EricYPTC

August 18, 2012

In the course of our work helping our nonprofit clients with their accounting and financial reporting, we meet many other professionals providing services to the nonprofit community. Lawyers, auditors, grant writers, fundraisers, strategic planners, insurance agents, pension plan administrators, investment advisors, consultants, payroll companies, HR providers, software vendors (e.g. accounting, fundraising, and dashboards), and more. We get to see their work up close and therefore we are in a good position to know who the good ones are.

From time-to-time in coming months I intend to mention the very good ones.

To start, I’d like to give thumbs-up to three umbrella organizations whose missions are to support the nonprofit organizations in their communities.

The first is The Nonprofit Roundtable of Greater Washington (http://nonprofitroundtable.org/) run by Chuck Bean, President. The Roundtable works to build the strength, influence, and visibility of the nonprofit community through “an alliance of over 300 nonprofits and community partners working in health and human services, education, the environment, the arts and more to improve the quality of life for all in the Greater Washington region.” [Quote from their website.] Full disclosure: I served on the Roundtable’s Finance Committee and now the Roundtable is one of our accounting clients. But this means I know them well and feel very comfortable touting their good works.

Also in Washington, DC, is Glen O’Gilvie, Chief Executive Officer of the Center for Nonprofit Advancement (http://www.nonprofitadvancement.org/). “Since 1979, the Center for Nonprofit Advancement has strengthened, promoted and represented its member nonprofit organizations throughout the Washington, D.C. metropolitan area.” [Quote from their website.] The Center offers training and technical assistance, networking opportunities, and advocates on behalf of its members with local government officials.

In Philadelphia you should know Dr. Laura Otten, Director of the Nonprofit Center at La Salle University (http://www.lasallenonprofitcenter.org/). The Nonprofit Center is “an organization that enhances the management and governance capacity of nonprofit organizations throughout the Greater Philadelphia region.” [Quote from Laura’s blog.]

Chuck, Glen, and Laura: I know all three of these community leaders. I can say without hesitation that all three have devoted their professional careers to the support of the nonprofit organizations in their respective areas. They manage to provide impact far in excess of their budgets. Each of them has an impressive personal resume with many accomplishments and all three are very warm, engaging, and approachable.

If your nonprofit organization is located in either of their markets, check out their websites, become a member, and take advantage of their many wonderful programs.

Comments welcome.

Eric

Eric Fraint, President and Founder,
Your Part-Time Controller, LLC

August 15, 2012

Let’s talk about what “good” organizations do with their financial reporting.

When it comes to financial reporting, at the very minimum, the good organizations:

(1)    Prepare a full reporting package each month.  This package can contain as much information as you like, but at the very minimum, it should have a Balance Sheet (typically called a Statement of Financial Position), an Income Statement (typically called a Statement of Activities), and a Cash Flow Statement.  If you as a member of management or the board are not getting all three, you are not getting a complete picture of your organization’s finances.  Imagine trying to follow a football game when you can only see half the field.  This would complicate the coach’s job.  Is your job being complicated by incomplete financial reports?

(2)    Timeliness.  The good organizations can produce their monthly reporting package quickly each month, sometimes within just a few days of month-end, but definitely with a week or two of month-end.  The older information gets, the less helpful it is for you to run your organization.  Using our football analogy, try coaching a game in the fourth quarter when all you can see is what happened in the 1^st quarter.

(3)    Bank and investment account reconciliations.  People have to reconcile their checkbooks each month to their bank statements; so do organizations.  The good organizations get this done each month before they release their monthly reporting package.  If your organization does not reconcile its accounts on a timely basis each month you are subjecting yourself to a whole host of potential internal control problems, not mention a good probability that your financial reports are misstated.

(4)    Able to report at various levels of detail.  The board needs summary reports, the finance committee needs additional details, and the executive director needs all the details.  The good organizations have their chart-of-accounts, their data, and their accounting software all configured properly to allow this to happen efficiently.

(5)    Able to report financial information separately by program, department, cost centers, and by funder.  As in number 4 above, a good organization can “slice-and-dice” its financial information in a variety ways that will aid it to better run its programs and departments and be better able to report to funders.

(6)    Reporting on restricted funds.  This might be the single biggest area in which nonprofit organizations run into trouble: mismanaging their restricted funds.  If your funder restricted the use of their funds for purpose A, but you spend it on purpose B, you could have a serious problem.  Do your financial reports make this clear?  The good organizations are on top of this.

(7)    Budgeting and forecasting on both an accrual and cash basis.  Assuming an organization is on the accrual basis (if I get some requests to explain the difference between cash and accrual, I can explain this in a future blog) the good organizations know how to plan using both.  If you budget and forecast only on an accrual basis, you don’t know your cash flow which can lead to some obvious problems.  If you budget and forecast only on a cash basis, your budget will not align with your monthly financial reports, making it very hard to explain variances.

We at YPTC consider these seven essential basic traits to be best practices in financial reporting.  We coined a name for this:  the Financial Reporting Baseline™ or FRB™ for short.  Show me an organization that does not or cannot perform these seven basic practices, and I will show you an organization that is probably in the “bad” or “ugly” categories!

Comments welcome.

(This blog post is based on an article I originally published in Don Kramer’s Nonprofit Issues titled “Don’t Operate Blind:  Jump-Start Your Accounting Department.”)

Eric

Eric Fraint, President and Founder
Your Part-Time Controller, LLC

August 12, 2012

We’ve all heard of the 80/20 rule where 80% of some population accounts for 20% of the results.

But have you ever heard of the 10/80/10 rule?

Call it Eric’s Rule of Nonprofit Finance.  (Eric’s rule is not to be confused with Eric rules, which is seldom the case.)

The 10/80/10 rule states that out in the nonprofit world, approximately 10% of organizations have well-functioning, efficient, and effective accounting departments that are able to produce accurate timely financial reports that management, staff, and the board can use to effectively run the organization and report their results to funders and the public.

This first 10% are the “good” organizations.

The next 80% are the “bad.”

Approximately 80% of all nonprofit organizations, regardless of type or size, have accounting departments that range anywhere from being mildly underperforming to severely dysfunctional.  Examples: In the underperforming category are organizations that cannot produce accurate financial reports or other analyses on a timely basis.  More examples: In the dysfunctional category are organizations that cannot properly account for their donor restricted funds or are unable to properly prepare for their year-end audit.

The silver lining for these organizations is that their managements and boards are usually thoughtful well-meaning people trying to do their best.

This leaves the last 10% whom I charitably refer to as “ugly.”  In this category are organizations whose boards and managements are behaving badly.  They knowingly misappropriate restricted funds for purposes other than for what the funds were intended for.  They run personal expenses through the organization or use assets of the organization for their personal use.  They put girlfriends on the payroll so that they can get health benefits.  They ignore implementation of effective internal controls.  They manipulate financial reports and other financial documents to obtain the results they desire.  They forget that as a public charity they have a fiduciary responsibility for the funds they collect.  Read the Chronicle of Philanthropy.  Hardly a month goes by without a report of some bad behavior.

I have no statistical data to back up the 10/80/10 rule.  Think of it in the category of “Moore’s Law” which is based on Gordon Moore’s observation that computer processing power doubles every two years or so.  Eric’s 10/80/10 Rule is based on my 20 years of observations working with nonprofit organizations.

In coming blogs I will describe examples from our work of the good, the bad, and the ugly with the hope that there may be something that you might be able to apply at your organization to improve your financial department.

(Naturally, because of client confidentiality, the identities of our clients will not be disclosed.)

Stay tuned.  Comments welcome.

Eric YPTC

Eric Fraint, President and Founder
Your Part-Time Controller, LLC

August 11, 2012

One December morning in 1993 I walked through the front door of a small house museum in Philadelphia called the Rosenbach Museum & Library.  The then executive director of this nonprofit museum had summoned me through a mutual friend at a large Philadelphia foundation to help him with with his accounting and financial reporting.  Thus began what would for me become a lifelong (twenty years and counting as of the date of this writing) odyssey working with and helping nonprofit organizations.

I had only months before started an accounting practice called Your Part-Time Controller, LLC, (YPTC) the goal of which, as the name suggests, was originally intended to help for-profit businesses with their financial activities on a part-time basis.  I am a Wharton graduate (BS in Economics, major in accounting), a CPA, and have worked as a public accountant, an external auditor, an internal corporate auditor, assistant controller, and controller.

It was that fateful visit to the Rosenbach, however, which changed my professional life.  In the ensuing months my work there opened my eyes to the world of nonprofits.  I learned the nonprofit accounting rules and requirements; attended board, executive, and finance committee meetings; interacted with staff, board members, funders, grant writers, government agency officials; and learned from auditors.  Most significantly, I began to be introduced to other nonprofit organizations that needed my help.

What started as me working out of my house has turned into a modest sized organization assisting nonprofit organizations in Washington, Philadelphia, and New York City.  We help our clients to be better at what they do by making sure they have the necessary financial infrastructure to support their operations.  We not only help them do the work, we also teach their staff to be better at doing the work.  Our clients often tell us that our biggest contribution to them is to help them “sleep at night” knowing that whatever other challenges they face running their organizations, at least their financial departments are under control.

My work with nonprofits has become more than a job.  It is both my vocation and my avocation.  I work with nonprofits, I serve on their boards, I network with nonprofit leaders and thinkers, I teach about them at the university level and in other venues, I read about them, I write about them, I think about them, and I donate to them.

The learning continues.  Hardly a week goes by that something new does not come up.  Our clients at YPTC are constantly teaching me new things by what they do, or by what they should have done, or by things they should not have done.  Our staff of professionals are a constant source of learning for me too as they constantly teach me about what they are experiencing.

Which brings me to the reason for this blog.

As our little accounting firm, YPTC, approaches its 20th anniversary year,  perhaps I have learned a thing or two about nonprofit financial “best practices” that might be helpful to you.

If you serve on a nonprofit board, if you are an executive director, or if you work for a nonprofit in some other role, whether as a staff member, a volunteer, or a vendor, read on!

Thank you.  Comments are welcome.

Eric Fraint

President and Founder

Your Part-Time Controller, LLC