THE FINANCIAL BASICS OF GRANT REVIEW Joe McCarthy and Tina Kasmarzik September 26, 2005.
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Transcript of THE FINANCIAL BASICS OF GRANT REVIEW Joe McCarthy and Tina Kasmarzik September 26, 2005.
THE FINANCIAL BASICS OF GRANT REVIEW
Joe McCarthyand Tina Kasmarzik
September 26, 2005
AGENDA
• FINANCIAL BASICS
- FINANCIAL STATEMENTS
AND DETERMINING FINANCIAL
HEALTH• UNDERSTANDING BUDGETS• REVISING PROJECT BUDGETS• WAR STORIES
FINANCIAL STATEMENTS AND DETERMINING FINANCIAL
HEALTH
• CHART OF ACCOUNTS• INCOME STATEMENT/ STATEMENT OF ACTIVITIES• BALANCE SHEET/ STATEMENT OF FINANCIAL
POSITION• CASH FLOW STATEMENT• AUDIT REPORT• ANALYSIS
UNDERSTANDING BUDGETS
• WHAT IS A BUDGET?• WHAT DO YOU WANT TO
SEE IN A PROJECT BUDGET?
• BUDGET FORMAT• HOW DO YOU ANALYZE THE
BUDGET USING THE FINANCIAL STATEMENTS?
REVISING PROJECT BUDGETS
• WHEN WILL GRANTEES TRY AND REVISE THEIR BUDGETS?
• WHEN SHOULD YOU LET A GRANTEE REVISE THEIR BUDGET?
• HOW MUCH DOES IT COST TO REVISE A BUDGET?
WAR STORIES
• CONFERENCE ATTENDEE QUESTION AND ANSWER SESSION
• FREE CONSULTING
(for whatever that is worth)
CONFERENCE ATTENDEES
• WHO IS IN THE AUDIENCE?
• WHAT IS THE LEVEL OF FINANCIAL EXPERTISE?
FINANCIAL STATEMENTS AND DETERMINING FINANCIAL
HEALTH
• CHART OF ACCOUNTS• INCOME STATEMENT/ STATEMENT OF ACTIVITIES• BALANCE SHEET/ STATEMENT OF FINANCIAL
POSITION• CASH FLOW STATEMENT• AUDIT REPORT• ANALYSIS
ACCOUNTING EXPERIENCE
• WHO IN THE AUDIENCE HAS EVER PERFORMED AN ACCOUNTING ENTRY?
CASH EXPENSE
CASH EXPENSE (DEPOSIT) (WITHDRAWAL)
TAKE SOMETHING WITH YOU
• AS WE MOVE THROUGH THE PRESENTATION, IF YOU HAVE LITTLE OR NO KNOWLEDGE OF FINANCIAL MANAGEMENT, JUST RELATE THE INFORMATION TO YOUR PERSONAL FINANCES, AND YOU’LL LEARN SOMETHING.
FINANCIAL STATEMENTS AND DETERMINING FINANCIAL
HEALTH
• CHART OF ACCOUNTS
A LISTING OF THE ACCOUNT TITLES AND ACCOUNT NUMBERS BEING USED BY AN ORGANIZATION FOR RECORDING FINANCIAL TRANSACTIONS.
CHART OF ACCOUNTS
• 1xxx ASSETS• 2xxx LIABILITIES• 3xxx EQUITY• 4xxx REVENUE• 5xxx EXPENSE
TYPES OF ACCOUNTING CASH / ACCRUAL
• CASH BASIS ACCOUNTING ACCOUNTING FOR CASH WHEN
RECEIVED AND CASH DISBURSEMENTS WHEN MADE
• ACCRUAL ACCOUNTING ACCOUNTING THAT RECOGNIZES
REVENUE WHEN EARNED AND EXPENSES WHEN THEY ARE INCURRED
CASH / ACCRUAL ACCOUNTING
CASH BASIS – DR. OFFICE
ACCRUAL – 95% OF ALL BUSINESSES
EXAMPLE – ORDER $10,000 OF FURNITURE WITH 2 MONTH LEAD TIME
FINANCIAL STATEMENTS AND DETERMINING FINANCIAL
HEALTH
• INCOME STATEMENT/ STATEMENT OF ACTIVITIES
THE PURPOSE OF AN INCOME STATEMENT IS TO SHOW THE REVENUE AND EXPENSES OF A BUSINESS OVER A PERIOD OF TIME (MONTH OR YEAR)
STATEMENT OF ACTIVITIES
• THE DIFFERENCE BETWEEN REVENUE AND EXPENSE IS
- NET INCOME
(FOR PROFIT WORLD)
- CHANGE IN NET ASSETS
(NON-PROFIT)
STATEMENT OF ACTIVITIES
REVENUE PROGRAM FEES SERVICE FEES GRANTS INTEREST EARNINGS
EXPENSE SALARY BENEFITS RENT SUPPLIES
EACH ACCOUNTING PERIOD THESE ACCOUNTS ARE CLOSED (ZEROED OUT) AND BALANCES REVERT TO THE EQUITY SECTION OF THE BALANCE SHEET (AS EITHER PROFIT OR LOSS)
STATEMENT OF ACTIVITIES
• IN-KIND REVENUE AND EXPENSE
(GAAP ACKNOWLEDGES IN-KIND)
WAR STORY – ADP GROCERY STORE WITH $1 MILLION BUDGET AND BASIC SUPPORT APPLICANT WITH $200,000 BUDGET
FINANCIAL STATEMENTS AND DETERMINING FINANCIAL
HEALTH
• BALANCE SHEET/STATEMENT
OF FINANCIAL POSITION
PURPOSE OF A BALANCE SHEET IS TO SHOW THE FINANCIAL POSITION OF A BUSINESS ON A PARTICULAR DATE (SEPTEMBER 30, 2005)
BALANCE SHEET
• A BALANCE SHEET CONSISTS OF A LISTING OF THE ASSETS AND LIABILITIES OF A BUSINESS AND THE EQUITY (ALSO REFERRED TO AS NET ASSETS)
BALANCE SHEETASSETS ARE RESOURCES OWNED BY A
BUSINESS CASH AND INVESTMENTS EQUIPMENT
BUILDINGLIABILITIES ARE DEBTS
ACCOUNTS PAYABLEACCRUED SALARYLOAN BALANCE
EQUITY/NET ASSETS – RESIDUAL BALANCE IN ASSETS AFTER DEDUCTING LIABILITIES
FINANCIAL STATEMENTS AND DETERMINING FINANCIAL
HEALTH
• STATEMENT OF CASH FLOW
- CASH IS THE MOST USEFUL LIQUID ASSET
- THE EFFICIENT USE OF CASH IS ONE OF THE MOST IMPORTANT TASKS OF MANAGEMENT
STATEMENT OF CASH FLOW
• A CASH FLOW STATEMENT IS PREPARED TO PROVIDE INFORMATION ON CASH RECEIPTS AND CASH DISBURSEMENTS THAT OCCURRED DURING AN ACCOUNTING PERIOD (MONTH OR YEAR)
STATEMENT OF CASH FLOW
SOURCES OF CASH COLLECTIONS FROM CUSTOMERS
GRANT FUNDS RCV’D
LESS USES OF CASH
EQUIPMENT PURCHASE
STATEMENT OF CASH FLOW
EQUALS EITHER AN INCREASE OR DECREASE IN CASH
ADD CHANGE TO CASH AT THE BEGINNING OF THE PERIOD
TO EQUAL CASH AT THE END OF THE PERIOD
(ENDING CASH TIES TO THE CASH ACCOUNT ON THE BALANCE SHEET)
FINANCIAL STATEMENTS AND DETERMINING FINANCIAL
HEALTH
• AUDIT REPORT
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REVIEW ACCOUNTING PROCESSES, TRANSACTIONS, RECORDS AND FINANCIAL STATEMENTS
(IN MOST CASES ANNUALLY)
AUDIT REPORT
• AUDIT FIRM EXPRESSES AN OPINION (ALSO REFERRED TO AS AN AUDIT REPORT)
• AUDIT REPORTS FREQUENTLY INCLUDE A ‘MANAGEMENT LETTER’ THAT CONTAINS RECOMMENDATIONS
ANALYSIS OF FINANCIAL STATEMENTS
• RATIO ANALYSIS
A RATIO IS A SIMPLE MATHMATECIAL EXPRESSION OF THE RELATIONSHIP OF ONE ITEM TO ANOTHER ITEM
MOST RATIOS ARE APPLICABLE IN A FOR-PROFIT ENVIRONMENT BUT SOME ARE APPLICABLE IN THE NON-PROFIT WORLD ALSO
OPERATING EXPENSE RATIOTOTAL EXPENSE/REVENUE
PROGRAM EXPENSE OR OVERHEAD EXPENSE RATIO
EXPENSE /TOTAL EXPENSE
(BOTH RATIOS MEASURE ABILITY TO CONTROL EXPENSES)
RATIO ANALYSIS – STATEMENT OF ACTIVITIES
PROFITABILITY RATIO
NET INCOME/REVENUE
(MEASURES LEVEL OF PROFITABILITY)
RATIO ANALYSIS – STATEMENT OF ACTIVITIES
CURRENT RATIOCURRENT ASSETS/CURRENT LIABILITIES(MEASURES SHORT-TERM ABILITY TO PAY DEBTS
DEBT RATIOTOTAL LIABILITIES/TOTAL ASSETS(MEASURES BURDEN OF DEBT)
DAYS CASH ON HAND TOTAL EXPENSE/360 = DAILY ‘BURN’ RATE CASH/’BURN’ RATE = DAYS OF CASH (MEASURES ABILITY TO PAY BILLS)
RATIO ANALYSIS – STATEMENT OF FINANCIAL
POSITION
ANALYSIS OF FINANCIAL STATEMENTS
• COMPARATIVE FINANCIAL ANALYSIS
OCCURS WHEN YOU PLACE FINANCIAL STATEMENTS SIDE BY SIDE OVER A PERIOD OF TIME (USUALLY YEARS) TO ANALYZE CHANGES
BUDGETS
UNDERSTANDING BUDGETS
• WHAT IS A BUDGET?• WHAT DO YOU WANT TO SEE
IN A PROJECT BUDGET?• BUDGET FORMAT• HOW DO YOU ANALYZE THE
BUDGET USING THE FINANCIAL STATEMENTS?
UNDERSTANDING BUDGETS
• WHAT IS A BUDGET?
A BUDGET IS A FINANCIAL PLAN LISTING ALL REVENUES AND EXPENSES FOR A PERIOD OF TIME FOR AN ORGANIZATION OR FOR A SPECIFIC PROJECT
(YES, REVENUES )
UNDERSTANDING BUDGETS
• IF YOU DON’T RECOGNIZE NEW REVENUE THAT IS GENERATED AS A DIRECT RESULT OF A GRANT AWARD, YOU ARE OVERFUNDING A PROJECT
EXAMPLE: MENTAL HEALTH CONSULTING SERVICES WITH A CO-PAY
WAR STORY – McC COUNSELING
UNDERSTANDING BUDGETS
• WHAT DO YOU WANT TO SEE IN A PROJECT BUDGET?
• ANSWER
REALITY
UNDERSTANDING BUDGETS
• BUDGET FORMAT
(THE SIMPLER…THE BETTER)
MFH BUDGET FORMAT
MFH STARTED OFF REQUESTING TOO MUCH DETAIL
- LISTING FRINGE BENEFITS (FICA, MEDICAL,PENSION, ETC.)
- LISTING OVERHEAD EXPENSES (PHONE, RENT, ETC.)
- APPLICATIONS GOT TOO COMPLEX AND CONTAINED TOO MANY ERRORS
• HOW MANY APPLICANT BUDGETS FAILED THE FIRST TIME THROUGH THE INTERNAL REVIEW PROCESS?
MFH BUDGET FORMAT
95%
• MFH BUDGET FORMAT HAS BEEN GREATLY SIMPLIFIED TO REDUCE RE-WORK AND ANALYSIS- ESTABLISHED MAXIMUM
FRINGE RATE BY SALARY - ESTABLISHED OVERHEAD RATE (15% OF SALARY)
WAR STORY - UNIVERSITIES
MFH BUDGET FORMAT
ANALYZING BUDGETS
• HOW DO YOU ANALYZE THE BUDGET USING THE FINANCIAL STATEMENTS?
ANALYZING BUDGETS
• YOU’RE ALL FINANCIAL MANAGERS NOW, YOU SHOULD KNOW HOW TO DO THIS
(RATIO ANALYSIS, COMPARATIVE ANALYSIS)
ANALYZING BUDGETS
• ANALYZE BUDGETS USING COMMON SENSE
- ANNUAL SALARIES
- FRINGE RATES
- COST FOR EQUIPMENT
- TOTAL COST ON A PER
PERSON SERVED BASIS
REVISING PROJECT BUDGETS
• WHEN WILL GRANTEES TRY AND REVISE THEIR PROJECT BUDGETS?
• WHEN SHOULD YOU LET A GRANTEE REVISE THEIR PROJECT BUDGET?
• HOW MUCH DOES IT COST TO REVISE A BUDGET?
REVISING PROJECT BUDGETS
• WHEN WILL GRANTEES TRY AND REVISE THEIR PROJECT BUDGETS?
ANSWER: JUST ABOUT ANY TIME THAT THEY THINK THEY CAN GET AWAY WITH IT
REVISING PROJECT BUDGETS
• WHEN SHOULD YOU LET A GRANTEE REVISE THEIR PROJECT BUDGET?
ANSWER: AS SELDOM AS POSSIBLE
• MFH HAS A 25% BUDGET REVISION RATE – TOO HIGH
• MFH HAS BEEN FORCED TO ESTABLISH A POLICY TO NOT ACCEPT BUDGET REVISIONS WITHIN 1ST YEAR OF A PROJECT
• AND ONLY ONCE A PROJECT YEAR THEREAFTER
REVISING PROJECT BUDGETS
REVISING PROJECT BUDGETS
• HOW MUCH DOES IT COST TO REVISE A BUDGET?
ANSWER: TOO MUCH FOUNDATION STAFF TIME
- PROGRAM OFFICER TIME
- GRANTS MANAGER TIME
- BUDGET REVISION
- CONTRACT AMENDMENT
REVISING PROJECT BUDGETS
• BUDGET REVISIONS MUST BE TIGHTLY CONTROLLED
• MFH ENFORCES BUDGETS THROUGH GRANT AWARD AGREEMENT
REVISING PROJECT BUDGETS
• INTERIM FINANCIAL REPORTS MUST TIE OUT TO THE APPROVED BUDGET (OR NEXT CHECK HELD)
• FINAL REPORT MUST ALSO TIE OUT (5% WITHHOLD)
BUDGET ISSUES
• MFH HAS A LATE PAYMENT REPORT (WATCH LIST)
WAR STORIES–BOOTHEELTHE CLINICST. CHAS DENTAL
CONTROL BUDGET ISSUES
• SET A CAP ON GRANT AWARDS AS A % OF OPERATING EXPENSE
• CONDUCT GRANTEE ORIENTATIONS
• ANALYZE FINANCIAL REPORTS – INVITE GRANTEES TO VISIT CFO IF OUT OF TOLERANCE
WAR STORIES
• NOW IS THE TIME TO SHARE YOUR WAR STORIES
• QUESTIONS, CONCERNS OR ISSUES RELATING TO GRANT APPLICANT FINANCIAL STATEMENTS OR PROJECT BUDGETS