Nonprofit Organization Financial Analysis
In this assignment, students are expected to evaluate the fiscal health of a nonprofit organization and develop a set of detailed recommendations for sustained or improved finances. The organization can be the one where you work, participate, are familiar with, or hope to learn more about. It does not have to be a local one but must have an annual operating budget of at least $250,000 and been in existence for at least three years.
You can start this assignment by reviewing financial statements, IRS 990 forms, budget documents (operating and program budgets) of the organization. You may also need to interview the organizations leaders (e.g., Executive Director, Financial Manager, and/or Program Director). In your evaluation process, you should always keep in mind the mission and the key products and/or services of the organization. It is an opportunity to look at the organization from a strategic and systematic perspective with a particular drill-down into the financial resources used to fulfill its mission. Financial statements analysis techniques as discussed in Modules 10-13 should be incorporated in your study. This analysis should lead to detailed recommendations for sustained or improved finances.
Your report should include the elements and follow the structure outlined below:
1) Provide a brief description of the organization (1-2 pages)
Overview of the organization (location, size, age, history, fields of activities, target population of customers, etc.)
Mission of the organization
Overview of main programs
How are finances determined and communicated in this organization? (e.g., Who develops the budgets? Do program directors play a role in budgets? Is the board involved in the finances and how? Does the Financial Department or Manager interact with program directors and how?)
2) Overview of organization finance (1-2 pages)
Revenue sources and structure- Where does the money come from? (Contributions, grants, programs?) Is this diversified? Is it sustainable?
Major program expenditures-Where were the money spent on? What is the percentage of money spent on programs and administration respectively?
3) Financial statement analyses (2-5 pages)
Liquidity- How much unrestricted cash is on hand?
Statement of Financial Position (Balance Sheet)- Is the unrestricted current assets more than the unrestricted current liabilities? By how much? Are there unrestricted long-term investment assets that could be used as needed? What is the unrestricted net asset position?
Statement of Activities (Income Statement)- Is there an annual deficit? Is there a good mix of grants compared to contributions (diversified)? Are management costs reasonable compared to total annual costs?
Provide analyses of different financial ratios to evaluate the financial condition of the non-profit (refer to Module 13). You may want to compare the ratios of your focal organization to industry benchmarks or those of peers. It is helpful, but optional, to conduct a trend analysis of financial ratios by looking into financial statements of multiple years.
4) Recommendations for Sustained or Improved Finances (2-5 pages)
From your analyses in Sections 3 and 4, which aspects (insufficient revenue, undiversified revenue structure, too high in debt ratio, too low program expense ratio, poor cash planning and management, etc.) would you consider weak? How would you recommend improving?
For instance, are there new revenue funding streams you would recommend? (e.g., could they increase in fees, donations, government grants) if you find that the organization has insufficient revenue. And what steps could they take to explore these new funding streams? Or would you recommend further diversifying their funding streams if your analysis above reveals that they lack diversified finances?
It may also be necessary to evaluate the internal controls of the organization. For example, how do they safeguard petty cash? How do they separate duties for financial control? Do they require two signatures on checks? Do they have fidelity insurance? Is the agency transparent in its finances? (Does the organization include a 990, annual report, or audited financial statements on its Web site, etc.?) What recommendations would you provide to support internal controls and transparency?
5) Financial Documents (Appendices)
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