MCN : Financial Management FAQ

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ABOUT MCN

2314 University Ave. #20
St. Paul, MN 55114
Phone: 651.642.1904
Fax: 651.642.1517
Greater MN: 1.800.289.1904

Email: info@mncn.org

financial management: FAQs

Q: Can nonprofits "make a profit?"

A common misperception is that nonprofits must survive on grants alone, or that nonprofits cannot generate a “profit.” Nonprofits can and should budget for an operating reserve. Funders like to see evidence of organizational sustainability and may ask the question, “If the organization’s funding is dependent on a source that dries up, can the organization survive?”

Q: What is the current federal mileage reimbursement rate?

A:	From IRS Publication 553: "For 2003 the standard mileage rate for the cost of operating your car, van, pickup or panel truck is . . . 36 cents a mile for all business miles."

Q: How should my organization prepare for an audit?

An audit is required by Minnesota state law if your organization's annual total revenues exceed $350,000. Additionally, many funders prefer to see financial statements that have been audited by an independent accounting or audit firm. Even if an audit is not required, a nonprofit at the very least should have an independent CPA provide a review of its finances to the organization's board annually.

If your organization's records are kept in good order, preparing for an audit can be less painful than it sounds. It will be to your organization's benefit to select an auditor that has experience working with nonprofit organizations.

Auditors will ask to see documentation of your organization's assets, liabilities, revenues and expenses. They will want to see evidence that your organization has board approved organizational financial controls. You will need to provide the auditor with copies of all of your financial records including leases, grant agreements, payroll, equipment depreciation schedules, bank statements, tax filings, insurance policies, board minutes, and components of your accounting systems, such as your chart of accounts, journals and ledgers, and trial balance. Most accounting software programs have reporting functions that will print many of the reports that your auditor requires.

It's a good idea to meet with your auditor in advance of the audit and obtain a list of the documentation required so that staff have time to pull the required documents.

2314 University Ave W. #20
St. Paul, MN 55114
Phone: 651.642.1904
Fax: 651.642.1517
Greater MN: 1.800.289.1904

Email: info@mncn.org

Principles and Practices for Nonprofit Excellence:

Financial Management

Seven Practices

A. Financial Accountability

1. A nonprofit should operate in accordance with an annual budget that has been approved by the board prior to the beginning of each fiscal year.

2. A nonprofit should create and maintain financial reports on a timely (at least quarterly) basis, accurately reflecting the financial activity of the organization, including the comparison of actual to budgeted revenue and expense.

3. A nonprofit with annual total revenues in excess of $350,000 should subject its financial reports to an annual audit (MN Law). A nonprofit under this threshold, or excepted by law, should have a CPA provide a review of its finances to the board annually.

4. Quarterly financial statements should be provided to the board of directors. The statements should explain any significant variation between actual and budgeted revenues and expenses.

5. A nonprofit should provide employees and volunteers with a confidential means to report suspected financial impropriety or misuse of organizational resources.

6. A nonprofit should have written financial policies governing the following matters, where appropriate: (a) investment of the assets of the organization; (b) internal control procedures; (c) purchasing practices; (d) reserve funds; (e) compensation, including salary and benefits; (f) expense account reporting; and (g) earned income.

7. A nonprofit may budget for a deficit from time to time but should not incur persistent or increasing operating deficits.

B. External Financial Arrangements

1. A nonprofit, with board approval and full knowledge of its legal obligations and liabilities, may undertake responsibility of serving as a fiscal agent for another organization with a related mission and should review this relationship annually.

2. Any subsidiary that a nonprofit establishes should be in the direct furtherance of the mission of the organization.