Webinar: Financial Reporting at Schools – Support Your Board, So They Can Support You

Effectively communicating financial performance to your Board is a critical skill.

Your board is the fiduciary of your school and a key resource for your management team. Your Board must understand your school’s financial performance—and where it is likely headed—to perform their oversight role and to support management in achieving organizational goals.

What does an effective financial presentation to a Board look like? How do you convey information that supports decision making, keeps the conversation on point and out of the ‘weeds,’ and is accessible to Trustees without a financial background? How do you ensure your board has the understanding to help you build the financial strength that will in turn support achieving educational goals?

Join Craig Stevens and Rob Eby of Aronson LLC for a free webinar led by Brad Olander, CEO of GoldStar, on April 17^th at 11am. During this convenient 30-minute session, we will address these critical questions including:

• What information should you present?
• How should it be presented?
• How detailed should it be?
• How to balance discussion of current results with forecasts?

 Executive directors, controllers, CFOs, principals and other school professionals serving in an administrative or finance role should register today for this free event!

Register HERE

Type: Webinar

Date: April 17, 2013

Time: 11:00-11:30AM

Price: FREE

Location: Via WebEx

MWAA: Local Board Policies Questioned During Public Upheaval

It must be tough to be a member of the board of directors for the Metropolitan Washington Airports Authority (MWAA) lately.  There are numerous headlines blasting insider deals and lax travel policies.  A former board member has gotten the boot after headlines ballyhooing how she obtained a full-time job with a salary of $180,000 a year to be an “advisor” with full benefits.  The airports authority is adopting stricter travel policies and spending policies in the wake of such embarrassing details as a $9,000 plus ticket for one board member to travel to Prague.  A stricter ethics policy is also being discussed by the board.   Link to the  NBC article:  http://www.nbcwashington.com/blogs/first-read-dmv/Airport-Authority-Setting-New-Rules-168596246.html

The Federal Form 990 informational return filed by most nonprofit organizations, which is open to public inspection, covers every area mentioned above.  Transactions with interested parties, conflict of interest polices, compensation of former board members are all revealed in the public return filed annually by nonprofit organizations.  Good governance suggests the entire board should review a Form 990 before it is filed with the IRS, and during such a process issues such as these come to light for the first time for many board members.   If the MWAA were a nonprofit organization required to file a Form 990, these shady deals and lax policies may have come to light for the board members much sooner, and possibly without all the headlines.

Former President of Veteran Charity Paid $2.3 Mil Salary – Deemed Excessive

California officials are taking aggressive action against Help Hospitalized Veterans, a nonprofit whose stated mission is to bring arts and craft kits to patients in VA hospitals. The State Attorney General’s office filed a civil lawsuit Thursday that demands the removal of the president and entire board of directors and asks for more than $4 Mil in reparation due to alleged misrepresentations and misspending.

CNN reports that nearly two-thirds of the charity’s revenue went to overhead and excessive officer compensation with perks such as golf club memberships and D.C. area condos. The complaint also alleges that funds were unlawfully diverted to start another nonprofit with a mission unrelated to veteran support.

It isn’t the first time Help Hospitalized Veterans has been in the news. In 2008, the House Committee on Oversight and Investigations discovered the nonprofit’s former president, Roger Chapin, purchased a condo with donated funds and received $1.96 million in pension payments.

The new lawsuit alleges Chapin was paid out in excess of $2.3 Mil from 2002 to 2009 and that the current president, Michael Lynch, has been paid more than $900K, more than a third of which was just in 2010.

The charity received more than $31 Mil in donations in 2010. The value of the kits it distributed was reported as approximately $8 Mil.

Unfortunately, this is starting to be a recurring theme in veteran support related charities. In June, the Disabled Veteran’s National Foundation was being investigated by the Senate Finance Committee on similar allegations. It’s clear the American people want to contribute support, it’s also clear that certain groups will take advantage of that.

Source: CNN

Exec Director of 21 Years Files Plea Agreement for $1.35Mil in Embezzlement Case

Thomas Nelson was, until recently, the Executive Director of a York County, Maine nonprofit that provides services to low-income residents. It was a position he held for 21 years. He’s now awaiting sentencing after copping a plea arrangement in federal court, agreeing to pay restitution of $1.2Mil to the nonprofit and $150,000 to the IRS for tax evasion. He stands to receive up to 10 years for embezzlement, 5 years for conspiracy, 5 years for tax evasion, and 3 years for signing false tax returns.

How’d he do it? He arranged over-payments to a consulting company that gave him kickbacks and he also diverted money to a defunct nonprofit where he had served as treasurer. He used the money to pay his mortgage and cover gambling debts. There was only one invoice from the consulting company over the time of the collusion but it was for $8,700, not the $413,000 they were paid.

He claimed he avoided diverting federal money because he knew government funds are subjected to greater scrutiny.

The board has been reviewing its financial oversight practices and is “very disappointed.”

#smh

Read more about it in the Portland Press Herald

CEO Expenses and the Board

An Op-ed piece by Michael Peregrine at the Chronicle of Philanthropy provides a good reminder about why it is so important to pay attention to CEO expense account spending. The head of the foundation of the University of Texas Southwestern Medical Center, Dr. Wildenthal, is stepping down after an internal investigation concluded inappropriate spending including mingled business and personal purchases.

Dr. Wildenthal led the foundation for 22 years before tips reporting lavish international travel, fine wines and other extravagances spurred an internal investigation. Peregrine states “the entirety of the report leaves an impression – fairly or unfairly – of a respected executive who developed a sense of ‘entitlement‘ based on a record of extraordinary accomplishment.” He notes this created an atmosphere of excessive deferential attitudes to Dr. Wildenthal’s judgment in spending.

There’s only so much an auditor can do if we take issue with the exact nature of spending, in terms of whether this is really best way to meet your program or fundraising objective. We can bring it to the board’s attention but if the board isn’t willing to question it themselves or has bought into an executive’s reasoning for spending, all we can really do is repeatedly point at it. An audit opinion speaks to whether the numbers are free from material misstatement. This does include whether program spending was actually spent on the program (as opposed to personal spa days), but we don’t and can’t actually opine on whether the spending was particularly wise or frugal.

The board bears fiduciary responsibility to monitor spending and make sure there is sound judgment involved. When it comes to nonprofit organizational structures, the board is the highest authority and should not defer to an executive when it comes to questionable expenditures.

Read more of Peregrine’s piece here.

Accounting Policy Manuals (avoiding management letter comments, part 4)

Not having a written accounting policy manual can be detrimental to your controls, so it shows up often as a management letter comment.   This is usually considered a control deficiency. Below are some suggestions on what to include in an accounting manual and what should be included in each area so you can avoid the management letter comment.

• Maintenance of the chart of accounts –which number sequences are used for assets, liabilities, net assets, revenues, and expenses. Don’t over-complicate it, but make it work for your needs.
• Capitalization and depreciation policy – what is the cutoff for a purchase to be capitalized or expensed, what is the expected useful life that will be used to depreciate the item.
• Petty cash policy – how much is kept on hand, how regularly is it refilled, what can it be used for, and who has access to it.
• Credit card usage and receipt retention policy – who in the organization is allowed to have a credit card, what are the credit cards to be used for, and what purchases require advance approval.
• Equipment lease policy – what is the basis to determine if the lease will be considered a capital or operating lease.
• Processing of cash receipts – who will do what, and when processes should occur.  See Part 1 of this series for help on planning the process.
• Processing of cash disbursements and payables – who will do what, and when processes should occur.  See Part 1 of this series for help on planning the process.
• Processing of payroll– who will do what and when processes should occur.
• Bank reconciliation procedures – who will do what and when processes should occur.  See Part 1 of this series for help on planning the process. Continue reading »

Fall-out Over Foundation Impropriety

There’s a lot of finger-pointing and passing the fiduciary buck going on at the Los Angeles Trade Technical College these days and heads are rolling. The executive director of the Trade Tech foundation, Rhea Chung, is being investigated on claims of lavish spending, excessive bonuses, and allegations of forged signatures on checks. The improper spending came to light during a state audit.

File this under Do Not Do This: Included in the questionable spending are items such as: $1,500 monthly car allowance, $22,000 performance bonus, $2,000 monthly pay for running the youth orchestra, tens of thousands of dollars on golf outings and daily restaurant meals averaging $150 a day.

Here goes the finger pointing: Ms. Chung claims all her expenses were approved by the President of Trade Tech, Chip Chapdelaine. Chapdelaine claims no knowledge. Faculty claim they brought the questionable spending to Chapdelaine’s attention and that he ignored it. Chapdelaine stated he never had fiduciary responsibility over Chung, that it was the chair of the board, Darryl Holter’s responsibility. Holter claims Chung reported to Chapdelaine, not to the board. Holter is also under fire for potential conflict of interest and claims personal vendettas are causing all these problems. Faculty of the college and the state education code agree that as President, Chapdelaine bore responsibility to ensure the foundation’s finances were appropriate.

Here goes the head-rolling: Chung is on administrative leave pending further investigation. Chapdelaine removed Holter as chair of the board and Holter, along with another board member resigned. The faculty governing body at the College issued a no-confidence vote yesterday, calling on Chapdelaine to resign. Chapdelaine is declining to comment.

What to learn from this: Don’t make assumptions someone else is responsible or looking. When it comes to public funding, everyone involved owes some fiduciary responsibility but absolutely no one at the top can shirk that responsibility. Review current financial reports regularly. Ask questions about odd spending and follow up – especially if someone else seems to be ignoring it. If you aren’t sure of the chain of command – it needs to be in the by-laws.

Source: L.A. Times

#LATradeTech #fraud #fiduciary #Chapdelaine

Fundraising FAIL (Reminder: Hug Your Volunteers)

Volunteers, fundraisers, and donors are human and don’t take kindly to being slighted. Especially by the board they’ve dedicated years of service to. The Wall Street Journal is reporting the story of the Brooklyn Museum Community Committee, a group of largely older women some of whom had invested more than 50 years in time and funding of the museum only to be curtly disbanded by the board who decided to shift to professional fundraisers. The committee had a documented level of success for years, raising funds since 1948. In the late 1990s, their annual ball netted $850,000. Many of the committee members included the museum in their wills but after feeling discarded and unappreciated, those wills are being revised.

The point being that these women were personally invested and they felt their time, efforts and money were worth more than a sudden disbanding with a note of thanks and a pin from the museum gift shop.

One can imagine that a board faced with a fundraising committee with some of their members in their 90s, might be thinking in terms of succession. Opting for professional fundraisers is not unreasonable but possibly there could have been a more respectful way to proceed. Maybe some sort of blended committee with the volunteers and the professionals or a phase out. Maybe even just asking the committee themselves what their suggestions were for a 5 year plan and succession.

One member who had bequeathed her personal art collection, including valuable prints from Rauschenberg, has since changed her will and those prints will now go to the Jewish Museum of New York. The Brooklyn Museum now has garnered negative press, lost funding, bequests, and general goodwill.

With the nonprofit sector news lately reminding everyone that the job market is opening up and employee retention is going to come down to work satisfaction, job meaningfulness, and generally being appreciated, it is imperative to keep those same concepts in mind with volunteers and committed donors. Don’t forget to show them your love and appreciation!

Source: WSJ

#fail #fundraising #nonprofit #volunteer

The House Gives PCAOB a Smackdown in Auditor Rotation Debate

The U.S. House of Representatives stepped into the fray on Wednesday by holding hearings on PCAOB’s proposal for mandatory auditor rotation for SEC companies. The chair of the House Capital Markets and Government Sponsored Enterprises Subcommittee, Rep. Scott Garrett, R-N.J., spoke up voicing concern that the PCAOB is overstepping its bounds by trying to regulate corporate governance. “I think it is important to remind the PCAOB that it is not a policy-making entity; Congress and this committee are the policy makers,” Rep. Garrett stated. OH SNAP!

That is a major SMACKDOWN that has followed what Accounting Today is referring to as a “tense exchange” between the PCAOB chairman, James Doty, and a representative from the Chamber of Commerce. Doty defended the board saying the PCAOB is “engaged in a deep and wide-ranging public dialogue about ways to enhance the independence, objectivity and professional skepticism of public company auditors.”

The subcommittee’s response was to introduce legislation that would amend Sarbanes-Oxley (which created the PCAOB) to prohibit the PCAOB from requiring public companies from using specific auditors or require rotation.

The President of the AICPA, Barry Melancon, testified at Wednesday’s hearing that he opposed mandatory auditor rotation because of increased costs, disruptions, and lack of evidence linking tenure to audit quality. “Most importantly, the risk that mandatory rotation is actually a detriment to audit quality,” he argued was the reason behind the opposition.

Doty has also introduced legislation to amend Sarbanes-Oxley to allow for making disciplinary proceedings for auditing firms public. Melancon was having NONE of that talk saying “auditors belong to a profession in which a good reputation is essential and publication of unproven charges may end an individual auditor’s career or audit firm’s existence,” which is why congress put the confidentiality clause in there in the first place.

Scorecard: Doty landed no solid punches, the House TKO

(Source: Accounting Today)

#PCAOB #SarbanesOxley #audit #auditorrotation #smackdown #ohsnap

Serving as a Warning to Others; Lessons in Governance

“It could be that the purpose of your life is only to serve as a warning to others.” It’s a terrible role to play, but one that others should bother to learn from, and it’s the theme of a recent post by Lisa Chiu on the Chronicles of Philanthropy with a focus on what we can learn from the the Second Mile charity whose founder, Jerry Sandusky, is now infamous. It is worth taking a look at what the charity could have done differently that might have a different result now that it is considering shutting its doors.

The article points out a few of the primary weaknesses at the charity and they all relate to governance. The article quotes Deborah Davidson, a vice president at BoardSource as noting that  Second Mile suffers from “founder’s syndrome“, which she defines as when the person who created the charity wields inordinate influence to the point that the board may be unwilling to question the individual. In the case of Second Mile, its by-laws lists Mr. Sandusky as an officer, cementing his authority and term for life.

In keeping with the mentality of not questioning authority, Second Mile had no whistle-blower policyin place. The article quotes Matthew Downey, program director at the Johnson Center for Philanthropy, as noting “even if the policy never gets used, it sets a culture in the organization that you can speak up and your job won’t come into jeopardy.”

The third problem in governance that Ms. Chiu notes Second Mile as having is too many board members. That may be counter to initial intuition but it makes sense that too many members results in an environment susceptible to “group-think” and a general sense of lack of responsibility because surely someone else will take care of it.

Having an under-performing, or worse, a scandal producing person entrenched high up in an organization undermines the organization’s mission and can lead to serious operational problems. Governance of any charity should include conversations about how to ensure that the mission comes first and can continue to serve its purpose above and beyond any personalities that get attached to it.

For additional detail, quotes and insights from those interviewed, see the post here.