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Non-Profit Financial Management Florida Non-profit Housing, Inc. Self-help Housing Conference 3/19/2018 Presented by David Non-Profit Financial Management Florida Non-profit Housing, Inc. Self-help Housing Conference 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 1

Vision Statement • To improve the agency’s financial management and reporting efficiency. (rowing harder Vision Statement • To improve the agency’s financial management and reporting efficiency. (rowing harder does not help if the boat is headed in the wrong direction) • To identify types of risks and procedures to minimize risks. (problem-solving is finding ways to get you from where you are to where you want to be) 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 2

Goals and Objectives • Improving nonprofit financial management • Understanding the risk assessment process Goals and Objectives • Improving nonprofit financial management • Understanding the risk assessment process • Understanding financial statements 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 3

Nonprofit Financial Management Financial management systems shall provide for the following • (1) Accurate, Nonprofit Financial Management Financial management systems shall provide for the following • (1) Accurate, current and complete disclosure of the financial results of each program in accordance with the applicable reporting requirements. • (2) Records that identify adequately the source and application of funds for each program activity. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 4

Nonprofit Financial Management Financial management systems shall provide for the following • (3) Effective Nonprofit Financial Management Financial management systems shall provide for the following • (3) Effective control over and accountability for all funds, property and other assets. All such assets shall be adequately safeguard and assure they are used solely for authorized purposes. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 5

Nonprofit Financial Management Financial management systems shall provide for the following • (4) Comparison Nonprofit Financial Management Financial management systems shall provide for the following • (4) Comparison of expenditures with budget amounts for each award. Whenever appropriate, financial information should be related to performance and unit cost data. • (5) Written cash management procedures 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 6

Nonprofit Financial Management Financial management systems shall provide for the following • (6) Written Nonprofit Financial Management Financial management systems shall provide for the following • (6) Written accounting procedures to assure compliance with grant award and other laws • (7) Accounting records including cost accounting records that are supported by source documentation. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 7

Nonprofit Financial Management The objectives of internal control pertaining to the compliance requirements for Nonprofit Financial Management The objectives of internal control pertaining to the compliance requirements for Federal programs (Internal Control Over Federal Programs), as found in §____. 105 of OMB Circular A-133, are as follows: • Transactions are properly recorded and accounted for to: (i) Permit the preparation of reliable financial statements and Federal reports; (ii) Maintain accountability over assets; and (iii) Demonstrate compliance with laws, regulations, and other compliance requirements; . 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 8

Nonprofit Financial Management • Financial transactions must be authorized, classified, executed and recorded in Nonprofit Financial Management • Financial transactions must be authorized, classified, executed and recorded in compliance with program objective. • Funds, property, and other assets are safeguarded against loss from unauthorized use or disposition. • Management must communicate the above criteria to employees, board of directors and grantors. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 9

How Did We Get Here? • The grant application --RD § 1944. 410 processing How Did We Get Here? • The grant application --RD § 1944. 410 processing pre-applications, and completing grant dockets. • Provide a detailed proposal of its goals including a list of other activities the applicant is engaged in and expects to continue, and a statement as to other sources of funding and whether it will have sufficient funds to assure continued operation of the other activities for at least the period of the agreement. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 10

Why Implement Criteria? • RD instruction 1944 -I exhibit A paragraph (e)(3). • (3) Why Implement Criteria? • RD instruction 1944 -I exhibit A paragraph (e)(3). • (3) grant termination will be based on the following: • (I) failure to establish an accounting system acceptable to rural development. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 11

Available Options • Accounting systems that are easy to maintain (cost vs. Benefit) • Available Options • Accounting systems that are easy to maintain (cost vs. Benefit) • Well developed budgets (forecast) plans • Well defined financial policies and procedures • Well defined personnel policies and procedures 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 12

Recommendations • Procedures to communicate, evaluate and monitor • Budget vs. Actual reporting • Recommendations • Procedures to communicate, evaluate and monitor • Budget vs. Actual reporting • Monthly reporting to management and board • Reconciling grantee reports to financial records 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 13

What to Do Next? • Review grantee regulations and guidance – RD instruction 1944 What to Do Next? • Review grantee regulations and guidance – RD instruction 1944 -I – Administrative requirements OMB A-110 – Cost principles OMB A-122 – Grantee audit requirements OMB A-133 • Review adequacy of – Accounting systems – Written policies and procedures 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 14

Grantee’s Fiduciary Roles • Self-help grantee’s fiduciary responsibilities • RD instruction 1902 -A PART Grantee’s Fiduciary Roles • Self-help grantee’s fiduciary responsibilities • RD instruction 1902 -A PART 1902 - SUPERVISED BANK ACCOUNTS 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 15

How Did We Get Here? • § 1944. 425 handling and accounting for borrower How Did We Get Here? • § 1944. 425 handling and accounting for borrower loan funds. • The extent of grantees involvement will depend on the experience of the grantee and the amount of authority delegated to them by the district director in accordance with § 1924. 6(c). 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 16

What is the criteria? • (1) The grantee acts in the same capacity as What is the criteria? • (1) The grantee acts in the same capacity as a construction manager in the group Purchase of material and services. • (2) The grantee has an adequate bookkeeping system approved by the District Director to assure that funds in each RH account are properly distributed and maintained. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 17

What Is the Criteria? • (3) The grantee receives no compensation in the way What Is the Criteria? • (3) The grantee receives no compensation in the way of profit or overhead for this service and all discounts and rebates received in connection with the purchase of materials or services are passed on to the participating families. • (4) The grantee has a record-keeping system which shows that the costs of the materials and services were prorated to each borrower's account in relation to the actual material and service used by each borrower. Presented by David Mc. Quay, Jr. , 3/19/2018 CPA 18

Types of Activities • 1902. 8 authority to establish supervised bank accounts, deposit loan Types of Activities • 1902. 8 authority to establish supervised bank accounts, deposit loan checks and other funds, countersign checks, close accounts, and execute all forms in connection with supervised bank account transactions. • 1902. 9 deposits. • 1902. 10 withdrawals • 1902. 14 reconciliation of accounts • 1902. 15 closing accounts 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 19

Recommendation • • What form of accounting system to use? Manual versus automated Record Recommendation • • What form of accounting system to use? Manual versus automated Record retention Identify other criteria and action items 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 20

Cost Allocation Plans • Rural development guidance § 1944. 410 processing pre-applications, and completing Cost Allocation Plans • Rural development guidance § 1944. 410 processing pre-applications, and completing grant dockets 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 21

How Did We Get Here? • (A) (8) A list of other activities the How Did We Get Here? • (A) (8) A list of other activities the applicant is engaged in and expects to continue, and a statement as to other sources of funding and whether it will have sufficient funds to assure continued operation of the other activities for at least the period of the agreement 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 22

What Is Criteria • If multi-funded, its cost allocation plan or indirect cost rate What Is Criteria • If multi-funded, its cost allocation plan or indirect cost rate must be part of the pre-application. • (E) (8) indirect or direct cost policy and proposed indirect cost rate developed in accordance with 7 CFR part 3015 and part 3016. Form SF– 424, ‘‘application for federal assistance. ’’ 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 23

Vocabulary • • • Indirect cost Direct cost Cost allocation plan Indirect cost proposal Vocabulary • • • Indirect cost Direct cost Cost allocation plan Indirect cost proposal Administrative cost Cost policy statement 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 24

Definitions • Definitions • "Indirect Costs" are those costs which are not readily identifiable with a particular cost objective but nevertheless are necessary to the general operation of a non-profit organization and the conduct of the activities it performs. The cost of executive salaries, payroll, accounting, personnel, depreciation, general telephone expenses, general travel and supplies expenses are examples of expenses usually considered as indirect costs. • Presented by David Mc. Quay, Jr. , 3/19/2018 CPA 25

Definitions • Definitions • "Direct Costs" are those costs that can be specifically identified with a particular cost objective. For example, salaries, fringe benefits and travel of a project director who is working 100% of the time on a DOL grant/contract are direct costs. Some non-profit organizations also classify as direct costs common or joint costs that can be readily assignable (allocated) to cost objectives, e. g. , occupancy costs are allocated to a DOL grant/contract as direct costs based on square feet of space occupied. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 26

Definitions • Cost Allocation Plan Definitions • Cost Allocation Plan" is a document that identifies, accumulates, and distributes allowable direct and indirect costs to cost objectives. The plan also identifies the allocation methods used for distribution to cost objectives on the basis of relative benefits received. The cost objectives include specific grants, cooperative agreements, contracts, programs, projects, titles/cost categories within a grant, a product or service provided to cost centers, or other activities of a non-profit organization, e. g. fund raising, services to members. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 27

Definitions • Definitions • "Indirect Cost Proposal" means the documentation prepared by an organization to substantiate its claim for the reimbursement of indirect costs. This proposal provides the basis for the review and negotiation leading to the establishment of an organization's indirect cost rate, i. e. , ratio between total indirect expenses and some financial base. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 28

Definitions • Definitions • "Administrative Costs" consists of all direct and indirect costs associated with the management of an organization's programs. Non-profit organizations need to refer to their grant/contract terms and conditions for the applicable definition of "Administrative Costs" and any related limitations. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 29

Definitions • Definitions • "Cost Policy Statement" is a document that identifies a non-profit organization's policy on the costs that it considers direct, and the costs it considers indirect and the rationale to support those costs. 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 30

Available Options • Cost allocation plan • Indirect cost proposal • Documentation for both Available Options • Cost allocation plan • Indirect cost proposal • Documentation for both 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 31

Recommendations • Recommended strategies • Expected Results under each methods proposed • What to Recommendations • Recommended strategies • Expected Results under each methods proposed • What to do next • Identify action items 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 32

The End • • Questions Reference materials and web site links What to do The End • • Questions Reference materials and web site links What to do next Action items 3/19/2018 Presented by David Mc. Quay, Jr. , CPA 33