National Association of Social Workers

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National Association of Social Workers
Financial Management for Chapters Developed by
the Administrative Division, Adapted by Chapter
Services August 2002
NATIONAL ASSOCIATION OF SOCIAL WORKERS


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Responsibilities of a Chapter Treasurer

• Key volunteer financial manager
• Reports on financial activity of chapter
• Presents budget to the Board
• Keeps full and accurate accounts of financial
  records
• Source Lang, Andrew, Financial Responsibilities
  of Nonprofit Boards

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Responsibilities of a Chapter Treasurer (contd)

• Serves as a member of the Board of Directors.
• Has signature registered with bank servicing
  chapter.
• In collaboration with the chapter executive
  director and president, prepares the annual
  budget for presentation to the board.

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Responsibilities of a Chapter Treasurer (contd)

• Provide information to the board regarding
  budgetary restrictions and budgetary restriction
  and alert the board when projects or programs are
  in danger of going over budget.
• Propose cost cutting measures and budget
  increases based on knowledge of financial matters.

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Definitions of Key Terms

• The following key terms are
• defined
• Accounting
• Asset and Liability
• Budget Process
• Credit and Debit
• Revenue and Expense
• Fiduciary

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Accounting

• The art of recording, classifying, and
  summarizing in a significant manner, transactions
  and events of a financial character, and
  interpreting the results thereof.

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Asset

• Anything of value that is owned. It may be
  physical in character, such as land, machinery,
  equipment, and cash. Assets may also be
  intangible, such as a legal claim or right
  against contributors or funders, generally called
  accounts receivable.

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Liability

• A debt or an obligation owed by the chapter to
  its creditors. Examples include wages owed to
  employees, related withholding owed to tax
  agencies, and amounts owed to creditors,
  generally called accounts payable.

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Budget Process

• A plan for what the chapter is hoping to achieve
  during a future predesignated period and how the
  dollar amounts will be distributed to achieve
  those goals and objectives.
• A tool for monitoring financial activities during
  the budget period and help in managing the
  affairs of the chapter.

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Credit and Debit

• Credit - one of the amounts in a double-entry
  accounting system. At least one component of
  every accounting transaction (journal entry) is a
  credit amount. Credits increase liabilities and
  equity and decrease assets. Credits are entered
  on the right-hand side of a two-column journal or
  ledger.
• Debit -one of the amounts in a double-entry
  accounting system. At least one component of
  every accounting transaction (journal entry) is a
  debit amount. Debits increase assets and decrease
  liabilities and equity. Debits are entered on the
  left-hand side of a two-column journal or ledger.

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Revenue and Expense

• Revenue - income for the chapter, such as
  membership dues, advertisements, fees, and
  interest earned.
• Expense - represents an outflow of a chapters
  resources (not always cash) for operational costs
  for goods or services.

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Fiduciary

• A person who serves or has the characteristics of
  a trustee with respect to the trust and
  confidence required for the position,
  institution, or fund. This person must also
  possess scrupulous good faith and candor.

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Fiscal Integrity

• Taking those necessary steps to ensure that the
  chapter is financially sound in the short-term
  and plan wisely for the long-term
• Some of those steps would include
• auditing financial management operations
• establishing financial parameters
• determining the soundness of insurance coverage.

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Double-Entry Basis of Accounting

• When a debit is recorded, it must be offset by a
  credit because fundamental accounting principles
  require that debits (left) should equal credits
  (right) and that assets should equal liabilities
  plus fund balance.

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Double-Entry Accounting

• DEBIT
• Increases Assets
• Decreases Liabilities Deferred Income
• Increases Expenses
• Decreases Revenue

• CREDIT
• Decreases Assets
• Increases Liabilities Deferred Income
• Increases Net Assets (fund balance)
• Decreases Expenses
• Increases Revenues (earned income)

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What is a Budget?

• A plan of action for future financial activity
  usually expressed in dollars.
• A tool to measure the financial commitments
  needed to support the activities necessary in
  reaching the chapters goals.
• An important internal control mechanism that can
  alert management to changes in operating
  effectiveness.

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The Budgeting Process

• Budgets are based on educated guesses therefore
  the better your cost history and accounting
  system, the better your guesses about the future.

• It is better to prepare a budget on limited cost
  data than not to budget at all. Working with
  limited data will allow you to adjust your
  projections.

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Steps in Preparing a Budget

• Clarify the overall goals and objectives for the
  year.
• Review the current years budget.
• Identify expenditures that are not recurring
  every year.
• Gain specific input from chapter board/committee
  chairs and staff.
• Estimate expenses.

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Steps in Preparing a Budget (contd)

• Estimate income and expenses.
• Review and approve the proposed budget with the
  chapter board.
• Monitor and make adjustments to the budget as
  necessary.
• Use the budget as the basis for year-end reports.

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A Budget Should Be

• based on the chapters plan for future
  activities.
• broken down into periods corresponding to those
  of the financial statements
• based on historical information

• a realistic assessment of the future revenues and
  expenses
• actively reviewed as the budget period progresses
• capable of being modified

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A Budget Should Not Be

• a statement of the hopes and aspirations of the
  chapter
• the sole criterion for accepting or rejecting an
  activity or expense item

• inflexible
• a guideline as to the amount of money that must
  be spent by a certain year
• several pieces of paper developed each year to be
  filed until next year

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Benefits of a Budget

• Coordination improves coordination among board
  and committees in a chapter
• Communication allows interchange of ideas and
  information to achieve mutual understanding

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Benefits of a Budget (contd)

• Control the difference or variances between
  actual results and budgeted amounts serve as
  feedback that enables management to improve
  performance through corrective action

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Statement of Financial Position

• Assets
• Cash in Bank 130,000
• Investments 50,000
• Accounts Receivable 25,000
• Other Assets
• Prepaid expenses 1,000
• Investments 5,000
• Total Assets 211,000

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Liabilities, Deferred Revenue,and Net Assets

• Liabilities
• Accounts payable 30,000
• Payroll taxes 5,000 Current
  Liabilities
• Other accrued expenses 1,000
• Total Current Liabilities 36,000
• Deferred revenue
  150,000
• Membership dues 5,000
  Long-term Liabilities
• Subscriptions
  2,500
• Credit Card program 2,500
• Total deferred revenue 160,000
• Total liabilities and deferred revenue
  196,000
• Net Assets
• Unrestricted
  15,000
• Total liabilities, deferred revenue
• and net assets 211,000

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Cash Flow Analysis

• Allows chapters to identify and monitor resources
  available, resources needed to meet obligations
  as they become due, and excess cash that can be
  invested for short and/or long periods of time.

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Cash Flow Formula

• The formula for a cash flow budget is simple
• Cash balance, beginning
  _________
• Plus cash received during month _________
• Cash available for the month
• Less cash disbursed during month - ________
  
• Cash available, end of month ________

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Regular Board Financial Review
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Factors to Consider When Reviewing Financial
Information

• Is the Chapter operating according to plan?
• Is the strategic plan being followed?
• Are the goals of the budget being met?
• Are there a variety of income sources?
• An entity with substantial income from a variety
  of sources is less likely to have trouble than
  one that gets the majority of its income from one
  source.
• Has the cash flow from the sources of income been
  steady and dependable over a given period of
  time?
• Are income and expenses exhibiting appropriate
  trends?
• Are critical income sources growing or declining?
• Are major expenses maintaining steady
  relationships to income?
• Are dues and/or fees income increasing or
  decreasing? Why?

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Comparative Analysis

• Most commonly used method of financial review
• Figures must be provided for two different time
  periods for the same type of financial statement
• Compare information for similar time periods
• Be certain that information for all line items
  have been calculated the same way
• Observe trends and determine
• Is this a positive or negative trend?
• Are there related items whose trends should be
  considered?
• Is some action warranted?

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Comparative Statement of Activities As of March
31, 2001 and March 31, 2002
Dues Revenue Non-Dues Revenue Total
Revenue Total Expenses Excess/(Deficit)
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Earned/Deferred Revenue for NASW Chapters
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The Accounting of Membership DuesAccounting for
a Membership Dues Payment During the First Month
of a Membership Cycle
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The Accounting of Membership DuesAccounting for
a Membership Dues Payment During the First Month
of a Membership Cycle
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The Accounting of Membership DuesAccounting for
a Membership Dues Payment During the First Month
of a Membership Cycle
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The Accounting of Membership DuesAccounting for
a Membership Dues Payment During the First Month
of a Membership Cycle
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The Accounting of Membership DuesAccounting for
a Membership Dues Payment During the First Month
of a Membership Cycle
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Accounting for Earned and Deferred Income
Deferred income
Earned income
J F M A M J
J A S O N D
1/12 of cash payment
6.71
6.71
6.71
6.71
6.71
6.71
6.71
6.71
6.71
6.71
6.71
6.71
Deferred income
73.80
67.09
60.38
53.67
46.96
40.25
33.54
26.83
20.12
13.41
6.71
0.00
Earned income
6.71
13.42
20.13
26.84
33.55
40.26
46.97
53.68
60.39
67.10
73.81
80.51
Earned/Deferred balances at end of accounting
period
Earned/Deferred balances at beginning of
accounting period
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Quiz - A Hypothetical Chapter

• the chapter has three members
• the dues are 120 annually
• the chapter earns dues at the rate of 1/12 per
  month or 10 per month for each member
• member A pays his dues in April member B pays her
  dues in May member C pays her dues in June
• the fiscal year ends in June

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Quiz - How much cash did the chapter receive
during the year?

• A - 360
• B - 240
• C - 60

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Quiz - How much did the chapter earn during the
year?

• A - 120
• B - 60
• C - 360

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Quiz Answers
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Chapter Rebates

• The amount of a chapters rebate is not
  determined based solely on the number of members.
  The amount of a chapters rebate is determined
  based on the net effect of the following factors

Number of Members
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Chapter Rebates

• The amount of a chapters rebate is not
  determined based solely on the number of members.
  The amount of a chapters rebate is determined
  based on the net effect of the following factors

Number of Members
Mix of Member Categories
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Chapter Rebates

• The number of members in the various categories
  is an important determinant in the amount of
  chapter dues revenue chapters actually will
  receive.

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Chapter Rebates

• The amount of a chapters rebate is not
  determined based solely on the number of members.
  The amount of a chapters rebate is determined
  based on the net effect of the following factors

Number of Members
Mix of Member Categories
Member Payment Patterns
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Chapter Rebates

• Chapters actual revenue is a function of the
  number of members who actually pay, not the
  number of members.

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Chapter Rebates

• Chapters actual revenue is a function of the
  number of members who actually pay, not the
  number of members.

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Chapter Rebates

• The amount of a chapters rebate is not
  determined based solely on the number of members.
  The amount of a chapters rebate is determined
  based on the net effect of the following factors

Number of Members
Mix of Member Categories
Member Payment Cycle
Member Payment Patterns
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Chapter Rebates

• When members renewal date occurs impacts the
  flow of revenue to chapters.

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Chapter Rebates

• The amount of a chapters rebate is not
  determined based solely on the number of members.
  The amount of a chapters rebate is determined
  based on the net effect of the following factors

Number of Inactive Members
Number of Members
Member Payment Cycle
Mix of Member Categories
Member Payment Patterns
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Chapter Rebates

• Chapters anticipated revenue is reduced in
  direct relation to the number of inactive members

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• A Year in Review Quarterly Fiduciary
  Responsibilities

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Fiduciary Responsibilities First
Quarter

• Orient new board members to role in fiscal
  operating procedures.
• Review chapter financial policies with new board
• Board receives unaudited year end financial
  report
• Board adopts charge to finance committee.

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Second Quarter

• Audit and management letter presented by auditor
  or treasurer.
• Board takes action to address concerns identified
  in management letter.
• Has 990 tax form been filed?
• Review quarterly report presented by Treasurer.
  Note any significant deviations from projections.

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Third Quarter

• Review quarterly financial report by treasurer
  and note any significant deviation from
  projections.
• What trends, if any, have developed during past
  six months?
• Treasurer needs to review chapters budget
  development process and timetable.

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Fourth Quarter

• Board reviews quarterly financial report
  presented by treasurer and note any significant
  deviations from projections.
• Treasurer and finance committee should work with
  the executive director on cash flow and trends.
• Treasurer presents the finance committee proposed
  budget.
• Board reviews and adopts the budget.

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• Questions
• and
• Answers