Tuesday, May 21, 2013
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Warren Hoffman      02/10/13

The Money Game


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Categories: Micro Grants
By Warren Hoffman, the Director of Arts and Cultural Programming for the Gershman Y, a Jewish arts and culture community center in Philadelphia. Warren is also a playwright and his new play, The Last, was named a recipient of the 2008 Foundation for Jewish Culture Theatre Projects Grant and was a finalist for the Dorothy Silver Playwriting Competition. WIth the help of his ROI Micro Grant, Warren will be completing a Certificate in Non-Profit Management from LaSalle University. This is the 5th blog in the series. 
Click here to read his previous blog.
Click here to read his next blog.

For some of us who work in non-profits, thinking about balance sheets, financial statements, and audits is probably the last thing on our minds.  Let’s face it, for many people, “numbers” are neither sexy or exciting (sorry, accountants!).  But the truth is, if we’re going to manage a non-profit and have a good sense of how the organization is functioning, those of us in charge need to have a decent sense of how accounting works.  If this is not a personal strength, ideally there will still be someone at the organization (an office manager, a managing director, a CFO, even a bookkeeper) who has further training in this area and can provide additional expertise.  But the short is, for anyone in a managerial role, that person has to have a clear and firm grasp on numbers, both to be able to communicate such numbers to the organization’s invested constituents like the board and donors, but also as a checks and balances to insure that mismanagement and fraud are not occurring.  

As part of my on-going non-profit management training, I spent a day recently learning some of the basic ins and outs of fiscal management.  While what I would like to share most here is how to read financial statements, it’s not something that’s most conducive to blog formats and there are multiple books out there that can walk you through the process of how to read cash flow statements, audits, and financial position statements.  Instead, what I want to focus on here are some general guiding principles that you should be thinking about in terms of financial management.
 
  1. If you’re at a non-profit, how money is managed is particularly important because you’re collecting money with the singular purpose of fulfilling the organization’s mission.  If that isn’t happening, then there’s clearly a problem and your stakeholders (esp. donors) will begin to question your organization.  So, it’s especially important for the organization to be on the “up and up” about its finances with as much transparency as possible to make it clear that nothing improper is occurring that could jeopardize the organization’s standing.
     
  2. Most organizations will need to file a yearly audit.  It’s an important document not only for the IRS, but also for the organization’s stakeholders (donors and community) to see and track the fiscal health of the organization.  While some smaller organizations may be able to get away without having to do an audit at least early on, most non-profits have to file an audit every year and not doing so could jeopardize the organization’s 501c3 status which would prohibit the organization from being able to accept tax-deductible donations.  Audits can be a time-heavy and expensive procedure, done in collaboration with an accounting firm, but they’re a necessary part of being a non-profit.
     
  3. If there’s one thing I took away from the seminar, it’s that especially in the world of finances, the policies and procedures of the organization should be written down.  How are checks processed? Deposited?  Who signs checks?  Who signs checks when the regular signer isn’t there?  Who approves expenses?  Etc. Etc.  Especially in a large organization, these policies need to be addressed and written down so that that there is transparency in how the organization is functioning and so that shortcuts aren’t taken that could potentially open up the door for fraud, either intentional or unintentional.
     
  4. Along these same lines, what most protects an organization and its employees from potential mishandling of money is a strong checks and balances system.  Is just one person responsible for writing checks, depositing checks, reconciling bank statements, etc?  If so, that’s a problem.  There are many ways to establish a checks and balances system (even in an organization with just two or three people) to make sure that fraud isn’t being committed.  And sometimes it’s not fraud, but simple error.  By having multiple pairs of eyes on numbers, it can help ensure that the organization is functioning properly.
     
  5. One thing that affects non-profits that doesn’t really affect other organizations is the notion of restricted vs. unrestricted funds.  In the world of mission-driven programming, some money, whether earned or more importantly unearned income, may be earmarked (restricted) for use on certain programs only.  Donors may want to give money only to a certain program and that money can’t be used for other things.  In the world of non-profits where cash flow can be a problem and money can be tight at times, the inability to draw on these restricted funds is a challenge that non-profit managers have to know how to deal with and plan around accordingly.  
     
There is of course much more that can be said about finances, but I just want to encourage those out there reading this who may be intimidated by financial statements that with the right training, it’s really not that hard. I personally left the day’s workshop with a new sense of confidence in this area and rushed back to my office to read over our organization’s audit statement with a new sense of clarity and purpose.