Ideas and tools to improve oversight as a board member, executive, or other constituent.

1. AConversationalApproach Financial Oversightby NonprofitBoards By: Robert P. Seestadt, CPA copyright 2011, Robert P. Seestadt CPA

2. What is the conversationalapproach? Emphasizes the value of inquiry and curiosity Technical and informal aspects both critical Financial information should drive discussion Peer-to-peer sharing of information improves oversight copyright 2011, Robert P. Seestadt CPA

3. Current Stateof Nonprofit Finance Nonprofit finance fund 2010 survey: 30% of nonprofits have 0-1 month operating cash on hand 39% looking for tools to communicate with their board 76% of organizations recently prepared budget scenarios / projections Source: www.nonprofitfinancefund.org 2010 survey copyright 2011, Robert P. Seestadt CPA

4. Finding the right oversight balance “What happened to the meeting cookies? The Goldilocks Challenge…how much is just right? “how much did we spend on pencils?” Not engaged Micromanager copyright 2011, Robert P. Seestadt CPA Discussion: How to get the board “on board”

6. Most recent financial results are better than plan

7. We have “significant deficiencies” in our internal controls

8. Our financial model is adjustable to the amount of revenue we have

9. We consider reasonable “worst case scenarios” in the budget processcopyright 2011, Robert P. Seestadt CPA

10. Oversight Tip Understand basic financial terminology copyright 2011, Robert P. Seestadt CPA

11. Financial communication styles vary copyright 2011, Robert P. Seestadt CPA “As you can see by the attached statement of financial position, unrestricted net assets after subtracting equity in fixed assets remains a negative number” “We’re broke” Executive Director Accountant “Liquidity continues to be a concern” CFO

12. Some terms worth knowing Assets Liabilities Net assets Capital Revenue (‘income”) Temporarily restricted revenues Endowment Board designations copyright 2011, Robert P. Seestadt CPA

13. The difference between Capitaland Income To understand the financial picture, you need to appreciate the difference between Capital and Income copyright 2011, Robert P. Seestadt CPA

14. What is Capital? definition: Cash or goods used to generate revenue through investment “Assets”Cash, invest. Pledges (Liquid assets) copyright 2011, Robert P. Seestadt CPA Fixed Assets, Building, property, equipment collections

15. Income: Performance over time Income (“revenues”) Unrestricted, temporarily restricted, permanently restricted During a period of time PERFORMANCE copyright 2011, Robert P. Seestadt CPA

16. Oversight Tip Create the right “Tone at the Top” copyright 2011, Robert P. Seestadt CPA

17. What is Toneat the Top? Control Environment copyright 2011, Robert P. Seestadt CPA

18. Ways to create Toneat the Top? Take board role seriously Be engaged during and between meetings Require accountability Understand internal control structure Ask questions…be skeptical Be supportive! copyright 2011, Robert P. Seestadt CPA

19. Oversight Tip Ask open-ended questions Listen Show curiosity copyright 2011, Robert P. Seestadt CPA discussion

20. From the Existential CFO If a financial report falls in the woods... ..and no one is there to read it.. copyright 2011, Robert P. Seestadt CPA

22. What risks are in our budget projections?

23. Others???copyright 2011, Robert P. Seestadt CPA Discussion: What are some good questions to ask? Go to www.cfoshare.com for “25 questions to ask at board meetings”

24. Oversight Tip Use a “conversational” reporting system copyright 2011, Robert P. Seestadt CPA

25. Creating a “conversational”financial stmt RESERVES PERFORMANCE copyright 2011, Robert P. Seestadt CPA

26. Nonprofit ABC: CFO ReportFor the quarter ended December 31, 2010 copyright 2011, Robert P. Seestadt CPA

27. Oversight Tip Plan and budget realistically, consider scenarios copyright 2011, Robert P. Seestadt CPA

28. The same budget…or different? copyright 2011, Robert P. Seestadt CPA Net surplus budget for two organizations, one with more “risk” than the other Budgeted surplus for both nonprofits Discussion: What issues are the same and different for these nonprofits? Worst case, nonprofit A

29. The same budget…or different? copyright 2011, Robert P. Seestadt CPA Net cumulative surplus budget for two organizations, one more volatile than the other Same final net surplus for the year Discussion: What issues are the same and different for these nonprofits?

30. Net assets ok, but what about liquidity? copyright 2011, Robert P. Seestadt CPA

31. The value of financial stress-tests What risks are in our budget? Re-run the budget under “reasonably possible” worst-case What is our safety net? Sufficient?? Consider: Past history Revenue assumptions Contingencies Economic conditions Key funders Our Budget (as proposed) Adverse Scenario Inflows $105,000 $85,000 Outflows $100,000 $125,000 Net Inflows (out) $5,000 $(40,000) Cash: Beginning $25,000 $25,000 Cash: After $30,000 $(15,000) copyright 2011, Robert P. Seestadt CPA Go to www.cfoshare.com for a simple stress-testing template

32. Oversight Tip Establish (or at least plan for) “board designated operating reserves” copyright 2011, Robert P. Seestadt CPA

33. Planning for Operating Reserves Briefly, the term “operating reserves” refers to the portion of “unrestricted net assets” that nonprofit boards maintain and/or formally designate or “reserve” for use in emergencies to sustain financial operations in the unanticipated event of significant unbudgeted increases in operating expenses and/or losses in operating revenues. “Unrestricted net assets” is a required line item in the balance sheets of financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) and IRS Forms 990 of nonprofit organizations. Excerpted with permission from Operating Reserve Policy Toolkit for Nonprofit Organizations, Sponsored by the National Center for Charitable Statistics, Center on Nonprofits and Philanthropy at the Urban Institute, and United Way Worldwide. http://www.nccs2.org/wiki/images/b/b4/Operating_Reserves_Policy_Toolkit_1st_Ed_2010-09-16.pdf copyright 2011, Robert P. Seestadt CPA discussion

34. In closing… copyright 2011, Robert P. Seestadt CPA

35. Our financial model Are we ”Built to Last”…or Built to Bust? Discussion point True cost of Structural Budget Deficiencies copyright 2011, Robert P. Seestadt CPA

37. Consider scenarios

38. Plan for reserves

39. Long-term planning

40. Predictable (not necessarily guaranteed) revenue stream

41. UPPER RIGHT QUADRANT

42. Unrealistic assumptions

43. Blind to adverse scenarios

44. No cash reserves

45. Cycle of shortfalls

46. Short-term planning

47. Structural budget gap

48. LOWER LEFT QUADRANT copyright 2011, Robert P. Seestadt CPA

49. Guide to poor oversight Keep policies strategically vague Minutes and meetings are best discussed, not documented Avoid auditor communication at all costs Have a weak, unsupported whistleblower policy Audit committees are only for the big guys Ignore the management letter copyright 2011, Robert P. Seestadt CPA

50. Five take-aways… Engage in discussion (peer, staff) Understand financial situation (and actions needed…”what quadrant are we in?”) Create an effective control environment (Tone at the Top) Consider risks and scenarios (stress-test) Get help when needed (resources, websites, toolkits, discussion groups). Any questions? Feel free to send me an email at rseestadt@cfoshare.com copyright 2011, Robert P. Seestadt CPA Go to www.cfoshare.com for a copy of this presentation along with ideas, resources and regular discussions about nonprofit finance matters