Discuss the major elements of a sound financial structure of a nonprofit organization 1) The organizational structure and the roles

and responsibilities of various "people" To ensure sound financial structure within an organization, there are several key positions that must be filled regardless of the size of the organization. One of these positions is the board treasurer. In smaller nonprofits with fewer account professionals on the payroll, the board treasurer assumes a much larger role (Grobman, !""#. $e or she will be responsible for making financial reports for the rest of the board, overseeing the organization%s cash flow along with the e&ecutive director, preparing'organizing documents for the annual audit, and preparing the ((!. In larger organizations, many of these tasks will be completed by staff members, and the board treasure will primarily be responsible for overseeing the organization%s financial reports and ensuring that the organization is remaining fiscally viable. The staff roles within an organization%s financial structure will vary depending on the size of the nonprofit. Generally in larger nonprofits, you can e&pect to see a )hief *inancial Officer ()*O#, a controller, and at least one accountant. In smaller organizations, the responsibly of these roles might fall to one or two people, like the e&ecutive director or the managing director. In larger organizations, the accounting and financial staff are responsible for compiling and producing key financial statements such as statements of financial position, statements of activities, and statements of cash flows. *or the purpose of the audit, it is also recommended that the accounting staff operates under Generally +cceptable +ccount ,ractices (G++,# (-uppel, !!.#. It is important to not that regardless of the size of the organization, it is critical to have more than one person involved in the preparation and maintenance of financial documents, both for the sake of accountability, and for the integrity of the organization.

In addition to staff and board, the independent auditor plays a key role in the financial structure of an organization. It is the auditors role to, at least once a year, complete an independent audit and issue an opinion on whether or not the financial statements that were prepared by staff are in accordance with the G++, (-uppel, !!.#. 2) Organizational policies and procedures One of the most important policies for an organization to have written in to its financial structure is having multiple people oversee that nonprofit%s accounting and financial reporting. $aving multiple people look at statements not only helps to reduce the instance rate of costly errors, but it also helps to maintain institutional integrity by reducing the risk of fraud. Over the past few decades there have been several scandals in the nonprofit community surrounding an organization%s financials/ the scandals have not only done harm to the groups that were rocked by them, but they have also sent waves through the rest of the nonprofit community casting a shadow of doubt over our ethics. If an organization%s halo effect is tarnished, they risk losing support for individual donors and funders. +dditional, all nonprofit organizations should have a clearly defined policy surrounding acceptable use of an endowment, an operating reserve, and a board discretionary fund. $aving a policy laid out that states what are acceptable and unacceptable uses of such funds will help to make a clear course of action of the board during times of financial hardship. Often during times of financial hardship there is unnecessary stress that is placed on an organization because there is not a clear course action laid out for how to handle the lean times. 3) Record eeping

0onprofits have two basic systems that can be used for record keeping. One is the cash basis of accounting, and the other is the accrual basis of accounting. 1ach accounting system has its own benefits and shortcomings, but only the accrual system is acceptable under the G++, (2ietlow, $ankin, 3 4eidner, !!.#. If an organization wishes to receive a favorable auditor%s opinion letter, they should make sure to use G++,. G++, also makes sure that financial statements are more comprehensive, and they are also more easily compared to other organizations. The cash basis of accounting might be easier for smaller organizations to apply, but this accounting system will result in two outcomes5 either the management of the nonprofit will have to reissue financial statements under to G++, guidelines for the auditors to review, or the organization will have to accept an opinion letter that is issued stating that the organization is not in compliance with G++,. This second option is less than optimal because many funders, banks, and government contracts re6uire that an organization be G++, compliant before money is granted or lent (-uppel, !!.#. !) "lignment of agenc# goals The ultimate goal of any nonprofit organization should always be to complete or achieve as much of its mission as possible. *inancial goals should only be established to support the furthering of the mission of the organization. That being said, financial goals are still critical for every organization to set, because if there is no money, then there are no resources for the organization to complete the mission. There are multiple schools of thought behind setting financial goals. Two prominent theories are that organizations should strive for li6uidity (2ietlow, $ankin, 3 4eidner, !!.#. +nother thought is that organization should strive for

financial empowerment (7rinckerhoff, !!(#. 8ue to the nature of nonprofit organization%s relationships with their funders, these two goals are often directly at odds with one another. *re6uently, funders will set the stipulation that an organization may not have an operating surplus. 7ecause of this stipulation enforced by many funders, organizations are encouraged to be highly li6uid so that they may have resources if there is a dry spell on cash inflows (2ietlow, $ankin, 3 4eidner, !!.#. 7rickerhoff ( !!(#, on the other hand, encourages organizations to become financially empowered by placing funds into an endowment, creating additional sources of revenue, and states nonprofits should strive to run a surplus . out of "! years. 7y doing so, an organization can grow and e&pand into areas where they feel they can have the most impact, instead of being dependent on where funders will give the most money. 9hen determining which financial philosophy to employ, an organization should at whether their mission would be better served if they continued to have a close relationship with funders that have strict regulations, or if they should become more financially independent so that they may be more fle&ible when developing new programs to help their constituents. $or s %ited 7rinckerhoff, ,. ( !!(#. Mission Based Management. $oboken5 :ohn 9iley 3 4ons, Inc. Grobman, G. ( !""#. An Introduction to the Nonprofit Sector. $arrisburg5 9hite $at )ommunications. -uppel, 9. ( !!.#. Not-For-Profit Accounting Made Easy. $oboken5 :ohn 9iley 3 4ons, Inc. 2ietlow, :., $ankin, :. +., 3 4eidner, +. ( !!.#. Financial Management for Nonprofit Organi ations. $oboken5 :ohn 9iley 3 4ons, Inc.