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Roberta Katz Consulting 2023 Newsletter Roundup Finance Insights and Tips For Nonprofit Organizations
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com >>>>>>>>>>>>>>>> ROBERTA KATZ CONSULTING SERVICES <<<<<<<<<<<<<<<< Evaluating and documenting finance department operations Compiling Accounting Policy and Procedure Manuals Optimizing workflow and implementing internal controls Fraud risk management Technology implementation support Audit readiness and preparation Staff training and development During the past year I provided monthly e-mail newsletters to my colleagues in the nonprofit sector. The newsletters contain valuable and practical information that leads to nonprofit organizations building strong finance departments. As 2023 comes to a close, I compiled my newsletters for the year in this eBook. For those who did not have the opportunity to read them and those who would like to reread them, I hope you find the information relevant and useful for your organization. Roberta Katz Preface The guidance and advice I present in my newsletters is based on my fifteen years’ experience working in senior financial management positions at major nonprofit organizations. In this role, I successfully implemented the processes and systems I discuss in my newsletters. Now as a consultant, I work with my clients to implement these processes and systems that strengthen their finance departments.
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com >>>>>>>>>> Subscribe to my upcoming newsletters <<<<<<<<<< >>>>>>>>>> Schedule a complimentary consultation <<<<<<<<<< Let’s discuss how the services provided by Roberta Katz Consulting can lead to the strengthening of your nonprofit’s finance department. New Year’s Resolutions For Nonprofits Protecting Your Nonprofit from Fraud The Importance of Assessing Your Nonprofit’s Finance Operations Be Proactive Not Reactive: Preparing for Staffing Disruptions Breaking the Silos in Nonprofits to Achieve Effective Financial Management Finance and the Board of Directors: Questions Nonprofit Board Members Should Ask Protecting User Access to Automated Financial Systems Sign Up Let’s Discuss Newsletter Topics
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com New Year's Resolutions For Nonprofits Happy New Year! Now is the time for the finance department of your nonprofit organization to set its goals for 2023. 6 Resolutions for Nonprofit Finance Departments Resolved: Distribute monthly financial statements by the 15th of the following month Result: Proper procedures in place result in the distribution of timely and accurate financial statements. Resolved: Create or update your Accounting Policies and Procedures Manual Result: Consistency in applying policies and procedures | Transparency in financial management | Proper safeguarding of financial resources | Compliance with regulatory and accounting requirements | Efficiency in training new employees.
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com Resolved: Schedule an independent assessment of your finance department operations Result: Your operating procedures will be evaluated. Inefficiencies in and lack of internal controls will be identified. Resolved: Expedite completion of the annual financial audit by preparing for it all year Result: A successful financial audit will be completed in a timely and cost-efficient manner. Resolved: Provide monthly training workshops for finance department staff Result: Staff will gain a fundamental understanding of their areas of responsibility. The organization will have the opportunity to teach staff new areas related to their daily job functions. Resolved: Review and update user access rights to automated financial systems Result: Monitoring staff access to automated financial systems on a regular basis minimizes the chance of improper and unauthorized activity.
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com Protecting Your Nonprofit From Fraud Financial fraud not only depletes an organization's assets but also affects their reputation, once the fraud is publicly disclosed. Although nonprofit organizations do not anticipate being victims of fraudulent activity, they should be aware of areas where they might be at risk. Remote working, downsized workforce and changes in staff roles and responsibilities may contribute to incidents of fraud. With proper internal controls, policies and procedures in place, this risk can be mitigated or even eliminated. 8 Fraud Risks To Nonprofit Organizations Personal Expenses Paid with Organization Funds Employees may use a business credit card or submit expense reimbursement requests for personal expenses and payment is made without proper oversight or approvals.
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com Creating Fictitious Vendors This fraud risk involves setting up fictitious vendors in the Accounts Payable system through which fraudulent invoices are processed and paid. Overstated Vendor Invoices A vendor can commit fraud by knowingly submitting overstated invoices which are paid without the organization checking the invoices against the terms of the vendor’s contract. Kickbacks Paid to Key Procurement Staff Selecting vendors without a formal bidding process to ensure quality service and prevent favoritism can result in fraudulent activity such as kickbacks paid to key procurement staff to maintain the organization’s account. Expired or Improperly Executed Contracts and Agreements Outdated or improperly executed contracts and agreements can result in fraudulent payments being made for goods or services that were not authorized. Improper Internal Controls Over Cash and Checks Received Theft of cash or checks received can occur in the absence of written and enforced policies and procedures that include effective internal controls such as separation of duties and supervisory approval. Conflict of Interest The risk of fraud can occur when individuals leverage their positions to obtain an unauthorized benefit from a business transaction entered into by the organization. Theft of Physical Assets The risk of physical asset theft by internal or external parties can occur without proper processes and controls in place.
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com The Importance Of Assessing Your Nonprofit's Finance Operations Has your nonprofit’s finance department ever undergone an independent assessment of its operations? An independent assessment brings a fresh set of eyes that reviews your finance department operations critically and provides recommendations for improvements. An assessment can correct issues your organization is having and identify those that have not yet been detected. An independent assessment is essential due to the prevalence of cyberattacks, the advent of remote working and the increased risk of fraudulent activity. Implementing efficient and effective operating procedures is critical for ensuring the sustainability of the organization and its ability to successfully carry out its mission, whether your finance department uses automated or manual systems. An independent assessment of your finance department’s operating procedures can identify: Weaknesses in internal controls Workflow inefficiencies within roles and between roles Insufficient staff training in using automated systems Manual processes that need to be replaced with automated systems
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com Some Issues My Assessments Have Identified Finding Inefficient process for receiving vendor invoices Negative Impact Lost invoices resulting in late payments to vendors causing a delay in receipt of goods and services Finding Inadequate process for vetting new vendors and entering them in the accounting system Negative Impact Payment of invoices to unauthorized vendors Finding Approval of employee expenses by staff who do not have direct knowledge of the employee’s job activities Negative Impact Approval and payment of expenses that do not have a valid business purpose Finding Failure to compare invoices submitted by vendors to their contracts prior to payment Negative Impact Invoice amounts submitted and paid in excess of negotiated contract prices Finding Staff not properly trained on the automated systems used for processing billing to government funders Negative Impact Billing not submitted to government funders for all services performed At the conclusion of the assessment, I present a written report with my findings and recommendations. I also provide guidance and tools that assist in implementing my recommendations.
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com Be Proactive Not Reactive: Preparing for Staffing Disruptions Nonprofit organizations are facing high staff turnover, staffing shortages and difficulty attracting and retaining qualified employees for their finance departments. The period in which a position is vacant or a new hire is learning their position in the finance department can result in essential daily operations not being performed, delayed financial reporting and an increased risk of fraudulent activity. The finance department should proactively prepare for these operational disruptions. Do not wait until a problem arises… it may be too late!
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com It’s too late if: Staff leave and nobody knows the operating procedures the staff person followed in performing their daily job functions. Internal controls are compromised. This can result in unauthorized or fraudulent activity. Monthly financial statements needed for critical decisions are delayed or inaccurate. Accounting policies and procedures have not been documented to ensure ongoing, effective management of the finance department. 5 Best Practices For Your Nonprofit Be Proactive! 1. Document and evaluate the operating procedures team members follow in performing their daily job functions. 2. Ensure that internal controls, such as separation of duties, are maintained when staff vacancies occur. 3. Implement automated systems that maximize productivity and eliminate time-consuming manual processes. 4. Train staff so they gain a fundamental understanding of their areas of responsibility and advance their professional skills. 5. Create, implement and enforce an Accounting Policies and Procedures Manual.
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com Breaking The Silos In Nonprofits To Achieve Effective Financial Management Collaboration between the finance department and non-finance staff in nonprofit organizations is essential to achieve effective financial management. By breaking down the silos preventing this collaboration, the finance department can fulfill its responsibilities and enable the organization to run its programs, deliver services and successfully carry out its mission. Working collaboratively is essential for: Implementing and enforcing accounting policies and procedures Maintaining internal controls to protect the assets of the organization Generating accurate and timely financial data and financial reports How Do Nonprofit Organizations Break Down the Silos Between the Finance Department and Non-Finance Departments? 1. Identify areas where collaboration is needed by reviewing, documenting and evaluating the finance department’s operating procedures.
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com 2. Communicate to leadership the areas where collaboration is needed and why it is important to the organization. 3. Discuss ways to promote collaboration and address challenges that might be encountered. 4. Train non-finance staff who are responsible for processing data in automated financial systems, such as expense management systems, in their proper use. 5. Provide guidance to staff on how to comply with due dates while fulfilling their daily responsibilities. Where Is Collaboration Needed? Examples: Maintaining proper checks and balances over spending throughout the organization Working together to create and monitor the organization’s budget Processing data in automated financial systems, such as expense management systems, in a timely manner Keeping cash and confidential documents in a secure location with access given only to authorized personnel Adhering to due dates for submitting information, established by the finance department, so the finance department can generate accurate & timely financial data & financial reports
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com Finance And The Board Of Directors The Board of Directors of a nonprofit organization has a fiduciary responsibility to oversee the financial health of the organization. Although they are not responsible for managing the daily operations of a nonprofit organization’s finance department, they should be confident that the finance department is managed efficiently and effectively with proper processes and systems in place to support the organization as it successfully carries out its mission. To fulfill their responsibility, Board members should ask senior management questions in five key areas: Personnel Policies and Procedures Internal Controls Allocation of Resources Financial Audit
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com Questions Nonprofit Board Members Should Ask KEY AREA #1: PERSONNEL Is there an adequate number of staff in key positions, with well-defined roles and responsibilities, to operate the finance department efficiently? Are the procedures that each staff member follows in performing their duties documented? KEY AREA #2: POLICIES AND PROCEDURES Does the organization have a formal Accounting Policies and Procedures Manual? Is the manual updated at least annually, reviewed by senior management and approved by the Board of Directors? KEY AREA #3: INTERNAL CONTROLS Does the organization have sufficient internal controls to mitigate the risk of unauthorized and fraudulent activity and prevent noncompliance with regulatory requirements? How does senior management monitor and ensure that the internal controls are working properly? KEY AREA #4: RESOURCE ALLOCATION Are adequate resources allocated in the budget for implementing automated systems to replace inefficient manual procedures? Are resources allocated to programs that are not directly related to the organization’s mission? KEY AREA #5: FINANCIAL AUDIT How has the organization addressed the findings presented by the auditors in their Management Letter? Why was there a delay in the start day of the audit and what steps are being taken to correct this issue?
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com Protecting User Access To Automated Financial Systems User Access Controls protect user access to automated financial systems. These controls restrict user access only to authorized users and only for the functions they need to perform their jobs. Effective user access control practices help to mitigate the risk to nonprofit organization of unauthorized or fraudulent activity occurring. User Access Controls include assigning: Login Rights-designate who is authorized to log onto a system and how they log on. Permission Rights-designate which functions each user may perform within the system, for example, input, edit, delete or view only.
Copyright 2023. Roberta Katz Consulting www.rpkatzconsulting.com Best Practices For User Access Controls NEW USER AUTHORIZATION. Prior to granting access to a new user, proper authorization should be provided to the system administrator. For example, a user access request should be submitted by an authorized approver. USER TERMINATIONS System access for terminated employees and other users should be promptly revoked upon their termination. A formal process should be implemented for notification of terminated users to the system administrator. This process should be included in an exit checklist for terminated users. ASSIGNING PERMISSION RIGHTS. Assigning permission rights based on roles ensures that all users who are assigned a particular role are given the same permissions appropriate to their role. REVIEW AND UPDATE USER ACCESS Periodic review and update of users who have access to the systems and their permissions should be undertaken to identify terminated employees whose access was not removed and to reflect changes in permissions due to changes in an employee’s role. These changes should not be implemented by the system administrator without proper authorization. MAINTAINING INTERNAL CONTROLS Internal controls such as segregation of duties and supervisory approvals should be maintained when assigning permissions. For example, no one person should be able to input, edit and approve their own transactions in the system. Maintaining these controls will mitigate the risk of unauthorized or fraudulent activity.
Roberta Katz Consulng Nonprofit Finance Consultant Strengthening Nonprofit Organizaons www.rpkatzconsulng.com robertapkatz@gmail.com 917.359.1158