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July 2019: Financial Management for the Non-Financial Leader

By Finance & Accounting, News

Contributor: Gene Gregory, Warren Whitney Finance & Accounting Director

Financial Management for the Non-Financial Leader

Whether you have just bought the company or have risen through the ranks, as the CEO, President, or Executive Director, you are responsible for overseeing operations, ensuring financial sustainability, and managing the organization.

If your career path has been in operations, business development or fundraising, you may feel your financial acumen is insufficient.  With this lack of experience, you question how can you be confident in your role and responsibility for financial sustainability.

This is not an unusual scenario.  The non-financial leader often carries this burden and can feel inadequately trained.  If this is what you face, below are recommendations to follow for your organization’s financial health.

  1. Internal Controls

Spend some time to make sure you understand how financial transactions flow through your organization.  Look for any concentration of duties or conflicts of interest that create risk.  Make sure there are clear lines of authority for all financial affairs; consider both the physical and virtual security of the organization’s assets. Remember assets may be “virtual”.

KEY POINT

“Cash is King”!  Embezzlement of cash is the most frequent means of misappropriation of an organization’s assets.  A simple monthly review of the bank statement might identify issues and, at a minimum, puts your staff on notice that you are paying attention to the details.

  1. Financial Reporting

Financial reports summarize your organization’s financial activities and position.  Your accounting department should produce consistent and accurate financial statements.   At a minimum, receive and review:

  • The monthly income statement that measures revenue and expenses.
  • The balance sheet that highlights assets owned, debts owed, and net equity.
  • The cash flow statement that shows how cash is being earned and used.

If your organization has significant accounts receivable, large capital expenses (building, equipment, etc.), or debt service requirements, the cash flow statement may tell a different story from the income statement.

Reviewing monthly and YTD income and cash flow statements will explain how the organization is progressing (or regressing).  Comparative statements showing current results and positions compared to past results and positions will identify trends.  Comparison to budgeted activities (see #3 below) will show how closely you are following your plan.  Ideally, your staff and system(s) can report activity at the “business unit” level that is important to your organization (i.e., division, location, department, program).

Make sure your reports are relevant to your needs.  External reporting likely requires financial statements prepared in accordance with the Generally Accepted Accounting Principles (GAAP); however, you may need a different view or format to make good business decisions.

  1. Budgets

Budgets are essential to good financial management because they project future revenue and spending.  Your budget should be your roadmap to operations.  Even if your operational managers lack budgeting experience, have them participate in the process.

Without a budget, your organization will “fly blind.”  The budget outlines your operational plan in terms of revenues and expenses.  How do your operations generate revenue? What is the expense structure of your organization?  Asking yourself these questions and reviewing the company’s past expenditures will help guide the process (Note- Units of sales or services usually have predictable revenue values).

As mentioned above, reporting financial results versus the budget shows how you are doing against your planned operation.  This comparison may indicate a need for greater skill in planning and budgeting or for a change in operations.

KEY POINT

  • Admit what you don’t know and seek help. Learn how to relate basic financial statements to your operation, mission, and financial health.
  • Make sure your leadership team and program managers can relate basic financial statements to the operation, mission, and financial health.
  • Your accounting staff must understand how operations work and why they are relevant.
  1. Outside Resources

Learn from the advisors who support your organization.

  • Your banker can share observations about your financial position. Banks offer many financial services, and you can learn a lot by investigating those services (even if you don’t adopt them).
  • Your audit firm will have a good financial perspective because they work with other similar organizations. While the practices of their other clients are confidential, they will have general observations they can share.  Many CPA firms offer newsletters and seminars on financial topics that impact industry, businesses, and operations.
  • Your payroll service provider (if you use one) is a good source for employment regulations.
  • Your benefits broker understands market trends for health, retirement, and other benefits. They may also be a resource for employment laws and regulations.
  • Your property, casualty, and liability insurance broker can provide a profile of organizational risk and suggest ways to mitigate it.
  • Investment managers have a perspective on the economic outlook that may be useful in organizational planning.
  • Peers from other organizations can provide their point of view and you may find shared solutions to issues.
  • Industry and community organizations may provide “capacity building” assistance for smaller organizations.
  • Professional associations offer industry learning opportunities.
  • Many, many more resources exist. Think about opportunities within your community.

Warren Whitney

Many of our clients have found that our accounting and finance professional offer an efficient and effective solution to financial management.  Our professionals work on an ongoing, part-time, fractional basis to provide a cost-effective way to supplement your finance function and build for the future. To learn more about financial management, please contact Gene Gregory at 804.977.6693 or ggregory@warrenwhitney.com

NAVIGATING THE COMPLEX TERRAIN OF HR REGULATIONS

By Human Resources, News

Contributor: Beth Williams, Warren Whitney, Director Human Resource Practice Group

Today in business, there are more acronyms, legal agencies, and regulatory requirements than ever before. If you employ people in your business, you must understand and comply with these requirements, which can be daunting. The number of people on your payroll determine the magnitude of your time involved and, ultimately, the work expended to comply with the requirements. The full life cycle of an employee from recruiting strategies through terminations and all actions in between present opportunities for legal issues. The key is creating best practice processes, policies, and a workplace culture that protects your company and manages risk.

Where are we now? Every February the President’s administration releases its proposed fiscal year budget for the upcoming year outlining the White House’s priorities for the year ahead. Many of the items for FY 2019 contain a number of workplace-related proposals, specifically changes to labor, healthcare, and immigration. Below are the main topics to consider when assessing strategic decisions for your business and HR policy. While some of these areas are still in the proposal stage, they will be items to keep an eye on going forward.

LABOR

Paid Parental Leave establishes a federal and/or state paid parental leave program. Family Medical Leave Act (FMLA) was passed and allows for unpaid leave for up to 12 weeks if your organization meets the qualifications. A new regulatory proposal suggest that paid parental leave might be found and funded within the unemployment insurance program. These provisions, if passed, would begin in 2021. Another option is a voluntary Social Security (SS) benefit program that would provide pay during parental leave as an offset to future SS benefits for employees who wish to take six weeks (2019 proposal) of paid leave for mothers, fathers and adoptive parents to stay home to recover from childbirth or bond with their children. This federal legislation did not pass for this year but many states and companies have implemented a similar policy as a way to address retention.

Employees who work for the State of Virginia are now eligible for paid parental leave per the Governor’s Executive Order signed in 2018. The new benefits, which took effect last summer, provide eight weeks of leave at full pay to mothers and fathers alike. Workers who become parents through adoption or foster placement are also eligible.

DOL and Overtime
Held over from 2016, and still ongoing, are revisions to the Fair Labor Standards Act (FLSA) and overtime regulations. These regulations affect almost every employer and are paramount in the minds of employees in non-exempt status roles who are eligible for overtime compensation. In May 2019, the DOL has proposed revisions to allow employer specific policies and practices that will drive employee engagement, retain the current duties test, and adjust the nationwide salary level (using the same methodology used in previous rulemaking). The Department of Labor has proposed an increase in the salary-level threshold for white-collar exemptions by $11,648 (from $23,660 to $35,308 per year). If finalized, the new overtime rule would result in the reclassification by employers of more than a million currently exempt workers as nonexempt and an increase in pay for others above the new threshold. The proposal does not call for automatic annual adjustments to the salary threshold.

As an organization, consider the reclassification exercise as a way to review job duties, schedules, staffing levels, and salaries. This could have a profound impact on payroll and budgets by making more employees in the workforce eligible for overtime pay when converted from exempt to non-exempt. Above all, ensure that your approach is consistent across the organization.

The Second Chance Act (in the original budget proposal) supports individuals exiting prison to transition to community life and long-term employment through mentoring, job training, and other initiatives. Part of this effort includes apprentice programs at the state level to enable successful outreach strategies, partnerships, economic development strategies, and fuller integration into society. The First Step Act (legislation passed by Congress in December 2018) gives judges more discretion in sentencing offenders for nonviolent crimes and gives inmates credits for in-prison job training and education so they can earn early release.

HEALTH CARE
Affordable Care Act (ACA) proposals have contained funding for a two-year cost sharing reduction in subsidies. This will impact the individual market and may shift significant costs to employers and other private sector payers as well as the federal government.

Prescription Drug Costs
The Department of Health and Human Services (HHS) has published a proposed rule to lower the cost of prescription drug prices by encouraging drug manufacturers to pass their rebates directly to consumers (by-passing the pharmacy benefit managers). This proposal targets Medicare plans and other government health plans but, over time, will impact employer sponsored group health plans. If approved, the effective date is January 2020. In October 2018, President Trump signed into law the Patient Right To Know Drug Prices Act which allows pharmacists to discuss drug pricing with patients. Pharmacists may now educate consumers regarding their medication, pricing, and alternative cost-efficient options.

Association Health Plans and “repeal-replace” were debated throughout this past year, a lot still remains to be discussed and debated in the health insurance arena.

IMMIGRATION
I-9 Audits
U.S. Immigration and Customs Enforcement (ICE) have significantly increased the number of I-9 audits this past year due to new federal initiatives. It is expected that I-9 audits will continue to be a significant hot button for ICE in 2020. Small to mid-sized employers are especially vulnerable and are easy targets for fines. It is important to know: 1) How to complete the employer portion of the I-9 form, 2) What documents are acceptable, and 3) How to interpret those including expired documents. Ensure all I-9 files are kept separately from other employee files; they require ongoing maintenance and compliance.

Employment Verification
Over recent years, there has been a push for a nationwide mandatory process using E-Verify, the government’s electronic employment eligibility verification system for all employers. The same proposed funding includes staffing for more Immigration and Customs Enforcement (ICE) officers and additional worksite investigators. Much of the funding for these initiatives are a result of employer I-9 audits and associated fines.

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Warren Whitney’s Human Resource professionals can assist you in providing a better understanding of the legislation and their potential impact on your business. Now is the time to assess your best practices, current policies and to obtain advice for strategic initiatives for your organization that will help minimize risk.

Beth Williams, Director of the HR Practice Group at Warren Whitney
Contact Beth at BWilliams@warrenwhitney.com or at (M) 804.301.8009 or (O) 804.282.9566.