Introduction to Nonprofit Management BUSN 312

Financial Management and Resource Development

Dr. Theresa A.
Chika-James
Office: Room 5-306D City Virtual Office: Use Virtual Link on
Centre Campus Paskwâwi-Mostos Mêskanâs
Email: chikajamest@macewan.ca Tel: 780-497-5272
Recap

• Explained managing volunteers (unpaid)

• Types of volunteers
• Motivations of volunteers
• Attracting volunteers
• Volunteer program practices
• A contingency approach to volunteer stewardship
• Explained managing staff (paid)
• Discussed challenges of managing volunteers and paid
staff in nonprofit organizations
• Suggested ways to resolve challenges identified
• Discussed briefly on group assignment 1
 Update

• Working on Group Assignment 2

Explain Financial Management in NPOs

Outline/ • What is financial management?

• Who is responsible for financial management in NPOs?

Learning • Budgeting
• Internal control and external audit
• Financial reporting
Outcomes • Issue on fraud

Explain Resource Development in NPOs

• What is resource development?

• Who is responsible for resource development (fundraising) in NPOs?
• Key fundraising principles
• Types of earned income
• Types of fundraising
Update
• Posting a preferred group
project for Assignment 2 on
meskanas.

• Continue working with group

members.
 Financial Management in NPOs
Financial management focuses on the meaning of figures / data in
accounting statements. It usually involves the analysis of various financial
ratios that may provide indicators of trends and the organization’s financial
health (Worth , 2021.p. 330).

Financial management focuses on generating financial information that can

be used to improve decision-making oriented towards achieving the goals
of an organizations as well as maintaining a healthy financial
situation……financial management is not an end in itself but rather a tool in
the overall pursuit of the mission, albeit an increasingly essential and
powerful one (Seel 2018, p.382).
Financial Management involves:
• Managerial accounting: This relates to the generation of any financial information that
managers find useful for the internal management of the organization. This includes
activities to support management decision making such as developing and implementing
budgets and forecasts.

• Financial accounting: This is concerned with providing retrospective financial

information to those both internal and external to an organization. It includes providing
regular reports from accounting systems regarding financial status of the organization at
any point in time (e.g., audited financial statements).

• Finance: This focuses on sources such as donations, grants and uses (i.e., program
expenditures, purchase of a building) of an organization’s financial resources such as
cash and investments.
Why NPOs Should Engage in
Financial Management?
Why NPOs Should Engage in Financial Management?
1. Increased scrutiny and accountability:
Government is demanding more accountability
from NPOs, and citizens are demanding more
accountability from all NPOs (charities,
government, professional, and private
foundations)
• Focus on outputs and outcomes, less on
inputs and processes
• Examples of outputs are number of people
served, website traffic, etc.
• Examples of outcomes are changes in quality of
life due to services provided, information
learned, etc.
• Show how money is returning value.
Why NPOs Should Engage in Financial Management?
2. Challenges in managing revenues and expenditures
• Competition with other NPOs for funds
• Examples of outputs are number of people served,
website traffic, etc.
• Examples of outcomes are changes in quality of life
due to services provided, information learned, etc.
• Competition with for-profit organizations to
paint a favorable financial picture.
3. Public accessibility of annual information returns Picture Source:
https://ssir.org/articles/entry/how_impact_data_changes_the_way_donors_give
for registered charities in Canada
Who is Responsible for Financial Management in NPOs?

• Falls on the Board of Directors,

usually the Treasurer plus a finance
committee (often led by the
treasurer).

• Administration of finances can fall to

Executive Director, Bookkeeper,
Accountant and Finance Manager.

This Photo by Unknown Author is licensed under CC BY-NC-ND

Financial Management in NPOs: Key Components
Budgeting
• Budgeting: specific and detailed plan for the fiscal year; accountability tool for stakeholders
(board members and managers), should be used and treated as a guideline rather than rigid
rules; should not act as a constraint.

Element Description

Involve all staff levels Should involve the CEO and senior executives, as
well, as program managers and other staff.

Focussed connection to the Should be reflective of how funds will be expended

organization’s strategy to reach the strategy’s goals.

High degree of engagement Should include mechanisms to promote staff

engagement
Flexibility Should recognize that changes to the budget are
inevitable
Elements of a Successful Budgeting Process
• Involve staff.
• Invest significant time/energy (1-3 months in small NPOs; 4-6 months in
larger NPOs; 20-30% of a senior manager's time spent budgeting).
• Don’t just focus on staff time or needed supplies but to link resources to
outputs and outcomes.
• Engage front-line managers so they see the value of budgeting to their jobs
linked with the overall mission/strategy.
• Use a bottom-up approach by having managers provide specific
targets/outputs first. Then a corresponding budget allocation.
• Use a partial top-down approach where the CEO provides overall budget
number and line managers prepare targets with detailed budget
information.
• Be flexible to allow for changes as you go.

Types of Budgets
Operating budget:
An operating budget outlines an NPO's
projected income and expenses for day-to-
day operations, focusing on the fiscal year.
Capital budget:
A capital budget is dedicated to major, long-
term investments in assets, such as facilities
or equipment, and typically spans multiple
years.
Cash budget:
A cash budget focuses on monitoring and
projecting an NPO's cash inflows and outflows
to ensure short-term liquidity and financial
stability.
Budgeting
Methods of Setting Budgets
Rolling budgets:
Rolling budgets involve regularly updating (typically monthly or quarterly)
and extending the budget period/ preparing the budget for an 18-month
period and ahead, allowing for continuous planning and adaptation.
Activity-based budgets:
Activity-based budgets allocate resources based on specific activities and
their associated costs, focusing on the efficiency and effectiveness of
each activity (e.g., particular program, specific fundraising campaign).
Zero-based budgeting:
Zero-based budgets require a fresh start, where each budgeting cycle
starts from zero, and every expense must be justified, promoting a
comprehensive review of all expenses to prioritize and optimize
spending.
Financial Management in NPOs: Key Components
Internal control:

Internal control is a system adopted by the organization to prevent fraud and

detect errors, and to ensure the timely and accurate reporting of financial
information. One of the basic elements of internal control is that no individual
should handle all aspects of a financial transaction. This is referred to as
segregation of duties; it creates and internal system of checks and balances.

(Source: Government of Alberta, MacEwan, Board Development Program)

Financial Management in NPOs: Key Components
Internal control:
Internal control is developed to allow an organization to achieve plans, protect resources,
motivate employees, evaluate performance, alert management to variations from the
plan, and take corrective action. It can be defined as a process, effected by an
organizations’ board of directors, management and other personnel, designed to provide
reasonable assurance regarding the achievement of objectives in three categories:
1. Effectiveness (moves the organization towards its goals or objectives) and efficiency of
operations (accomplishes its goals at the lowest possible costs)
2. Reliability of financial reporting
3. Compliance with applicable laws and regulations
(Source: Seel, 2018, p. 399)
Elements of an Internal Control System
Internal controls that may be considered:
• Clear audit trail – be able to trace all transactions to the source
• Reliable personnel
• Segregation of duties – signing authority should not be one
spending money as well
• Proper authorization of spending
• Proper procedures – rely on a policy and procedures manual
• Physical safeguards – deposit cash regularly, keep cheques safe,
computer backups of files, etc.
Financial Management in NPOs: Key Components
External Audit
The role of an audit by external professionals is to obtain reasonable (not
absolute) assurance that management’s financial statements fairly present the
financial position of the organization in accordance with generally accepted
accounting principles (GAAP). In Canada, the general accounting principles
include Accounting Standards for Not-for-Profit Organizations.

External Audit Checks:

1. Internal Controls 4. Revenue and Donations
2. Financial Statements 5. Expenses
3. Compliance 6. Liabilities….etc.
Take a break
10 mins
Financial Management in NPOs: Key Components
Financial Reporting

Financial reporting helps managers, the board, and outsiders understand the current financial health of the organization.
It is useful for managers to know if they are on track, donors to know if resources are put to good use, creditors to know
credit risk, and the Canada Revenue Agency (CRA) to know that sufficient expenditures are being made on charitable
programs and that the NPO has not expended more the 10% of its income on advocacy activities.
Many different reports may be created to satisfy the needs of these different stakeholders (board, managers, donors,
creditors, government and general public) for financial information. The general purpose financial statements that are
reported to the board, membership, donors, funders, government, and the general public on a monthly, quarterly, or
yearly basis include:
1. Statement of Financial Position (Balance Sheet)
2. Statement of Operations or Income Statement (Incomes and Expenditure Statement)
3. Statement of Cash Flows or Statement of Changes in Financial Position (Cash flow statement)
Statement of
Financial
Position
(Balance
Sheet)

Picture source: https://thecharitycfo.com/statement-of-financial-position-nonprofit-balance-sheet/

 Income
Statement
(Incomes and
Expenditure
Statement)

Picture Source: https://donorbox.org/nonprofit-blog/nonprofit-financial-statements

Statement of Cash Flows (Cash Flow Statement)
Operating Activities:

• Cash Received from Donors: $80,000

• Cash Paid to Employees: -$40,000
• Cash Paid for Program Expenses: -$30,000

Investing Activities:

• Purchase of Property and Equipment: -$20,000

• Sale of Investments: $10,000

Financing Activities:

• Borrowed Loan: $20,000

• Repayment of Loan: -$10,000

Net Change in Cash: $20,000 (Inflow) - $80,000 (Outflow) = -$60,000

This Cash Flow Statement shows that the organization had a net decrease in cash of $60,000 during
the year, primarily due to investments in property and equipment and repayment of a loan.
Issue on Fraud
What happens when fraud is discovered?

It was discovered that a bookkeeper of a mid-sized

nonprofit organization embezzled a significant sum of
money over the three years she was employed.

Further investigation indicated that the fraud occurred

because of pressure to reduce administrative costs,
insufficient independent verification of the general
ledger and financial statements, and the use of a
review engagement by an accounting firm instead of a
full audit to save money.
What is Resource Development?

Resource development is a broad term for the pursuit of new funding

sources. This process can include everything from fees for services to
numerous forms of fundraising to more entrepreneurial ventures. According
to the Association of Fundraising Professional's (AFP) Online Dictionary,
resource development refers to the practices of identifying, cultivating, and
securing financial and human support for an organization

Other terms:
1. Fund Development
2. Institutional Advancement
3. Fundraising
 Who is responsible for resource development
(fundraising) in NPOs?
Who? What Key Roles?

Development professional Sets strategic direction

Responsible for planning and execution
Leads, enables and supports
Maintains infrastructure
Conducts evaluation and reporting
Identifies strategic issues for board discussion and action
Proposes and test goals and directions

Chief Executive Officer / Executive Director Sets strategic direction

Ensures resources are in place
Champions program
Participates in cultivations and solicitations
Chief representatives of the organization

Board as a Whole Ensures the nonprofit is worthy of investment by donors

Endorses goals and direction
Adopts plan as part of the budget process
Participates in strategic discussions regarding SWOT (strengths, weaknesses, opportunities and threats)
analysis and implications

Individual Board Members Carryout specific activities such as identification of potential donors, cultivation and solicitation of donors
Are accountable for fulfilling commitments made and makes personal gifts
Six Key fundraising principles

Wealth is not always

People give to people Much comes from few
obvious

Philanthropy is
It’s not about the
Fundraising is not a something to be proud
money; it is about
stand-alone-activity of, and fundraising
building relationships
enables philanthropy
Take a Break for 10
minutes
Types of Earned Income

Fees for Service Gaming

Social Enterprise
Membership Fees
Approach
Types of Fundraising Activities

Door-to-door E-philanthropy/
Direct mail Telemarketing
campaign Social Media

Major gift programs

/ campaigns
Face-to-face/ Street Endowment giving Cause marketing
(fundraising galas,
dinners, concerts)

Advertisements/
Planned giving print/ radio/ TV
commercials
Summary

Explained Financial Management in NPOs

• What is financial management?
• Who is responsible for financial management in NPOs?
• Budgeting
• Internal control and external audit
• Financial reporting
• Issue on fraud

Explained Resource Development in NPOs

• What is resource development?
• Who is responsible for resource development (fundraising)
in NPOs?
• Key fundraising principles
• Types of earned income
• Types of fundraising
 Questions and Answers
Next Class Thursday, Nov 2, 2023
Nonprofit Program Development and Assessment