support for combining two classes• Assessing Liquidity – too subjective, too vague, business entities

not required to provide • Measures of Operations – need clarification of what should or

should not be included• Transfers – makes Statement of Activities too complex• Functional Expenses – mostly support to report on both function

and nature• Statement of Cash Flows – mixed feedback; will continue to be

underutilized regardless of method


AUDITOR PANEL


Shannon Borden, CPA, DirectorBlue & Co., LLC

[email protected]

Patrick W. Burkey, CPAEstep Burkey Simmons, LLC

[email protected]

Rich Haddad, President and CEOK21 Health Foundation

[email protected]

mailto:[email protected]



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IPA/GIFT F INANCE AND I NVESTMENT D EEP D IVE D AY AUDIT PANEL N OVEMBER 4, 2015.

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