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Session 3: Financial Monitoring

Financial Management Training Program

Hilda Polanco, CPA, CCSA®, CGMA, Founder and CEOGretchen Upholt, MPA, Consultant

November 3, 2016

Reflections on Session 2

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As a result of participation, organizations can expect:

• Enhanced ability to communicate your organization’s financial story to staff, board, funders, and other key stakeholders

• Increased ability to use historical financial information to inform the organization’s future plans and forecasts in an inclusive, team-based process

• More effective communication and financial decision-making among members of the leadership team

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members of the leadership team

• A foundation for building an organization-wide culture of operational excellence

• Identification of areas with opportunities for improvement and action steps on how to move forward

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What are some elements of success in financial monitoring?financial monitoring?

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Welcome & Overview (9:00am)

A Cross-Functional Partnership

Shared Financial Management

Financial Reports

Lunch (12:00pm)

Dashboards

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Adjourn (3:00pm)

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A CROSS-FUNCTIONAL PARTNERSHIPPARTNERSHIP

Cross Functional Communication

Finance Staff:What do non‐Finance staff do (or not do) that creates challenges for your team?

Program Staff:What do Finance staff do (or not do) that creates challenges for you team?

Development Staff:What do Finance staff do (or not do) that creates challenges for your team?

Executive Directors:What do functional leaders do (or not do) that creates challenges for executive staff and team communication?

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g y g

All:What are the barriers to successful communication?

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DevelopmentPlans for and classifies contributions

Executive Team

Sets the financial strategy and direction for the organization in collaboration with the Board

ProgramFinance

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Provides relevant, timely, and accurate financial data to facilitate decision-making

Clarifies services and programming and what drives expenses

SHARED FINANCIAL MANAGEMENTMANAGEMENT

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Finance

Shared

Recording& allocating

Reportingaccurate, timely data needed for decision

Monitoringvariances and developing action plans for course correction

Department Heads

Documentationof spending

Authorizationfor purchases

expenses to the correct accounts & programs

decision making

Development / Finance Reconciliation: Group Question

How often does the development department meet with the finance department to reconcile donations?

a) Daily

b) Weekly

c) Monthly

d) Quarterly

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d) Quarterly

e) Annually

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Development / Finance Reconciliation

• Should happen on a monthly basis

• Must be completed before Finance can “close the books” and issue interim financial reports

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Codes in the Development and Accounting databases need to match

Sample Critical Dates

Target Date Task

By last business dayof the month:

Submission of Invoices and Employee Expense Reports to Accounts Payable

By 2nd business day following month-end:

Submission of Final Monthly Adjustments

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By 8th business day following month-end:

Month-end Closing

By 10th business dayfollowing month-end:

Circulation of Budget to Actual Reports

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Possible Bottlenecks in the Monthly Close Process

• Time lag in receiving invoices, expense reports, and other documentation from staff

• Determining amounts to voucher on government contracts

• Amount of Excel manipulation or manual input of journal entries

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Questions 1 – 2

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FINANCIAL REPORTSFINANCIAL REPORTS

Financial Reports Should:Financial Reports Should:

Address needs of senior management, board, and department /program managers

Be formatted in a user-friendly way

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Be reviewed and discussed regularly

Be used to inform decision-making

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Who should receive financial reports and when?

Monthly Quarterlyy Q y

Department Managers Executive Leadership Board of Directors

• Budget-to-Actual Revenue & Expenses for the program(s) and grants/contracts they oversee

• Performance Dashboard

• Performance Dashboard

• Budget-to-Actual Revenue & Expenses for

(a) each program (b) organization-wide

St t t f A ti iti

• Management Narrative

• Performance Dashboard

• Budget-to-Actual Revenue & Expenses for

(a) each program (b) g i ti id

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• Statement of Activities

• Balance Sheet and supporting schedules

• Cash Flow Projection

• Year-end Forecast

(b) organization-wide

• Statement of Activities

• Balance Sheet and supporting schedules

• Cash Flow Projection

• Year-end Forecast

Board Committee Structure

Monitors and responds to the financial realities of the organization as presented by the Executive Director/CFO, in cooperation with the

Finance Committee

Hires the audit firm and oversees the audit process

Stewards the systems of internal control

Audit Committee

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cooperation with the Treasurer

Note: In some (particularly smaller) organizations, the finance and audit committees are combined into a single committee unless state law requires separation

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Which financial management reports are distributed to decision-makers?

100%

46%

Budget-to-Actual Revenues & Expenses

Management Narrative

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100%

69%

Balance Sheet

Cash Flow Projection

Budget

•A plan based on a series of decisions

Forecast

•A report of what is expected to happen

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Why take the time to forecast?

Allows staff to proactively identify

potential roadblocks

Facilitates rapid adaptation to unanticipated changes in the

funding environment

Shifts the focus from analysis of the past

to proactive management of

future events

Enables team to adjust plans to meet

desired goals

• Define the forecasting schedule:

Monthly? Quarterly?– Monthly? Quarterly?

• Forecast at the appropriate level of detail – no need to reevaluate every budget assumption on an ongoing basis

• Incorporate information from relevant staff in the forecasting process:

– Expenses: Program staff who are making spending decisions

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– Revenue: Development staff who have relationships with funders

• Report rolling forecast alongside the original budget

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Year-end Forecast Template www.strongnonprofits.org

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Nonprofit Quarterly & FMA

What financial reports does YOUR board need: Ensuring the mix fits your governance needs, a conversation with Hilda Polanco and Ruth McCambridge

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Two Types of Costs:

ControllableNon-

Controllable

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Analyzing & Interpreting Financial Reports

• Ensure roles and responsibilities in the process of reviewing, analyzing and communicating financial information are understood

• Incorporate training on financial monitoring into staff professional development plans

• Fiscal office customer service orientation:

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Fiscal office customer service orientation:

Ability to explain financial data

Accountability Responsiveness Timeliness

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Financial Decision-Making Meetings

Topics for discussion

Budget-to-Actual Variances

Rate of spending on contracts (if applicable)

Frequency: Monthly or Quarterly

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Rate of spending on contracts (if applicable)

Anticipated future spending/cost control

Completion of activities funded by restricted grants

Financial Decision-Making Meetings: Action Steps

• Form the team: Include key representatives from Program, Development, Executive Leadership, and Human Resources

• Establish a meeting calendar with specific dates, times, and topics for discussion/decision

• Ensure the right data and reports are available 2-4 days prior to

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g p y pthe meeting for review by participants

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Questions 3 – 6

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DASHBOARDS & PERFORMANCE MANAGEMENTMANAGEMENT

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Performance Measurement definitions from the experts:

Continuous tracking of data with the objectives of learning, accountability and continuous improvement

KPI and performance measurement development is a discipline that involves articulating what an organization is trying to accomplish and then identifying the most meaningful and useful indicators of success.

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Regular measurement of the results (outcomes) and efficiency of services or programs

Sources (from top to bottom): Measurement as Learning: What Nonprofit CEOs, Board Members, and Philanthropists Need to Know to Keep Learning, The Bridgespan Group, April 2011; The Balanced Scorecard (www.balancedscorecard.org); Performance Measurement: Getting Results, Harry Hatry, The Urban Institute Press, 2006

The Performance Measurement Cycle:Tie what you measure to intended impact

Define

ImplementRefine

to intended impact

Be consistent in data entry and interpretation

Identify areas for improvement and develop a plan

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MonitorEvaluate

Track trends in metrics as well as process

Establish mechanisms to understand what is working and what isn’t

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By actively engaging in performance measurement, an organization:

• Aligns definitions of success across the organization

• Encourages dialogue about progress toward goals

• Facilitates timely identification of successes and challenges

• Grounds decisions in concrete data and evidence

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• Illuminates relationships between different activities

Key Performance Indicators (KPIs): metrics used to assess performancep

• Successful Key Performance Indicators (KPIs) will:

– Represent business model drivers

– Reflect progress toward intended outcomes

– Guide priorities and decisions (“what gets measured gets done”)

• The “Key” in KPIs is important: limit total KPIs to a number that

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• The Key in KPIs is important: limit total KPIs to a number that can realistically be monitored

• A set of KPIs isn’t forever: metrics should be periodically reassessed for efficacy and organizational alignment

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Characteristic Description Common Mistakes

Alignment with Priorities Metrics clearly tied to what is Metrics suggest importance of g yimportant to the organization

gg pdata that is not meaningful

Actionable Metrics highlight the source of a problem and actionable steps / questions

Too many variables can impact the metrics or the metrics are uncontrollable

Definition is CommonlyUnderstood

Metrics are understood by all stakeholders

Metrics are not clearly defined or have multiple interpretations

Calculation is Simple and Transparent

Metrics and their calculations are transparent and easy to

Metrics combine many factors in a compound metric that is

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Adapted from: http://www.cpoc.org/assets/Data/guide_to_dashboard_design1.pdf

Transparent transparent and easy to understand

a compound metric that is difficult to understand

Data Source is Accessible and Credible

Data can be regularly accessed from a reliable source

Data gathering is time intensive or overly complex

KPIs can be defined across all areas of your organization

Financial Health Fundraising & Development

Programs & Service Delivery

Human Capital Marketing & Communications

Outreach & Advocacy

Information Technology

Risk Management &

Governance

Facilities & Capital Projects

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Today is the beginning: aim for brainstorming a menu of options to bring back to your team

• 10-minute KPI brainstorm: work in teams to identify possible KPIs for your functional area

• Consider:

– Can each KPI be measured?

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– Will the KPI help the organization accomplish its objectives?

– Is the data consistently available?

• 15-minute KPI selection: work with your colleague(s) to select the specific KPIs that best address organizational priorities

Dashboards should be presented in a user-friendly format:

• Create a “snapshot” of organization performance

• Display current status and trends

• Clearly show performance against defined targets

• Highlight out-of-the-ordinary results

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Options include:

• Microsoft Excel

– Graph-based

– Table-based

• Modules and functionality within current data tracking systems

– Accounting Software (Intacct, Abila, Financial Edge)

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– Salesforce

• Dashboard software (e.g., Tableau, iDashboards)

• Custom-built solution

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•Who needs to be involved in its development?

Who is responsible for the dashboard?

Who needs to be involved in its development?•Who is accountable for the measures?•Who will update the data?

•Which programs and/or functions will the dashboard track? •Which KPIs should the dashboard include?•Who is the target audience?

What is the purpose of the dashboard?

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•What is a realistic project timeline?•When should the dashboard “go live”?•How often will the dashboard be updated?

When will the dashboard be needed?

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Question 7

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RESOURCES

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• How to Talk About Finances So Non-Financial Folks Will Listen, Bridgespan Group 2009 http://www bridgespan org/Publications andBridgespan Group, 2009 http://www.bridgespan.org/Publications-and-Tools/Leadership-Effectiveness/Lead-and-Manage-Well/How-to-Talk-About-Finances.aspx#.U1rKh_ldXwo

• Measurement as Learning: What Nonprofit CEOs, Board Members, and Philanthropists Need to Know to Keep Learning, Jeri Eckhart-Queenanand Matt Forti, The Bridgespan Group, 2011. http://www.bridgespan.org/measurement-as-learning.aspx

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• A Nonprofit Dashboard and Signal Light for Boards, Blue Avocado, 2009 http://www.blueavocado.org/content/nonprofit-dashboard-and-signal-light-boards

• How Hands On Atlanta Uses a Dashboard to Track Progress and Reach Its Goals, The Bridgespan Group., g p phttp://www.bridgespan.org/Publications-and-Tools/Performance-Measurement/How-Hands-On-Atlanta-Uses-Dashboards.aspx

• Why Financial Dashboards Matter, and Five Pointers to Get You Started, Neela Pal, Forbes, 2015.http://www.forbes.com/sites/skollworldforum/2015/04/09/why-financial-dashboards-matter-and-five-pointers-to-get-you-started/

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NPQ & FMA: Models & Components of Nonprofit Dashboards

Webinar: Article:

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https://nonprofitquarterly.org/2016/02/17/models-and-components-of-a-great-nonprofit-dashboard/

https://nonprofitquarterly.org/2016/05/09/financial-management-models-of-a-great-nonprofit-dashboard/#

StrongNonprofits.org

In collaboration with the Wallace Foundation, FMA has created a library of tools and resources to help organizations become “fiscally fit”

Four Topic Areas: Planning | Monitoring | Operations | Governance

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Online Tutorials for StrongNonprofits.org

FMA offers complimentary orientation one-hour webinars that feature an overview of the website and drill down on several of its key resources

Upcoming webinar dates:

• November 29, 2016 at 2:00pm ET

• January 24, 2017 at 2:00pm ET

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To register, or see upcoming webinar dates:

http://fmaonline.net/strongnonprofits

For a 15-minute, on-demand webinar tour of the site:

http://fmaonline.net/SNPonDemand

QUESTIONS?

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Workshop Topics

• Workshop 1: Telling Your Financial Story (September 14th)

• Workshop 2: Financial Planning (October 13th)

• Workshop 3: Financial Monitoring (November 3rd)

• Workshop 4: Operational Excellence (December 8th)

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Session 4: Operational Excellence

• Date: December 8th

• Time: 9am – 3pm

• Who Should Attend: Executive Director/CEO, Lead Finance Staff and other members of the finance team, or key members from the program and development staff

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• Homework:

• Chapter 1 from Switch: http://heathbrothers.com/switch-chapter-1/

• Internal Controls Self-Assessment

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http://fmaonline.net/hartford-foundation-management-training-program/

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Please complete and return the evaluation in your packet

How did we do? How did we do?

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• Established in 1999 to serve not-for-profit organizations around the country

• Provides customized financial management, accounting, software, organizational development human resources and other consulting servicesdevelopment, human resources, and other consulting services

• Works directly with organizations or through funder-supported management and technical assistance programs

FMA's mission is to empower not-for-profit organizations with the knowledge and skills to successfully serve their constituents and fulfill their missions

@FMA4Nonprofits

/FiscalManagementAssociates

linkedin.com/company/fiscal-management-associates-llcwww.fmaonline.net

Hilda Polancohpolanco@fmaonline.net

Gretchen Upholtgupholt@fmaonline.net

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