Free resources available for streamlining financial statements

Data, informatics, data analytics, financial analysis, benchmarking, key performance indicators—the continued rapid advancement in technology capabilities (e.g., Apple sold 217 million iPhones last year) has resulted in information overload for both individuals and corporations. Nonprofit organizations are not immune from the information overload epidemic.

This column will focus on a difficult area for most accountants. In many cases, this difficulty transcends to management and board members who do not have a finance, accounting or business background. The topic is how to achieve clarity in communicating financial and operating results in a concise format. For the better part of 15 years, the drive towards clarity in a concise format has focused on the creation of “dashboards” that identify key financial metrics and operating performance indicators for your organization.

I should state for the record that your audited financial statements, in the prescribed GAAP reporting format, do not include any attempt to provide clarity in a concise format. Last month’s column covered the requirements of the new nonprofit financial reporting standard, which I believe will be a baby step in the direction of achieving clarity in audited financial statements.

Accordingly, management and board must be provided with information in a format that is easily understood and identifies both positive and negative financial and operating performance results. In my view, the dashboard format is a “must-have” for monthly and quarterly financial reporting in virtually every nonprofit organization.

Allow me to provide you with two exceptional and mostly free resources that can assist you in developing or improving on your financial reporting model using a dashboard. The first resource can be found at www.compasspoint.org; subscribe to the weekly newsletter called “To The Point.” CompassPoint provides excellent capacity building, training and educational materials exclusively for nonprofit managers and directors.

The information “To The Point” provides emphasizes effective board governance financial reporting practices. For example, a past newsletter discussed how briefings and presentations at board meetings are frequently too long and, as a result, both confusing and ineffective. The newsletter recommended establishing a “seven plus seven” target for all board presentations: seven minutes of presentation and seven minutes of questions and answers. When you consider that most nonprofit boards spend a total of 90 minutes or less in each of 10 to 12 meetings a year, effective use of board agenda time is a critical component of meeting success.

In order to achieve effective presentation of financial and operating performance results, many nonprofit organizations have replaced their 20 pages of monthly financial statements with financial dashboards and graphical analysis. Just think of the amount of information you can obtain by looking at your car’s dashboard and/or navigation system, and you have an analogous example to the information necessary in order to provide important information to board and management in a quick review format.

If you are in the majority of non-financial volunteer board and management team members who cannot effectively read and interpret a traditional set of financial statements, using dashboards and graphical analysis may be the solution for improving financial reporting in your organization. The initial challenge in developing an effective dashboard is to identify those performance measures, operating indicators (e.g., service volumes, overtime hours, FTE and turnover statistics, etc.), and performance metrics to include on the dashboard.

Presenting these statistics, variance analyses, performance metrics, and operating indicators in an “at a glance” dashboard quadrant format will allow your board volunteers to quickly assess performance each month, get to the important questions and allow time to discuss matters of board-level importance. If you would like some examples (at no charge) of dashboard templates, please contact me at garchibald@bonadio.com.

The second resource, which is of equal value to CompassPoint, is www.boardsource.org. Formerly known as the National Center for Nonprofit Boards, this organization has decades of experience in providing valuable information and resources specifically focused on the needs and activities of tax-exempt organizations. I strongly recommend that you register to receive the BoardSource “SmartBrief,” which provides timely information on current topics. You will most likely find that forwarding the “SmartBrief” document periodically to your board members will prompt them to evaluate the helpful ideas provided, leading to more conversation on how to do things more efficiently.

In addition to the information overload referred to above, all nonprofit organizations continue to face increased regulatory requirements and unfunded compliance mandates. I find it remarkable that the top three risk areas for many nonprofit organizations have evolved over the past 10 years. A focus on internal control policies and procedures is still imperative; however, the top three risk areas to every health and human service organization and most other nonprofits rest in the following areas:

Information Technology / Cybersecurity Protection should be number one, or in the top three, for your organization.

Compliance with the extensive requirements of the HIPAA and HITECH Security Acts can avoid significant penalties that can cripple an organization. If you need more information or to be convinced that violations of individual protected health information are a serious matter, go to https://www.hhs.gov/hipaa/for-professionals/special-topics/enforcement-rule/index.html

Compliance with the Nonprofit Revitalization Act, which was originally adopted in New York State and signed by Governor Cuomo in 2013 and has been amended several times. As is true with many newly enacted laws and regulations, government enforcement agencies allow providers a certain window to achieve compliance with new regulatory requirements. Since it has been five years since the original enactment of the NPRA, I believe that enforcement initiatives are a reality in the near future. The Office of the Medicaid Inspector General (OMIG) and the New York State Charities Bureau of the Attorney General’s Office are the two most likely government agencies that will be enforcing compliance with the NPRA.

My Bonadio colleagues have prepared a comprehensive compliance checklist of the multitude of NPRA requirements with due consideration being given to subsequent regulatory amendments. If you would like a copy of this checklist, please contact me at garchibald@bonadio.com. We consider it a best practice for your regulatory compliance officer to review and update your organizational compliance with this checklist on an annual basis.

Finally, and perhaps most importantly of all, the New York State and federal budgets will be under extraordinary pressure for a number of years. In the case of the federal budget, the 10-year reduction in corporate and individual tax revenues related to the recently enacted tax reforms is projected by the Congressional Budget Office to be $1.3 trillion. Medicare, Medicaid and Social Security make up more than two-thirds of the federal budget, with defense spending being the most significant protected area for expense reductions.

For New York State, the $10,000 limitation on State and Local Tax (SALT) deductions for individuals who itemize has a dramatic negative effect and resulting increase in New York State tax liability, particularly for wealthy individuals. As more New Yorkers retire each day and establish residency in no income tax states like Florida, Arizona and Texas, the resulting reduction in New York State tax revenues will be significant.

Since many health and human service tax-exempt organizations rely on federal and state funding for more than 75 percent of total revenues, the pressure on individual organizational budgets for continuation of programs and services will be enormous.

All of the foregoing should prompt a revisit or revision to your organization’s strategic goals, financial viability and fiscal sustainability.

Gerald Archibald is a partner serving both of our Rochester, NY, and New York City offices.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.


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