 Welcome everybody. We are super excited on the nonprofit show because this is something we do only a couple times of every year and it is nonprofit power week. We are sharing time and talent with your part-time controller who is bringing forward their best minds and voices to talk to us about accounting and nonprofits and we're going to kick off this week with how to have a best-in-class financial department which is a great way to start the conversation. Hey, no pressure, Angela. We're putting you in the hot seat to tell us all these things. Yeah, sure, Julia. No problem. Just kick off the week and get everybody started. We have the best woman in the hot seat today, Angela Cuxham. We're very very excited to have you and we're gonna dig in here in just a minute. If we haven't met before, I'm Julia Patrick, CEO of the American Nonprofit Academy. My trusty co-host, Jarrett Ransom, is not going to be with us today. She is the nonprofit nerd CEO of the Raven Group. She'll join us back tomorrow. For Nonprofit Power Week, we want to make sure we thank all of our presenting sponsors, Blumerang, American Nonprofit Academy, your part-time controller, Bee Generous, Fundraising Academy at National University, Staffing Boutique, Nonprofit Thought Leader, and Nonprofit Nerd. If you have missed any of our episodes, Angela, we are well past 600 episodes of Resolutions. Thank you of the Nonprofit Show, but particularly this week, you can access us on Roku, YouTube, Amazon Fire TV, Vimeo, and now in podcast form. So wherever you like to consume your digital media, queue us up and we'll be there in your ear as you move about your life. Okay, Angela Cuxham, we are so excited. We've had you on before. We've brought you back to talk about this really important issue that I think sometimes we talk about accounting, but we don't look at it as a whole department. So you're gonna guide us through this conversation. I say, let's get started. Focus on the department? What does that mean? Haven't we already been doing that? Well, no, not really. A lot of times where or management and the board are really just focusing on getting me those numbers, getting us the financial reports. What do we need to send to a funder or to get to the board? And really the finance department is much more than just, you know, producing those monthly financial statements or getting that report turned around when they need it. So we're going to talk about some tips on how you can better focus on the department itself, the people in the department, and what that department can really do for the organization. And a lot of it is education. So, you know, the folks in the finance department can provide education for the board and for management. So they're not just there, you know, just to produce those financial statements. But there's a lot that goes into it. You know, it's interesting because a lot of times I can see that that we give the folks in the finance department the worst offices, we put them in the back, they're not really front facing, you know, we don't have them be a part of the team. Maybe like we do other other departments. So this is going to be really an interesting conversation to have. And we're so delighted that we can do this. So tip number two, hire the right people. Wow, that's a heavy lift kind of given where we are. Everybody seems like they're having trouble hiring staff. What does this look like to you? Yeah, so it actually is. It's it's a difficult thing for nonprofits to make sure that they have the right people in their finance department because it comes from a number of different places, not just where we're seeing folks within, you know, the pandemic and coming out of the pandemic and people shifting jobs and, you know, not wanting to continue kind of what the things that they had been doing. But even before that, it was very difficult for nonprofits to make sure that they had the right people in place because nonprofit accounting is not basic. It's it's it's not easy. It's, you know, a lot of people think, well, it's just nonprofits. It's simple. Well, it's really not. It's it's actually very complex, determining, you know, the various different types of reporting that you need for the various different types of revenue that nonprofits generate. So you really need to make sure that you have folks on your accounting staff who have experience, they have the right background, they have the right training, and they need continuous training as well, because things change, you need to make sure that they're staying up to date. Wow. So that kind of blows my mind because I've always thought, you know, you need to find to your point at somebody who knows accounting, then drill down somebody that knows a nonprofit accounting, very specialized. But this is kind of a hair on fire moment for me, because you brought up this element of change, and having to be refreshed or retrained, I would imagine recertified and continuing education credits with that. Yeah, that does factor in because you want to continue to make sure that you're that you're growing and your knowledge. And, you know, accounting just doesn't it's not stagnant, you know, everybody thinks, Oh, it's just numbers, it's just but you know, there's new regulations coming out all the time, and we have to stay on top of that. You know, I love that you said that because we don't really talk about that enough. It seems like we talk about this more and more. And tip number three is promote secure internal controls. I don't know about you or your clients, but man, am I seeing an escalation just with my business, the American nonprofit Academy of scams that are coming in or trying to get into our accounting through mail and you need to reset your password or you know, it's like, so this is an interesting thing. Talk to us about promoting internal controls. Yeah, something we need to be continuously vigilant about within the organization. But the first point here that I want to make is that you have to set the proper tone at the top. So obviously, you need the proper internal controls, you need policies, you need procedures for everyone to follow. But you have to make sure that within the organization, the tone comes from the top. So that means the board, that means the executive director, executive management, you want to make sure that they're kind of towing the company line, that they are actually following the policies and procedures, and then you can expect everyone else to follow those policies and procedures. And, you know, with that, you also need to make sure that you have the right policies and procedures in place. Kind of getting back to what you were talking about. One thing we always encourage our clients to do is make sure that they are actively looking at a daily basis at their bank accounts. We want to make sure that somebody is checking that activity to know what's going through the bank account, what's hitting there. One are the activities that you expect to hit hitting the bank account. But is there any other activity that you're not expecting that somebody's trying to, you know, warm their way into your bank account, where you could have problems in the future. So you always want to keep an eye on that. So Angela, maybe I framed this up incorrectly, because I was thinking maybe more external things coming in. But when I hear what you're saying, you're really saying, okay, we need to look within to internally, that we might be able to protect ourselves or stay off fraud, or maybe poor, poor management, would that be part of this? Or is it not? Yeah, so yeah, it really looks at it from both perspectives. You want to look internally and make sure that your folks, your staff are doing the things that they should be so that there's policies and procedures that govern what they do. But then there's also, you know, you want to make sure kind of from an external perspective that people don't have an opportunity to kind of take advantage of the organization. So again, policies and procedures from that perspective. One other thing I would point out from the internal perspective is segregation of duties. That's always really important, especially for nonprofits, smaller nonprofits where it's harder to maintain that segregation of duties. You always want to make sure that as an example, you don't have the same person writing the checks, signing the checks, doing the bank reconciliation, you want to separate those duties. And that's really where that tone at the top comes in, because sometimes you need your board to be involved in check signing. Sometimes you need your board to be involved in reviewing payroll or reviewing the disbursements of the executive director, so that others in the organization can see that kind of no one is above reproach. I love that you just said that that no one is above reproach, because at the end of the day, as we serve our communities in the nonprofit sector, yeah, we need to be less charismatic, if you will, and more democratic and moving that across. Really, yeah, really interesting points. And I appreciate you talking about now. Now, tip number four is something that seems like it would be kind of basic. But I'm assuming because you've brought it up, and you mentioned it now, and now we're talking about it again, performing monthly bank reconciliations. Yeah, you're right, Julia, it is basic. And it should be a basic thing that every organization does, no matter how many bank accounts they have, on a monthly basis, they should reconcile those accounts. But what we're talking about is one, making sure that the reconciliations get done, but they need to be done timely, and they need to be done accurately. So you can't wait until year end, when your auditors are coming in to do all those bank reconciliation, because you know that that's the first thing that they're going to ask for. It's not a catch up thing, you really want to do it as soon as the month is over. You want to download that bank statement, and do that reconciliation. And then the accurate part of that is you want to make sure that there's no reconciling items kind of hanging out from month to month, you know, your deposits in transit should clear out in a day or two, they shouldn't lag over from month to month. Same thing with your, with your checks, when you send someone a check, you want to make sure they received it, they cashed it so that your accounts reflect the actual activity. If there's things hanging on that bank reconciliation that could actually impact the validity of your financial statements, if it's not corrected. It's such an interesting thing, because for so many of us, again, that's another one of those back of the house, somebody else is taking care of it, and we're not really looking at it. I've got to throw you a curveball question here. Who's looking at the reconciliation? Should that ever go into, like, a CEO dashboard or the board seat? Like, how can you understand? Yeah, that's actually not a curveball question, because the executive director should absolutely be reviewing the bank reconciliation once they're complete. So, you know, some, some smaller organizations who have a really tight focus on cash, they might, you know, include that cash activity or include that reconciliation in their treasurer's report, maybe, but at a minimum, that executive director should be reviewing those bank reconciliations when they're completed on a monthly basis. And in order to do that, they have to have the bank statement, so they can't just review the reconciliation, they have to have that bank statement to compare it and make sure that all the activity is there. Yeah, smart. I love that you, that you added that, because yeah, absolutely. Otherwise, it's, it's, you could just be looking at anything, right? Exactly. Just numbers on a page, if you're not validating it. Very, very smart. Very, very smart. Okay, so we're talking about, again, understanding how to have a best in class finance department, no matter the size of your organization, whatever type of nonprofit you might be. And we look at tip number five. And I think this is one of those things that is a grand mystery to so many people. Management, compliance, and board fiduciary. I can't wait to hear what you have to say about that. Like one of my hot buttons, sister. Yeah, I'm going to tell you. Yeah, it really is very important. And the connection here, and I'll go into a little bit of specifics on exactly kind of what we expect from the board fiduciary and the management compliance. But the real tip here is that the finance department can't function in a vacuum. So they need the, they need management to know what the compliance issues are, they need to train management on what those compliance issues are as they relate to their contracts, local laws, federal state regulations, they need management to partner with them on that. And to know exactly kind of what finance needs to do because finance can't do it all on their own. They can't manage all of that. And then from a board perspective, it's also an education process. So making sure that we're educating the board to know, you know, what's going on with the finances of the organization, but also what are their responsibilities? And there are some specific responsibilities that the board has. So from a fiduciary perspective, there are, and I'm sure all of your viewers are familiar with these, the duty of care, the duty of loyalty, and the duty of obedience. But they need to make sure that they're staying on top of that. You know, from a care perspective, they need to participate in those board meetings. They need to show up, they need to review the material, they need to be informed about what's going on within the organization. They need to make sure that the organization is in compliance following the laws and regulations. And then from a financial responsibility perspective, how they can really help the finance department to flourish is to focus on the information that finance is providing. So reviewing those reports from a finance committee perspective, reviewing the reports, understanding the budget, helping to monitor the policies and procedures, even getting involved in the audit. So maybe there's an audit committee of the board and they're, you know, interacting with the independent auditors, having actual conversations with them, reviewing their reports. And then from the investment perspective, there might be a separate investment committee of the board, or there might not be, but someone on the board is reviewing those investments, they're understanding what the policies are, how the investments are managed, and then presenting that information to the board. You know, Angela, I'm so intrigued by this conversation because I think a lot of times we, we don't take the boards in the non-profit sector, don't take the lead from their finance and accounting departments on compliance, until it's too late or there's a problem. Or do you see that? Yeah, well sometimes they're, they're not sure what their role is. So part of it might be that they just don't understand their role, or, you know, management isn't being as transparent with them, bringing that information to their attention so that they can act on it. So it really kind of has to be a two-way street. The biggest thing we tell the boards are ask questions. If you don't know, don't be shy, don't, don't think well, that's a stupid question. You know, again, the only stupid questions are the ones they don't ask. And that's, you know, true of boards as it is in anything in life. You have to ask the questions to find out what's going on in the organization. And from a compliance perspective, it's, it's a little bit harder. You know, a lot of board members come from a non-profit background, but a lot of them are coming to the board because they have a particular expertise that doesn't involve nonprofits at all. Right. So they're learning the business of nonprofits while they're, you know, providing their legal advice or investment advice for the organization. But they really do need to get up to speed on, on kind of what some of those non-profit compliance issues are. You know, Angela, I've got one more question before we get off on tip number five. And again, this is like such, I think, when I'm out and about and when I'm working with boards, this is kind of like the meat and potatoes of what I'm seeing. I get these questions and, and the fear, the fear level of fiduciary leadership and what it means. It's just fascinating to me, which always harkens back to education. To me, it seems like we don't, and you started us off with that comment. We have to be educating our teams and our people to understand this. I'm hearing more and more, it seems like that on IRS forms, and now even on grant applications, that more and more organizations are asking about compliance and saying, you know, are, are, do you have these policies in place? Are you seeing that as well? Well, definitely on the IRS, on the Form 990, there are very specific questions that the IRS requires. You know, they require an answer. And so if the IRS is asking for an answer for this, you really want to say yes, right? You want to say yes, that I have a complex of interest policy. I have a whistleblower policy. I want to be able to say yes that the board is reviewing the 990 and that they're reviewing the executive director's salary and they have a process in place. So if the IRS is asking the questions, you want to be able to say yes. I'm doing that. And, and I do think, you know, funders are picking up on that more and more and wanting to know the answers to that. Because they recognize that even though it's on the Form 990, the answer might be no, but that might not be the answer that they want. So if they push the agenda a little bit further, maybe they'll get to the answer that they want. It's, it's fascinating, fascinating stuff. And I, I think that's just for me, again, what I'm seeing, what I hear really, really important. But another big part of this, and this kind of dovetails to an earlier point, is understanding payroll issues, tax, employee benefits. It seems to me, and I can't wait to get your opinion about this, is that because we have the WFA work from anywhere, work from all, but work from anywhere, we're changing how we're doing employee benefits. We're changing how we're doing payroll because now we have people that are working out of state. I mean a lot has changed. Help us navigate this. Yeah, so I guess two points that I want to make there. One, you know, the timely remit is obviously very important. We need to make sure that you know, as we're collecting, as we're withholding those taxes from our employees paychecks, the benefits, the 401k contributions that we're remitting that on a timely basis. And basically, you know, the regulations say as soon as reasonably practical. So one or two days is really all it takes. Once you've got that money in your bank account, just send it right back out or you can contract with a payroll provider who actually can do that for you. So most payroll providers do pay the tax and we've strongly urge our clients to get with a reputable payroll provider who can calculate those taxes and remit them on your behalf because payroll taxes are very specific and they're very specific for the federal government as well as for states. And with what you said as far as, you know, working from anywhere, you really have to be on the ball on paying taxes for wherever your employees are working from. You have to know what it is within the state that they're living in. And if they're living halfway across the country and working for you, you still have to pay taxes for those states. And if you're here where I am on the east coast, the narrow on the west coast, then you might not be knowledgeable about that. So having that payroll provider who is really the expert on that is really important. Yeah, I think that's brilliant advice and I have, I don't know what you think, but I've got to believe that there have been a lot of nonprofits that got kind of caught up and not really knowing where their teams were or underestimating how hard this would be once everybody started spreading out. Yeah, it's complicated. And again, that goes back to having that right people, having the right people in your finance department to recognize again, it's not easy. It's complicated. So let's get an expert involve someone who does this every day as far as those payroll providers. Yeah, I love that. I think you've got to find people out there that can be your champion and know more. You don't have to know everything, but you need to know where to get the right information. Absolutely. So now again, in honor of what's been going on in Great Britain, tip number seven, mind the gap, which is talk to us about what the gap is in accounting. Yeah, so the gap in accounting terms is generally accepted accounting principles. And those are important for any organization and the important part here is it's not easy. So we really need to make sure that nonprofit organizations are following gap so that they are following those generally accepted accounting principles in recording their transactions, producing their financial statements. And again, not a situation where this goes back to having the right people in your department. You need to make sure that you have folks who understand nonprofit accounting and the changes that go on. So a couple of things here that we specifically encourage is or say as cash basis of accounting is not gap. So if you are keeping your books on the cash basis of accounting, you really want to change over to a cruel basis of accounting. One, it's not gap. So if you're getting an audit, you're going to be reporting in that audit on a basis that's different than your internal financial statements and you always want to follow what the auditors are doing. You want your board to stay on an internal basis on a monthly basis. What it's going to look like in your audit. You don't want them to be surprised at the end of the year with a bunch of adjustments. But also from a forecasting and comparative analysis perspective, you really want to do that on an accrual basis so that you can have a good understanding of what activity is occurring month by month. And if you're recording that on a cash basis, then you're not going to get a really clear picture of the impact year over year. And then the other thing is accounting for contributions. And we touched on this a little bit before, but revenue recognition for nonprofits is complicated. It's very complicated. You need someone who's trained in that. And again, that ongoing education, you know, determining how to record a contribution versus a grant versus program service revenue, you need to know basically how to do that and how to differentiate when to record revenue if it's restricted or if it's conditional. There are specific rules that need to be followed. So I've got to ask this question and this is like my, you know, non-accounting brain. But, you know, we understand gap and we, you know, you hear that, maybe you don't fully understand it. Is it fair to say that there's gap for nonprofits? I mean, is it something that is actually divided down a little differently because things are so different in the nonprofit sector? There are very specific rules for nonprofit organizations. There's gap overall, which for the most part, nonprofits are responsible to follow. But then there are some subsets that are very specific to nonprofits. So especially when it comes to revenue recognition, there are some elements of transactions that nonprofits have that actually follow for profit gap. And then there are other portions that own nonprofit gaps. So you actually need to know both. Okay, interesting. That's cool. I'm glad that you, uh, you kind of helped us to understand that because it even illuminates the fact even more about different this concept is for profit versus nonprofit. So, wow. Well, you know, we kind of tease the concept that we had, we had 10 major items. Got through seven of them today. YPTC has a really cool event coming up that is going to go through this whole process. It's going to be held Wednesday, September 28th. It's only one hour and it's free. Anybody can sign up. You can go to yptc.com, which is short for your part-time controller, which makes it easy. It's going to be held one o'clock eastern standard time and folks can expect what when they sign up to watch this or participate in this webinar. Yeah, so we're going to kind of take a deeper look into one of the seven tips that we talked about today, but we have three additional tips. So it's a full 10 tips for our best in class finance department and go into a little bit more detail on each one of the things that we talked about today, but also talk about financial statement audits, the importance of monthly financial statements, and what the organization should get out of those, and just general information on how to have a best in class finance department. So Angela, would it be fair to say that this would be good information not just for the internal folks that are dealing in the financial departments, but maybe management, board members, board leadership, executive committee. I mean what's your thought on that? Like who should be watching this or participating in this? Really anyone certainly finance, any finance folks, but anyone in management within a nonprofit, certainly executive management, anyone on the board of a nonprofit I think would benefit from this information. As we talked about today, the education that the finance department can provide to the board and the things that the board should understand about their finance department, the things that management from a compliance perspective and also just from a fiduciary perspective, what they need to know and how they can support finance, and how finance can support them in the program side. I think is all very important and things that we will touch on. You know it's so interesting. I love how you phrase this and how you set this up because so often when there's any financial reporting, certainly when when the auditors come in or release their results to the board or whatever, so often it's crickets. You know and the board members who are so passionate and ready to speak up and go at it during the meetings, shut up during that piece. And it's it's just such a problem that when we're not communicating and it's such a fascinating thing. I have just learned so much from you as I always do. I'm just thrilled that you would join us back here for Power Week on another episode of The Nonprofit Show. Angela Koch's a manager. Now you're based where because I know you're in the east. I'm in the east. I'm in Delaware. Delaware, okay great. So check out yptc.com, your part-time controller. They are one of the nation's largest non-profit accounting specialists. They work with all different types of nonprofits throughout our wonderful sector. We learn so much from your team. They're really a lot of fun. They give us a lot of things to think about in the non-profit sector and I think they've certainly demystified some of the fears that we can easily get consumed by when we think about being stewards of our non-profit sector. So Angela Cox, thank you so much for being with us. Thank you Julia for having me. Appreciate it. It's been a lot of fun. Hey everybody, this is Monday. If you have not joined us live or you're finding us on our archive, we have a lot more coming up on the special segment of Nonprofit Power Week with your part-time controller. Again, I'm Julia Patrick, my co-host Jared Ransom, the non-profit nerd. We'll be back tomorrow. Part and parcel with these amazing episodes where we get to bring these thought leaders in. We have amazing support from Bloomerang, American Nonprofit Academy, fundraising academy at National University, Be Generous, your part-time controller, staffing boutique, non-profit thought leader, and non-profit nerd. These are the folks that join us in this March, day in and day out. Okay, Angela, are you going to be tuning in for the rest of the week? I will be, absolutely. I want to see what my colleagues have to say and I'm sure it'll be very insightful. Well, I don't know. I think you've set the bar pretty high my friend. I'm sure they're out to that. They're all out to what I know they're from. Well, we have a very exciting week planned ahead and I think that it's going to give us a lot of confidence when we talk about these things and the accounting piece is so fundamental to the success of our non-profits. As we end every episode and especially these special episodes with your part-time controller, we like to remind ourselves and our guests and our viewers and our listeners to stay well, so you can do well. We'll see you back here.