CPA Practice Advisor

JUL 2017

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18 JULY 2017 ■ www.CPAPracticeAdvisor.com NICHE PRACTICE BUILDING YOUR By Sibi Thomas B E S T P R A C T I C E S Financial Basics for Nonprofit Boards By Sibi Thomas But in 2013 Cooper Union suddenly began charging its students $20,000 a year. President Jamshed Bharucha said at the time that the charge was necessary for the institution to stay financially viable. The New York Times had reported the problem was decades in the making. In 2015 NY Attorney General Eric Schneiderman began an investigation of Cooper Union, reportedly as a direct result of the failure of its board to manage its $735 million endowment and physical assets properly. The action also reflected a broader interest from the NY State Attorney General in "…working hard to prevent mismanagement before it starts and, whenever possible, get troubled chari- ties back on track." Schneiderman pointed out that for many years regulators have exercised little scrutiny over nonprofits, likely based on the assumption of moral authority and goodwill about such organizations. The NY AG went on to warn that it's easy for well-meaning donors and paid nonprofit executives to become ill-informed managers, running their organizations into the ground. In September of 2015 Scheiderman announced a comprehensive reform package to resolve the Cooper Union investigation and lawsuit, including a board restructuring, financial monitor- ing and transparency measure. LESSONS TO BE LEARNED FROM THE COOPER UNION DEBACLE To avoid financial problems or the failure of a nonprofit, it is imperative to monitor the organization's financial health - by employing good corporate governance. Governance is defined as the process of providing strategic leadership and exercising sound fiduciary oversight for an organization. NONPROFIT GOVERNANCE IS NO EASY TASK To protect their financial health and viability, nonprofits should focus on the financial factors that can affect corpo- rate integrity. As noted earlier, many of the recent bankruptcies and financial mishaps in the nonprofit sector can be attributed to a failure to properly monitor and manage fiscal resources. The following guidelines will help nonprofits take a proactive approach to good governance. USE FINANCIAL DASHBOARDS FOR DECISION MAKING: Most organizations produce monthly or quarterly financial statements that con- sist of a balance sheet, income statement and budget-to-actual expenditures report. But to the untrained eye, all these reports can be hard to decipher. "Financial dashboards" can be This oversight needs to be done in an objective, responsible, honest and trustworthy way with board members acting in the best interest of the organization. Nonprofits succeed or fail based on how well they manage finances. As an accountant on a nonprofit board, you will be able to help board members ask the right questions and understand the meaning of reports. Your insights will be precious to those whose job it is to oversee the organization. How can nonprofit board members fulfill their fiduciary role? ■ Collaborate … At most nonprofits, the fiduciary responsibility of the board is accomplished through a collaborative effort between the board's finance committee and the organization's management, typically consisting of the Executive Director and CFO. ■ Establish a financial reporting frame- work that will produce timely, accurate and easy to understand f inancial reporting about the organization's operations from management staff to the board. This will help the board be fully engaged in the organization's operations. ■ Make sure the accounting system supports the reporting framework … It should be able to generate basic financial statements and information, as listed below in step #4. ■ Make the financial reporting content COOPER UNION IS a NYC-based private college that was founded in 1859 with a mission to be "open and free to all." For over 150 years the school relied on its significant endowment to provide a tuition-free education to its students. MANY PEOPLE CONSIDER a position on a nonprofit board a recog- nition of their financial contributions and other efforts to support the organization. But it goes well beyond that. One of the main fiduciary responsibilities of a board member is helping oversee the financial health and accountability of their organization. Each month we explore the advantages and intricacies of developing and growing a niche practice. This month we're examining what it takes to serve the niche of nonprofits. RESOURCES FOR THE NONPROFIT ACCOUNTANT • Gaining governmental clients takes laser focus - www.bit.ly/2uerzwS • How to Help Your Not- For-Profit Clients - www. bit.ly/2unS3w6 • eBook Helps Nonprofits Establish Trust - www.bit. ly/2unS3w6 • Nonprofit Finance and Accounting Trends for 2017 - www.bit.ly/2tjuAre • Nonprofit Accounting Whitepaper: Eliminmating Audit Anxiety - www.bit. ly/2vhvmGq • Free Online Training for Nonporofit Pros - www.nonprofitready.org ACCOUNTANTS ON NONPROFIT BOARDS: It almost seems like a no-brainer - every nonprofit organization ought to have an accountant on its board, overseeing the finances and providing intelligent and useful insights for those other board members who aren't trained to understand financial reporting. But beware! You need to provide your own oversight as well. Make sure you are knowledgeable about the way nonprofit finances work, the expectations of the organization, and your ability to explain and challenge the financial reporting when necessary. Boston-based KLR accounting firm provides some caveats in the firm's Mission Matters blog that you should consider before joining a nonprofit board or recommending that your nonprofit client add an accountant to its board. https://www.kahnlitwin.com/ blogs/mission-matters-blog/ put-a-cpa-on-your-board Sibi Thomas is a partner at Marks Paneth.

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