what is a not for-profit organization
TRANSCRIPT
What is a Not-For-Profit
Organization?
Attributes
Organized for charitable purposes, as defined
by its MISSION!
◦ Type 1 Organizations that serve the public good
(e.g.: health care, education, social services,
culture, etc.)
◦ Type 2: Organizations that serve both the public
good and their members (e.g.: churches, public
interest or advocacy groups, civic leagues)
◦ Type 3: Organizations that serve their members
only (e.g.: business/trade associations, social
clubs, labor unions)
For-Profit vs. Nonprofit
• Mission
• Capitalization
• Rewards
• Revenues
• Investors vs. Contributors
Can Nonprofits “Profit”?
Reasonable amount to accomplish
its mission
◦ How is that determined?
BBB – unrestricted assets up to the
following business year, and no more than
3X current or next year’s expenses,
whatever is higher.
IRS – No maximum set, but states that
nonprofit organizations must spend AT-
LEAST 5% of their fair market value of
assets annually
Challenges in Financial
Management
Organizational Requirements
• Strong financial management resources,
both human and material;
• Procedures and methodologies to generate
key indicators of its financial status, account
for overhead costs, and alert staff about
available cash as well as shortfalls; and
• Systems to effectively communicate
financial information among financial and
nonfinancial staff.
Essential Practice for Sound
Financial Management
1. Understand the true costs of all
programs (Overhead)
2. Monitor the financial status of on
an ongoing basis
3. Meet expenses in a timely manner.
Components of an Effective
Financial Management
Structure
• Resources
• Information
• Processes
• Core Management Practices
• Financial Objectives
• Organizational Goals
Indicators of Financial Health
1. Absence of Reoccurring Annual
Deficits
2. Cash Reserves
3. Ratio of Liquid Assets
4. Concentration of Government
Funding
Span of Financial
Responsibilities
Administrative Functions
Tax Compliance, Accounting Procedures, Computers, Filing System, Staffing, Auditing, Internal Controls
Financial Data• Checkwriting• Deposits• Bank
Reconciliations• Book Keeping
Reporting• Balance Sheet• Income
Statement• IRS Form 990• Reports to
Funders
Management• Investments• Cash Flow• Cost Analysis• Cost
Allocation• Managing
Expenses
Monitoring• Comparing
Budget to Actual s
• Comparision of Fiscal Periods
Planning• Purpose• Setting Goals
& Objectives• Environmenta
l Assessment• Budget
Preparation
Governance
Governance
By-Laws:
- By-Laws are established to define
the purpose and mission of the
organization. It also usually defines
◦ Board size,
◦ Composition,
◦ Officers,
◦ Terms,
◦ Role and Authority.
Governance
Responsibility of the Board of Directors
◦Oversight and control of resources
Fiduciary Responsibility
◦Govern, direct organizational affairs,
but not operate organization.
◦ Selects others to manage day-to-day
operations, usually represented by a
chief executive officer, executive
director, etc.
Board Responsibilities
• Required to exercise caution and prudence in establishing policies and making decisions
• Respect and adhere to organizational documents
• Duty of Care and Duty of Loyalty
Duty of Care• Exercise independent judgment
• Be informed as to data relevant to decisions
• Regularly attend meetings
• Monitor organization’s activities,
• Assess effectiveness of organizational structure,
• Provide for both short and long term planning
• Review internal and external financial reports to
evaluate fiscal condition,
• Assure that funds are spent for appropriate
organizational purposes,
• Compare actual results with approved budgets
Duty of Loyalty
• Act with trustworthiness and integrity
• Actions should be in alignment with the mission and purpose of the organization, and the constituents it serves
• Not take advantage of organizational assets for personal gain (conflict of interest)
Contact Information
John F.X. Prior, MSW, LCSW
Adjunct Professor
Springfield College
School of Professional and Continuing
Studies