With funders and other stakeholders turning even more attention to an organization’s audited financial statements, it is essential that management “own” these documents and use them to their greatest advantage. In the span of a few, impersonal pages, an organization needs to clearly convey programmatic priorities and unique financial realities. This session will walk attendees through the fundamentals of nonprofit financial presentation and provide specific tips for working with your auditors and improving the clarity of your statements. Attendees should have a copy of their organization’s statements to reference during the webinar. A sample statement will also be available for those unable to obtain their own in advance.

1. Telling Your Story in Numbers:
Getting the Most out of Audited Financial Statements
August 18, 2010
Special Thanks To Our Sponsors

2. Helping ordinary people raise extraordinary amounts for nonprofits is all we do, and we love it.
A Proud Sponsor of NonprofitWebinars.com

3. Today’s Speakers
Jennifer Ahern Lammers
The Philanthropy Hub
www.philanthropyhub.com
jlammers@philanthropyhub.com
Hosting: Sam Frank, Synthesis Partnership
Assisting with chat questions: Chris Dumas, FirstGiving

4. Telling Your Story in Numbers
Making the most of your Audit
August 18, 2010
Prepared By:
Jennifer Ahern Lammers, MPA, CNAP
Prepared For:
Nonprofit Webinars – Wednesday Webinar Series

5. The Numbers Matter
 They communicate an organization’s priorities
 They record an organization’s history
 They are one of the only means stakeholders have of
comparing one organization to another quickly and
“objectively”

6. Who’s Crunching the Numbers?
 Board Members & Potential Board Members
 Employees & Potential Employees
 Donors & Potential Donors
 A Growing List of Charity Watch Dogs
 Members of the media

7. By Going Beyond the Numbers:
 Management (both board and senior executives) will better
understand and own their financial documents
 Organizations will be better at distinguishing themselves
from other organizations competing for the same donor
dollar
 Organizations will be more transparent and management will
be a proactive player in the pursuit of accountability

8. Relevant SFAS’s
Statement Purpose
SFAS #95 (ASC 230) Outlines standards for the presentation
Statement of Cash Flows of the Statement of Cash Flows
SFAS #116 (ASC 958) Outlines standards for the valuing and
Accounting for recording of contributions received
Contributions Received & and made by an NFP
Contributions Made
SFAS #117(ASC 958) Recommends format & content for
Financial Statements of financial statements of an NFP
Not-For-Profit Organizations
8

9. More Relevant SFAS’s
Statement Purpose
SFAS #124 (ASC 958) Outlines standards for recording
Accounting for Certain investments in the financial statements
Investments Held by Not-for-
Profit Organizations
SFAS #157 (ASC 820) Defines how to measure fair value
Fair Value Measurements
9

10. SFAS 116 (ASC 958)
Definitions
Contribution: An unconditional, non-reciprocal transfer of an
asset or cancellation of a liability to a not-for-
profit organization
Donor-Imposed A transfer based on a future or uncertain event,
Condition: the occurrence or non-occurrence of which will
dictate whether the asset is retained by the not-
for-profit organization
10

11. SFAS 116 (ASC 958)
Definitions (cont’d)
Donor- Imposed A limitation on the use of an asset placed by
Restriction: the donor
Promise To Give: An agreement to contribute an asset; it will be
entered into the accounts if verifiable
documentation exists
11

12. SFAS 117 (ASC 958)
Classifying Contributions
Unrestricted: Contributions that are free of donor restrictions on
their usage
Temporarily Contributions that have donor imposed restrictions
restricted: and may be removed by:
(1) the passage of time or
(2) an act of the organization
Permanently Contributions with restrictions that can never be
restricted: removed
12

13. SFAS 117 (ASC 958)
Contributed Services Recognition
 Must be recognized if:
 Services create or enhance a financial or
non-financial asset
 Services provide skills that organization would have paid for if
not been donated
 Legal services
 Licensed volunteers
13

14. According to SFAS 117 (ASC 958):
All not-for-profit organizations must present:
 Statement of Financial Position (Balance Sheet)
 Statement of Activities (Statement of support, revenues,
expenses, and changes in fund balance)
 Statement of Cash Flows
 Statement of Functional Expenses, if required, for
Voluntary Health and Welfare organizations
 Accompanying Notes to the financial statements
14

15. A Simple Truth
Financial statements are increasingly being used by funders,
reporters, and other stakeholders to make decisions
about nonprofit organizations

16. The Audit Process
 Provides an independent review of procedures and accounting of
significant transactions
 Provides constructive recommendations for improving systems
and procedures
 Satisfies external compliance requirements from funders and
some state agencies
 The Gold Standard

17. Audit Opinions
Disclaimer of
Unqualified Qualified Adverse
Opinion
• Considered a • Statements • Statements do • “No opinion”
“clean have one or not conform on statements
opinion” more material to GAAP • Auditors were
• States that problems • Readers are unable to
statements are • Raises provided “no apply auditing
presented awareness of assurance” on standards
fairly issues the figures • Very unusual,
rarely issued

18. Other Options
• Step down from a full audit
• CPA provides only limited assurances based on staff inquiries
Reviews and spot checks of procedures
• Further step down
Compilations
• CPA provides no assurance as to the validity of the numbers
• Should follow GAAP (FSB 116 and FSB 117) format
Internally • If prepared correctly may be more useful than a compilation
Generated

19. Statement of Financial Position
A picture of the organization’s financial health at the close of
the fiscal year or other specified time period

20. Also Known as the Balance Sheet
Assets - Liabilities = Net Asset
What you OWN – What you OWE = Anything LEFT OVER

21. Balance Sheet
• Most liquid first
• Cash & Cash Equivalents, Contributions Receivable,
Assets Investments, Prepaid Expenses, Fixed Assets, etc.
• Due in 12 months or less first, then longer term
• Line of Credit, Accounts Payable, Accrued Expenses, Long
Liabilities Term Debt, etc.
• Unrestricted (includes fixed assets and any board reserves)
Net Assets • Temporarily and Permanently Restricted

22. Content and Presentation
 Must report on organization as a whole
 Instead of reporting on separate functions of the organization
 Organizes accounts into asset and liability classifications such as:
 Current assets, fixed assets, current and long term liabilities, as of a
specific moment in time (last day of the fiscal year)
 Focuses on liquidity
 Assets are presented in their proximity to cash
 Liabilities are presented according to the nearness of their maturity
and resulting use of cash
22

23. Net Assets
 Unrestricted
 Excludes assets that have donor-imposed restrictions
 Somewhat similar to the Retained Earnings account of commercial
financial statements
 Temporarily Restricted
 Includes assets for which the use has been restricted by donor
 Permanently Restricted
 Sometimes called an “endowment account”
 Asset must be kept in perpetuity by the not-for-profit organization,
per donor instructions
 Earnings from Permanently Restricted Net Assets can either be
unrestricted or temporarily restricted, per donor instructions
23

24. ABC Organization
Statement of Financial Postion
December 31, 2010 and 2009
Assets 2010 2009
Cash $50,000 $82,768
Accounts Receivable $256,164 $314,709
Unconditional Promises to Give $229,382 $204,269
Grants Receivable $54,691 $215,875
Prepaid Expenses $28,463 $40,636
Property & Equipment (net of dep) $1,942,736 $1,993,281
Other Assets $19,054 $26,817
Total Assets $2,580,490 $2,878,355
Liabilities and Net Assets 2010 2009
Liabilities
Line of Credit $117,319 $136,400
Accounts Payable $126,394 $151,759
Accrued Expenses $74,000 $91,080
Accrued Payroll and Taxes $48,461 $120,238
Long-term Debt $673,714 $686,150
Total Liabilities $1,039,888 $1,185,627
Net Assets
Unrestricted 1,076,134 1,050,277
Temporarily Restricted 258003 435923
Permanently Restricted 206465 206465
Total Net Assets 1,540,602 1,692,665
Total Liabilities & Net Assets $2,580,490 $2,878,292

25. Statement of Activities
A record of an organization’s financial activities
for 12 month period

26. Statement of Activities
 Where money came from and what it was spent on over a
particular period of time
 Most analyzed statement included in an audit packet

27. Tracking Change
Type of change Comment
Revenues Shown gross, under each category of
net assets, unless incidental in nature
Expenses Decreases to unrestricted net assets,
presented on a functional basis
Gains and Losses Across all categories, based on nature
Reclassification Transfers assets from temporarily
restricted to unrestricted based on
satisfaction of those restrictions
27

28. Presentation
 Revenues are presented according to donor restriction:
 Unrestricted
 Temporarily Restricted
 Permanently Restricted
 Although both are accepted by GAAP the column format –
not the stacked – is best as it is much easier to understand

29. Revenues
 Sources of revenue are broken down and often include:
 Individual support
 Foundation and corporate support
 Special events revenue
 Earned income
 Interest
 Assets released from restriction

30. Donor Restrictions
 Only donors can make restrictions!
 However, we often shape the nature of the restriction by the
language of the “ask”
 Make sure your revenues are appropriately categorized
 Make sure you have back up to substantiate nature of the
restriction

31. Functional Reporting of Expenses
 Audited statements are required to allocate expenses in
three classes:
 Program Services: activities that result in services being
distributed to beneficiaries
 Management and General: oversight, business & general
financial management
 Fundraising: activities that induce donors to contribute
 May appear in the Statement of Activities or the Notes
31

32. Expenses
 Expenses occur in the “Unrestricted” column
 Program expenses are broken down by program
 Identified program areas conform with the organization’s other
materials

33. ABC Organization
Statement of Activities
For the Year Ended
December 31, 2009
Temporarily Permanently
Revenue and Other Support Unrestricted Restricted Restricted Total
Service revenues $4,982,631 $4,982,631
Grants $238,000 $151,790 $10,000 $399,790
Contributions $109,058 $77,201 $186,259
Special Events (less of direct
costs of $19,399) $1,976 $1,976
Interest & Dividends $38,032 $38,032
Unrealized Gain $117,425 $117,425
Misc. $21,382 $21,382
Net Assets released from
restriction $406,911 $(406,911) $-
Total Revenue $5,915,415 $(177,920) $10,000 $5,747,495
Operating Expenses
Program Services
Association Services $2,842,480 $2,842,480
Children & Teen Services $675,153 $675,153
Family Supoort $822,531 $822,531
Therapy $1,038,814 $1,038,814
Total Program
Expenses $5,378,978 $5,378,978
Supporting Services
Management and general $188,896 $188,896
Fundraising $166,403 $166,403
Total Supporting
Expenses $355,299 $355,299
Total Expenses $5,734,277 $- $- $5,734,277
Change In Net Assets $181,138 $(177,920) $10,000 $13,218
Net Assets Beginning
of Year $2,348,570 $435,923 $206,465 $2,990,958
Net Assets End of
Year $2,529,708 $258,003 $216,465 $3,004,176

34. Statement of Cash Flows
Reports the cash generated and used during the year

35. Statement of Cash Flows
 The Cash Flow Statement looks at:
 Where an entity obtained its cash and
 Where it spent cash during a certain time period
 Activity reported regarding:
 Operations
 Investing
 Financing
 Must disclose any non-cash activity such as acquisitions of
equipment on finance
35

36. Where the Cash Came or Went
converts the reports the reports on
items purchase and any loan
Operating Activities
Financing activities
Investing activities
reported on sale of long- payments
the term made or
statement of investments credit
activities and secured
from the property,
accrual basis plant and
to cash equipment

37. Misc. Organization for Good
Statement of Cash Flow
Fiscal Year Ended September 31, 2010
2010
Cash Flow from Operating System
Increase (decrease) in net assets $XXXX
Adjustments to reconcile decrease in net assets to cash
Depreciation $XXXX
Net realized gain on the sale of investments ($XXXX)
Net unrealized gain on sale of investments ($XXXX)
Change in opertating assets and liabilities
Reimbursable expenditures under contracts ($XXXX)
Contributions receivable $XXXX
Prepaid expenses and other assets $XXXX
Grants payable ($XXXX)
Accounts payable and accrued expenses $XXXX
Net cash (used in) provided by operating activities
Cash flows from investing activities
Purchase of investments ($XXXX)
Proceeds from the sale of investments $XXXX
Purchase of fixed assets ($XXXX)
Sale of fixed assets $XXXX
Use of restricted cash ($XXXX)
Net cash provided by investing activities $XXXX
Cash flows from financing activities
Payment of note payable ($XXXX)
Net cash used in financing activities ($XXXX)
Net increase in cash and cash equivalents $XXXX
Cash and cash equivalents
Beginning of year $XXXX
End of year $XXXX

38. Statement of Functional Activities
Detailed accounting of expenses by major expense area, broken
down by common expense type

39. Statement of Functional Activities
 Required by GAAP for all voluntary health and welfare
organizations
 Required by some watch dogs for all charities soliciting public
support
 An important document for demonstrating priorities and
clarifying necessary expenses

40. ABC Organization
Statement of Functional Expense
For the Fiscal Year Ended December 31, 2009 Program Support 2009
Homeless Total
Soup Kitchen Night Shelter Intervention Program Administration Development Total Support Total Expenses
Compensation and related
expenses
Salaries and Wages 62,000 45,000 36500 143,500 75,000 58,000 133,000 276,500
Payroll Taxes 11000 3000 2000 16000 13,000 6000 19,000 35,000
Fringe Benefits 17360 12600 10220 40180 21000 16240 37240 77,420
Total 90,360 60,600 48720 199,680 109,000 80,240 189,240 388,920
OTP
Outside services 12000 9000 12000 33000 0 36000 36000 69,000
Rent 22000 22000 0 44000 11000 11000 22000 66,000
Depreciation and amortization 20000 14000 0 34000 2000 3000 5000 39,000
Telephone 1000 1000 5000 7000 3000 4000 7000 14,000
Utilities 975 975 1950 400 400 800 2,750
Travel - - 1500 1500 1000 400 1400 2,900
Insurances 6500 8000 2300 16800 1200 7000 8200 25,000
Printing 900 250 1100 2250 11250 18000 29250 31,500
Equiptment rental 4500 0 0 4500 0 6500 6500 11,000
Postage 0 0 0 0 2400 3500 5900 5,900
Event Space Rental 0 0 0 0 0 22000 22000 22,000
Misc. 222 457 354 1033 354 555 909 1,942
Total 68097 55682 22254 146033 32604 112355 144959 290,992
Total
Expenses 158,457 116,282 70,974 345,713 141,604 192,595 334,199 679,912

41. The Notes:
Significant Disclosure Guidelines
 Description of the organization
 Basis of Accounting (cash, accrual and modified accrual)
 Fixed Assets
 Debt
 Temporarily and Permanently Restricted Net Assets
 Related Party Transactions
 Subsequent Events
 Commitment and Contingencies
41

42. Going Beyond Compliance
 Financial Statements are used by funders, reporters, and
other stakeholders to make decisions
 As such, Financial Statements should do more than
conform with GAAP
 Financial Statements should help the reader understand a
charity’s mission, priorities and unique circumstances

43. Basic Sense:
Be Clear
Limit the use of acronyms or cryptic abbreviations

44. Examples
 DCD, DHPD, DCDF, etc. may be obvious government
funders to you or your client but not to most readers
 BASP, APE, etc. may be what the organization calls the
Boys After School Program, or the AIDS Prevention and
Education program, but not every one will understand

45. Basic Sense:
Understand Materiality
Because nonprofits are often called on to meet a higher level
of disclosure, “materiality” should be thought of differently

46. Example
 $10,000 for a $175 Million organization may not seem material in
the accounting sense of the term, but . . .
 $10,000 to a donor might be . . .

47. Balance Sheet:
Net Asset Presentation
 Net Assets can come in three forms:
 Unrestricted
 Temporarily Restricted
 Permanently Restricted
 Break them out on the Balance Sheet

48. Balance Sheet:
Unrestricted Net Asset
 Unrestricted Net Assets can take many forms, many of
which are less accessible for general use
 Consider breaking out the following Unrestricted Net
Assets in the Balance Sheet:
 Board Designated Reserves
 Facilities and Equipment

49. Statement of Activities:
Program Expense
Present program expenses in a manner consistent
with the organization’s other materials

50. Examples
 If the organization says it has 5 program areas, the
financial statement should present expense for each of
those areas
 If the organization’s materials say it provides “Low cost
or free legal, financial, and real estate services”, the financial
statement should not say “Professional Services”
 “Other program expenses” is never a descriptive or
appropriate expense item

51. Statement of Activities:
Identify Non Program Costs Carefully
Think carefully about whether other “non-program”
expenses should presented separately:
 Depreciation: Probably Not – it can be allocated to
Program, Admin, or Fundraising
 Payments to Affiliates: May depend on what the
Affiliate and National Head does with the payments

52. Statement of Functional Expenses:
Clear Labels
 Look to the IRS 990 Statement of Functional Expenses for sample
wording and break down of expenses
 When an organization has a unique expense, make sure it is called
something that explains it
 “Misc.” should be used for truly immaterial expenses and not
include normal, expected expenses like salaries, rent, interest, etc.

53. The Notes:
Not Extra Credit but Essential
Note 1 is the first and only opportunity in the
financial statement an organization has to present its
mission and program in narrative form
 Make sure this note is up-to-date and includes not just the organization’s
original programs but its current roster
 Make sure that this statement is more than the perfunctory
acknowledgement of 501(c)(3) status and incorporation
 This statement should be given the same care the organization gives its
annual report or website

54. The Notes:
More than a Template
Note 2 is typically the explanation of accounting practices
and methodology and comes straight from the audit firm
 If the organization does not have temporary or permanently
restricted contributions or net assets, consider adding a
statement after the standard explanation

55. The Notes:
More is Better
 If the organization has a unique situation, such as a
significant and non-repeating revenue source, include an
explanation in the notes
 When describing related party transactions, provide
enough information for the reader to understand whether
or not this related transaction presents a conflict

56. Thank you!
Chris Dumas, Chris@NonprofitWebinars.com, 707-812-1234
Special Thanks To Our Sponsors