KIMBERLY TISSOT: all right. So we now know that boards are responsible for overseeing the finances and budget. So we are going to review some terms. If you can turn to page 177, which is appendix 2-I. Start with the fiscal year. The fiscal year is a period of time used for calculating annual financial statements. It is what's used for tax purposes when creating the 990 and during audits. It's not necessarily the calendar year. Most non-profits are either via, they work on a fiscal year of the federal fiscal year or the state fiscal year. CILs typically, CILs and SILCs are federal typically. Expenses is any money leaving the organization to pay for salaries, rent, travel expenses, that type of thing, overhead costs. Income is money coming into the organization. Like for grants. Fee for services. Fundraising efforts. Any money that does not have a purpose can be counted as unrestricted funds, and that usually counted as unrestricted funds, and that usually comes up on the income statements. Liabilities are all of the debt and legal obligations for which the organization is responsible to pay. Liabilities can also be unpaid leave, unpaid annual leave, and that shows up on your financial audits. Accounts payable. We all love those. Is our bills. And that's the amount, any amount the organization has been billed. So that can include rent, any bills. Accounts receivable is anything that the organization has billed. How many of your organizations do a fee for service? Okay. Great. So your financial person probably sends bills out to others to pay. And then accrual accounting. This is one of the two forms of accounting. Accrual is actually when both income and expenses are shown on the financial statements as they occur. Cash accounting is actually when you'll see funds as they're accounted for when they come in. So there's a little bit of difference. CILs typically are accrual from what I have seen so far. I guess it depends on all your grants. Budget is how you plan to spend your funding. So you will see budgets are made from, during the fiscal year and they have to be approved by the board of directors. And it shows income and expense projections. And these are estimated expenses a lot of times because sometimes you might plan on getting a number of donations and you might get more than that. So it's just an estimate. But budgets can be updated anytime by your board. Income statements, also known, and I mentioned P&L earlier, and that means Profit and Loss. It's the same thing as the income statement and it shows how the money was actually used and it shows the actual income and expenses. So it shows where you are. And this is what I use every time bills are done to make sure our organization is running smoothly and we are not getting in over our heads with expenses. A variance report. This is something that our board likes to see. This compares the budget and income statements to show the difference between what we expected. And there's an example, I think that's what you have in the book, there's a sample of that and we'll go over that in a second. A balance sheet shows assets and liabilities. And you can pull this, this is something your CPA will request. And then any pass through funds are funds that are used that may be, are supposed to go to consumers for a particular item that they need. So if they need a ramp, the organization may provide you $2,000 and you're supposed to give that $2,000 to a consumer. ROBERT HAND: if I can note on this, so remember like accrual, accrual accounting really can get quite complicated and, you know, how do you allocate your rent and all of this, but we're just trying to teach people enough to be a board member and have a very basic understanding, not real details on it. AUDIENCE MEMBER: I think something that is missing here that really is variant through our boards is whether funds are restricted or not restricted. KIMBERLY TISSOT: yeah, absolutely. We need a second edition. Something that we do during CLA is we actually show our live, our working budget. As a center, we show our budget to the CLA participants so they can get an idea of what a working budget looks like. I typically will go in, and you should encourage your executive director to go in as well, to maybe go over some of the financial statements so that they can learn from the executive director as well. Robbie does this very well in our organization. But we want to give them true examples because budgets can be intimidating. If you're not familiar with how to read financial statements, it can be very intimidating. But it's our job as CLAs to teach folks how to read them. We also create sample budgets and we create sample budgets that show a lot of red flags and we help work through those with the participants. Now, if you turn to page 179, there is a sample financial statement. And so this is a financial statement for six months. So this is in the middle of the year. And so what you want to do is you want to teach what would be a red flag to you all. And I would look at the percentages first to kind of see. So if we're in the middle of the year, we should be at 50 percent. I see one that it looks like a service contract for six months has already been spent, oh, that was income. AUDIENCE MEMBER: what page is that? KIMBERLY TISSOT: page 179. ROBERT HAND: and, again, if I can add on this, remember you're teaching people to be board members, so every agency has a different kind of financial statement. There's no way we could teach people all about them. But as Kimberly was saying, teaching them to look for keys and to ask questions, that's one of the things I say to them all the time. As a board member, you need to understand it and you have the right to ask questions whatever you need to understand and you should look for things that don't look right. There could be a great explanation, but you need to ask about it. KIMBERLY TISSOT: ask questions. AUDIENCE MEMBER: what was very helpful, we went through a process with our board, we actually worked with our financial officer to perfect the reporting budget the way we wanted to see it as the board. And it really helped new board members to really understand the questions to ask. And so we're better able to track where money is being spent, which programs are going to provide program support during the year, where the administration is thinking about taking that money from. So we have those discussions, but we've gotten the board packet, the budget in there now in a format that makes it a lot more understandable. And it took a long time. It took years for us to get to this point, but it makes a huge difference in how we're able to feel confident about what we're approving in program budgets and how spending is going. KIMBERLY TISSOT: we've done something similar. When I walked into our organization we had a lot of trouble. We were probably on the brink of closure as well and the board of directors did not know how much the executive director was paid. And that is something that is the board's responsibility. They are the ones that set the salary. So something that, we worked very closely with our board just to monitor the salaries of the executive director and we actually picked the three highest paid individuals in our organization, it's actually line itemed under salaries now so that they can keep track just to, and so that they can understand when they're reviewing the financial statements. So you can do that as well. Something that is not on this budget but something that we truly encourage and is on our budget, everyone knows about the Americans with Disabilities Act and how you're supposed to provide accommodations, but non-traditional entities do not. So that's something that you want to teach in CLA, to teach folks how to use their disability voice and ask for this. You know, it might not necessarily have to be a line item, but do what-if situations or questions with boards. What would you do if your organization needed to modify the building or what would you do if an employee came to you about a reasonable accommodation. They have to provide it, but is there room in the budget to provide it? Have they thought about that? So that's all questions you really want to have mentioned throughout CLA. Why are my spots so short? ROBERT HAND: I'm going to talk about this a little more. So, again, the idea is to get people feeling comfortable with it. So look at the one that's in there, if you would. What are some of the areas you would look at in the income or expenses and have a question about? Yes. AUDIENCE MEMBER: I guess the first thing that catches my eye looking down at it is I've got an unbudgeted expense and that would be the first thing, because we might have to change the, amend the budget or make sure the executive director is within his spending limit to have an unbudgeted item. ROBERT HAND: so that one that says, contractors. So you have $5,000 that was expended, but there was no budget item. So what we teach people is maybe there's a very good reason for that. Ask about it. Why is that there? Did you just get a grant right at the end that wasn't budgeted but it had $5,000 for an independent contractor or what's going on? Do we need to add that in? What's another area? Yes. AUDIENCE MEMBER: the insurance on expenses. ROBERT HAND: okay. So the insurance is listed as a thousand halfway through the year, 950 or almost all of its spent. Now, maybe they don't look at that on an accrual basis, so they put the full amount in that they paid up front, but the idea is ask. Maybe they're paying it in two six-month increments and all of a sudden it's a $1,900 insurance instead of a thousand. Yes. AUDIENCE MEMBER: one of the things that I've always asked my finance people to do is when they're putting these reports together, for them to go through ahead of time and look for those red flags like that and maybe there's a real reasonable explanation and we have a plan on how we're going to recover it. So put a separate sheet, put a star by it or a number and on a separate sheet list out what the explanation of that is. As a board member, I think you could ask for them to do that ahead of time so you don't have to keep asking all the questions. ROBERT HAND: yeah, ours does the same thing and that's a good point. You can make, you can say, hey, at every board meeting I've been having to ask can you guys look at this beforehand and be prepared. But most of our people that we're training have never been on boards. They've never looked at financial statements. And so they're getting their first exposure to it. So I think that's real crucial. One of the things I always talk about with them is look at the bottom line. Is the organization making money or losing money? Because, as a board member, you're responsible for that. If it's making money and you have questions, well, you have time to work that out. But if you look down there and it showed a $20,000 loss, you know, that organization may be broke before you have time to get all of your questions asked. So as a board member, we teach look at that and address that first. So, again, as you're training people in this, you have to understand most of them have never dealt with financial statements, that we've taught, most of them have never dealt with it at all. And that includes, you know, people who are getting their master's in rehab counseling who take the course and people who are professionals in other areas, they may not have had anything to do with financial statements. So you're having to get them used to looking at that whole part. KIMBERLY TISSOT: it's usually a pretty big discussion about the financial statements in CLA and sit with them and have this be a group discussion. What would be concerns? What would you recommend if you saw poorly designed financial statements, but providing those, say, what would you recommend if you were on this board? And do role playing with them. That's the best way to learn. ROBERT HAND: that's the other thing we say is if you go onto a board and they just, I've seen financial statements that had only the year to date figures and only all income and all expense and that's all you got to see. As a board member, you didn't see the breakdown. And so we would teach people that doesn't give you the information you as a board member need to make responsible decisions, so you have every right to talk to them and say, you know, we need a different kind of financial report. Yes. AUDIENCE MEMBER: I think one of the things that's frustrating, too, for new board members, they don't understand about federal and state grant making processes and how you are expected to begin services when you haven't really received money yet. And it really does require asking a lot of questions of the ED and the fiscal director because something has to, some budget has to pay the expenses of running that program until the money comes in. So I think there's a learning curve there, too. It's important to talk to. ROBERT HAND: right. This, remember, is being taught as generic for all non-profits when you're teaching it. But if I'm doing board training or if I'm doing this at a CLA where I know what they're addressing either as a SILC or CLA is this, then we talk a lot about restricted versus non-restricted funds and what's so crucial about that, and the fact that with the 7C it's reimbursable, so you have to expend that money beforehand. And, yeah, a lot of detail to goes into that that your board needs to understand. And even basic board members as we're teaching need to understand the concept of accrual. Because in an accrual statement, everything can look fine. You've billed, you know, 500,000 and you supposedly have 500,000 of expenses and it looks great, but it doesn't show you that 100,000 of that has never been paid. And so you've paid out 500,000 and only brought in 400,000. And if you don't have the basic concept of what accrual means, knowing that you have to look at the cash, then you can have real problems with that. Yeah. AUDIENCE MEMBER: I think your explanation kind of goes along with what I was going to say, because I'm tagging along hers is that a lot of our SILC members will look at unspent funds that might revert from a center not understanding that the center couldn't spend them because their reimbursement hadn't come in, so they did not have the money on hand in order to spend it. And since you're doing this CLA, I see you're kind of looking at me, that's because up until this year our state didn't put title, or Part B funds into contracts until it was in its second year of spending. So the centers only have one year to spend all of the Part B funds that were allocated to each center. And the reimbursement process got really stuck and some of our centers went from April to August before they got any reimbursements. So towards the end of the year, they didn't have the funds on hand to spend what was budgeted. And since you're doing these CLAs through the center, is that ever a process that you explain to the attendees? PAULA MCELWEE: I'm going to interrupt this conversation because there's stuff happening right now around this that you might be interested in and the deal is that we're finding this cash flow is actually counter to Uniform Guidance. Uniform Guidance requires that the state turn that money around faster. So we're negotiating right now at the federal level to do some training with the DSEs on this very issue because they're not turning it around as fast as they should be. It's not resolved yet. Some states have got a pretty good situation where it turns around quickly and some states have a long delay where it messes up their cash flow. For boards, they need to know what is their cash flow. That might be an aging report for your accounts receivable. It might be the cash flow report of some sort. It might be in a report specifically about a funding source that's problematic. But you're absolutely right. It is one of those issues where it's really hurt some centers and some SILCs, and we're working on a resolution right now. ROBERT HAND: let me say two things. One is we have to remember that the Leadership Academy is to teach people to be on any nonprofit board. Now, you may have ones who you're really thinking seriously about getting onto the board of the CIL, so you may want to give them some extra training about the CIL's budget particularly. And then the other thing is a lot of the work that I do, and this has nothing to do with the CLA, but I'm going to tell you, I am an absolute fanatic that independent living centers need to diversify their income. The way we're funded is so horrible that if we don't go out and diversify income, you're going to struggle forever. That is a side line that has nothing to do with the Leadership Academy. KIMBERLY TISSOT: that's a question to ask, too, as a board member, do you have a reserve? What happens if you have no Part C funding? What would happen to your center? That's what you need to be teaching the CLA folks is to ask those questions for any nonprofit board they serve on because a reserve could be life or death of an organization. I know that we have a reserve of 500,000. So we have 500,000 in a pot. We raised all that and we worked very hard, that's unrestricted funds, but we have that money sitting just in case something happens. So that's something you all might want to look at eventually. And we also encouraged centers and any nonprofit to make sure you're doing a board orientation to explain all of this to your board members before problems occur. ROBERT HAND: yeah. We teach as well in the Leadership Academy that if you're going into a nonprofit board, they should do a board orientation. And if they don't and you decide to become a member anyway, you should tell them about doing a board orientation because a board member should know what the expectations are. Like fundraising, you know, some boards require that you donate as a board member and some a very specific amount. Well, it's not right to elect somebody on a board and say, oh, by the way, we didn't mention to you you're supposed to give a thousand dollars. That should be told, if you want to have that requirement, hey, that's great. They need to know that before they're elected onto the board. And so we talk about that, again, within the academy, about knowing it, knowing the finances, and in your orientation you should get that information. But you're right, again, teaching about any nonprofit. Part of what we emphasize is it doesn't mean you don't make a profit. Any nonprofit should make a profit. They should develop a cash flow. At RICV, we were having to expedite our billing. The Department of Rehab was expediting the payments so we could make payroll and now we have a $500,000 cash flow there because of the way we went about it. But your board has to know all about that and know what to ask and know what guidance to give to their executive directors. KIMBERLY TISSOT: as you continue to diversify, what will happen is your grants will probably be reimbursable. So that's why you have to have that unrestricted so that you can use it up front and then get reimbursed for it. PAULA MCELWEE: the other thing some centers do is a line of credit. So you go to your bank and you borrow money to keep your cash flow going. That is never a winning proposition. In the long term, you've got interest payments of course, that you're making that you can't get reimbursed for, but the other side of it is when something goes wrong, it's too easy to use that money sometimes. And I've gone into situations where the center is in transition and they, whoever it was that was managing the transition spent that whole line of credit and now you can't pay that debt back out of regular funds unless you can show it was a program purpose that fits with your grants. And so they get themselves in real trouble over those lines of credits. So it's a strategy that we don't usually suggest. But as you look at this, they need to know some of that stuff. Right? Don't you wish your board members knew that, so that they could say hey, this statement is worrying me. So that when things start going south somebody is saying something? Because the situations where we've seen where nobody was saying anything, you know, we need good board members. We all need really good board members and this helps them to have the tools to identify a little earlier, hey, wait a minute. You're spending up that line of credit. What's going on? It's never been at, maybe it's a hundred thousand dollar line of credit. You usually spend it up five and down and now all of a sudden it's 20. I need to know what's going on. So they need to know the things to ask for sure. ROBERT HAND: yes. AUDIENCE MEMBER: I would just add to that if they don't ask the right questions, I think as an executive director of an organization we have a responsibility to make sure they are aware of potential problems. KIMBERLY TISSOT: transparency. Golden rule. ROBERT HAND: hopefully, you will do ongoing board training. At RICV, every year they have a board retreat and reviewing the financial, not the financial statements, that's done every board meeting, but reviewing what they mean and how you read them and what each of the grants mean. We do that every year so people will understand that. But for the Leadership Academy it's all about teaching the people that, number one, finances is a critical responsibility of the board. Number two, you get those in the financial reports and if you don't understand them, then you have every right and every obligation to ask, even if it means setting up a separate meeting with the executive director and saying, I need to go through these because it's not making sense to me. And then to take action to make sure things get corrected. One of the things we talked about is, you know, if there's a problem and the executive director says, yeah, we're losing money but we're going to take care of it, and you have the next meeting and it's, yeah, we're losing money and we're going to take care of it, that's not good enough. As a board member, you have the responsibility to demand a better answer than that. And if you don't get it, you need to get an executive director who will give you a better answer than that. And that's what we need to make sure people know. Yes. AUDIENCE MEMBER: I think one of the things that we have to remember as a group in this room is that we're using CILs as a really good example because it's what we know, but part of this whole process is to train people to be members of boards of smaller organizations that might not know everything we know. And so they really have to be vigilant about these questions, but they also need to recognize an executive director, for instance, I'm on the board of a dog rescue and they're great people who know a lot about animals and a lot about construction and things you need to know about a rescue, but I had to train them why it was important to have an attorney and an accountant on the board, why we needed this guidance that we did not have. So you might have some people say to you, I am not getting any answers, but don't talk about voting an ED out right away, if it's a smaller organization that's just getting its feet on the ground. ROBERT HAND: right, the key is to know the kinds of things that need to be addressed and then how do you go about getting them addressed one way or the other. PAULA MCELWEE: Bob and Kimberly, do you find that once people go out on their boards, if they get stuck, do they come back to you with questions? KIMBERLY TISSOT: we've had that happen a few times. PAULA MCELWEE: so having a source, if they don't know, or am I off base, helps them take the next step and action. ROBERT HAND: one of the things that I feel is really different for the Leadership Academy, and we'll go over some of that later, is in most trainings for board trainings you do the training, then you give the people a certificate and you say, great, go away and do what you're going to do. The Leadership Academy is all about buying into your graduates and following up with them, and we're going to talk about all that procedure, and helping them get placed where they want to be and keeping track of that, and then being available to them. So I've had a number of them come back and say to me, wow, the board isn't addressing any of this stuff, and we got with the board president and they had me go out and talk to their board about their responsibilities and how to go about that and help them out. So you want to end up being a resource and that way you're also a resource to the community to make all of your non-profits stronger and your agency gets the reputation as being the one who can do that and to help these others. We're going to take a break in just a few minutes, but we wanted to spend just a few minutes talking with you or having people ask questions or make statements about some of these areas. Like recruitment. Do any of you have a really good board recruitment process you use? Yes. AUDIENCE MEMBER: our SILC has been working on a board matrix and we thought that we had a wonderful one; however, there were a couple board members who aggressively objected to it. They weren't comfortable with their age, about whether they would be able to do any type of donation. There were several things that they objected to and it was more for a way for us to track, you know, the percentage of people with disability that was coming on board, if they were a CIL director. So it actually got shot down. So we don't know where we're going to go from here. PAULA MCELWEE: I might have just a comment about that and then we can go back to this question. A matrix is, at best, an identification tool. It's not a tool for actually making the decision. It's just so you can kind of know where you stand. And I hear two objections to the matrix. One of them is people think you're putting people in categories and they can only serve in one category and you have to have a certain number of people. Usually people can check off boxes all the way across, they do more than one thing. They serve more than one. The other thing is isn't it discriminatory to ask people their age and their disability? It's a voluntary board for pitys sakes. You're not hiring them. It's not discriminatory to ask them if they have when it is a council that requires that 51 percent of the people on the council have a disability and do not work for the state or the CIL. So you have to ask those questions to know if you're in compliance. It's not at all illegal or discriminatory. KIMBERLY TISSOT: explain the reason that you're asking the question in the application. On our application it says we are mandated have to have 51 percent individuals with disabilities on our board. And then the board came up with another statement that is in our strategic plan that is on there as well. So explain to them so that it's very clear before you put the application out. AUDIENCE MEMBER: actually, our governor has a standard application process, so they have been asked some of these questions already. We were just trying to make sure that we weren't heavy in a certain geographical area or, you know, didn't have 14 board members that were 75 and older, you know. We were just trying to fit it kind of like with our 704 report. And we just couldn't get it across to them that it wasn't meant to put them in a place, it was for tracking. ROBERT HAND: maybe we can talk to you in more detail about that later, about ways that might help you with it. Did you have a comment? But let's do meet later. We can talk about that in more detail. But a matrix is generally a good way. And, I mean, we recommend you put, you know, gender and skills, you know, fundraising, business, grant writing, real estate, banking, all of those kinds, as well as geographic, as well as age and ethnicity, that way. But like you say, that's not a, yes, you can't, we don't have somebody right there, so that's all we'll take. It's just to give you a picture to have a good way of going about looking for people that will best meet the needs of the board at that time. KIMBERLY TISSOT: and diversity, just to make sure that you have a diverse board. PAULA MCELWEE: if you've identified anything as an unserved area, which you have to do in your SPIL and you have to do in your 704 reports for centers, you have to identify what's underserved, well, then that gives you an idea of what ought to be on your matrix. ROBERT HAND: do your boards review your bylaws regularly? Yes? No? KIMBERLY TISSOT: we've updated our bylaws, what, three or four times. ROBERT HAND: I would say every couple of years. PAULA MCELWEE: and that doesn't always have to be revised every time, but at least reviewed to make sure you're still in conformance. KIMBERLY TISSOT: and as new members come on board, that's something they should be given and explained and reviewed with. Usually our chair does that. ROBERT HAND: but they need to be looked at because sometimes they say strange things that nobody has looked at for several years and all of a sudden when somebody pays attention you go, my gosh, we would never do that, but that's what the bylaws say we're supposed to be doing. But like you say, even if you review them every couple years it doesn't mean you'll change them every time, but at least it means you'll have the possibility. AUDIENCE MEMBER: my experience with boards reviewing bylaws means they have to be 100 percent perfect and they will scrutinize and scrutinize and scrutinize and they never finish them. And I think this would be a really good opportunity to teach board members or potential board members they don't have to be perfect. They just have to be, you can amend them at any time. You know, I think this would be a really good opportunity to really get that across to potential board members. PAULA MCELWEE: they have to be functional. They have to help your board to function. That's their purpose. How many of your bylaws have specified all the committees that you have to have in your, and of those, how many of you also have all those committees operating well? What I find a lot of times is we go in and the committees are all listed out in the bylaws, but they don't have those committees. And if it's in the bylaws, it's required. Those are your requirements. ROBERT HAND: I recommend that you take out all those committees mostly and just say committees can be formed as needed.