Financial Management for Nonprofit Organizations: Policies and Practices

Content: About the Authors xxiii Preface xxv Acknowledgments xxix 1 Understanding Nonprofit Organization Finances 1 1.1 The Impact of the Great Recession 2 1.2 Definition of Nonprofit Organizations 3 1.3 Characteristics of Nonprofit Organizations 7 1.4 Understanding the Language of the Nonprofit Organization 9 1.5 Financial Policies 10 1.6 Financial Practices 11 1.7 Primary Financial Objective 12 1.8 Conclusion 17 2 Liquidity Management 29 2.1 Introduction 29 2.2 Noncommercial Nonprofit Organizations 34 2.3 Evidence on Liquidity Management in the Nonprofit Sector 37 2.4 Facets of Liquidity Management 40 2.5 Importance of Liquidity Management 42 2.6 What Is the Appropriate Level of Liquidity? 51 2.7 Conclusion 54 3 Managing Mission, Strategy, and Financial Leadership 59 3.1 Value of Strategic Planning 60 3.2 What Is Strategic Planning? 61 3.3 What Are the Organization   s Mission, Vision, and Goals/Objectives? 61 3.4 Strategic Management Process 65 3.5 Implementing the Strategic Plan 73 3.6 Performance Management Systems 78 3.7 Strategic Planning Practices: What Does the Evidence Show? 88 3.8 Conclusion 89 4 Managing Structure, Accountability, and Ethics 93 4.1 Financial Tools and Support Structure 93 4.2 Organizational Structure and Governance 96 4.3 Accountability Structure 122 4.4 Ethics 129 4.5 Structure, Accountability, and Ethics in Practice 135 4.6 New Forms 137 4.7 Conclusion 138 5 Developing Financial Policies 165 5.1 Introduction 165 5.2 Financial Policies 176 5.3 Putting Policies into Place 189 5.4 Establishing Procedures 190 5.5 Financial Policies and Procedures in Practice 191 5.6 Additional Resources 193 6 Understanding Financial Accounting Basics and Financial Statements 201 6.1 Introduction 201 6.2 Financial Statement Users and Uses 202 6.3 Accounting Basics 210 6.4 Three Financial Statements 213 6.5 The Audit and the Audit Committee 235 6.6 Financial Statement Users and Uses in Practice 236 6.7 Social Accounting 237 6.8 Additional Resources 237 7 Developing Financial Reports and Ratios: Making Sense of the Numbers 257 7.1 Introduction 257 7.2 Major Differences From For-Profit Business Reports 258 7.3 Objectives of Financial Reports 263 7.4 Reporting System Design 267 7.5 Major Reports 268 7.6 Internal Reports 268 7.7 External Reports 304 7.8 Conclusion 306 8 Developing Operating and Cash Budgets 333 8.1 Introduction 333 8.2 Overview of the Budgeting Process 335 8.3 Are Nonprofit Organizations Doing Their Budgeting Properly? 336 8.4 Developing and Improving Your Budgeting Process 337 8.5 Setting the Budgetary Amounts 346 8.6 Budget Technique Refinements 357 8.7 Cash Budget 363 8.8 Managing off the Budget 367 8.9 Conclusion 372 9 Long-Range Financial Planning and Capital Budgeting 389 9.1 Introduction 389 9.2 Planning for the Future 391 9.3 Financial Evaluation of New and Existing Programs 415 9.4 Capital Budgeting: Financial Evaluation of Projects That Arise from Existing Programs 418 9.5 Financial Evaluation of Mergers, Joint Ventures, and Strategic Alliances 425 9.6 Financial Planning and Capital Budgeting in Practice 434 9.7 Conclusion 435 10 Managing Your Organization   s Liabilities 447 10.1 Managing the Balance Sheet 448 10.2 Balance Sheet Management: Benefits and Steps 449 10.3 Payables 454 10.4 Short-Term Borrowing 455 10.5 Strategic Financing Plan 456 10.6 Steps to Successful Borrowing 458 10.7 Matching Financial Sources to Strategic Objectives 463 10.8 Preparing the Financing Proposal 464 10.9 Making the Presentation 465 10.10 Other Factors in Borrowing/Lending Decisions 466 10.11 Municipal and Taxable Bonds 470 10.12 Leasing and Nontraditional Financing Sources 477 10.13 Developing a Debt and Hedging Policy 479 10.14 Liability Management in Practice 481 10.15 Conclusion 484 11 Cash Management and Banking Relations 489 11.1 Introduction 489 11.2 What Is Cash Management? 492 11.3 Collection Systems: Managing and Accelerating Receipt of Funds 501 11.4 Disbursements 507 11.5 Structuring a Funds Management System 509 11.6 Monitoring Bank Balances and Transactions 509 11.7 Cash Forecasting 511 11.8 Short-Term Borrowing 512 11.9 Short-Term Investing 513 11.10 Benchmarking Treasury Functions 517 11.11 Upgrading the Caliber of Treasury Professionals 518 11.12 Security and Risk Management Issues 521 11.13 Trends in Treasury Management 522 12 Investment Policy and Guidelines 533 12.1 Investment Policy 533 12.2 Investment Guidelines 538 12.3 Checklist of Elements for Long-Term/Endowment Investment Policy and Guidelines 548 12.4 Investment Committee 550 12.5 Trends in Investment Management 551 12.6 Investment Policy Summary 553 13 Information Technology and Knowledge Management 587 13.1 Introduction 587 13.2 How Much Technology and Which to Choose? 591 13.3 Knowledge Management and Information Technology 596 13.4 Information Technology in Today   s Nonprofits 597 13.5 What Should I Know/Do Before Investing in Technology Tools? 602 13.6 Software: Design Internally or Purchase? 604 13.7 Disclosure, the Law, and Security 604 13.8 Needs Assessment and Analysis 609 13.9 Policies and Practices in Knowledge Management and Information Technology 613 Notes 617 14 Managing Risk, Legal Issues, and Human Resources 629 14.1 What Is Risk Management? 629 14.2 Identifying Risk 635 14.3 Primary Financial Risk: Illiquidity 636 14.4 Legal Environment 637 14.5 Safeguarding People 639 14.6 Directors    and Officers    Liability 647 14.7 Safeguarding Your Financial and Physical Assets 649 14.8 Risk Management and Human Resource Management 15 Evaluating Your Policies and Progress 671 15.1 Introduction 671 15.2 Evaluation 673 15.3 Evaluating Your Decisions and Ethics 673 15.4 Evaluating Your Communications 679 15.5 Evaluating Your Mentoring and Supervisory Skills 683 15.6 Testing Your Supervisory and Managerial Skills 684 15.7 Evaluating the Strategic Nature of Your Role 684 15.8 Evaluating the Financial Health of Your Organization 689 15.9 Evaluating Your Financial Policies in Six Key Areas 691 15.10 Evaluating Quality and Outcomes 705 15.11 Using External Consultants and Data Sources 706 15.12 Conclusion 706 Notes 707 Index 711