R - Principles and Practices for Nonprofit Excellence in Connecticut

PRINCIPLES AND PRACTICES FOR NONPROFIT EXCELLENCE IN CONNECTICUTPrinciple 5: FinancesRecommended Practices:1. A nonprofit should review Connecticut’s Basic InfrastructureChecklist (see Part Two of this document) to verify theexistence of appropriate policies, procedures and reportingmechanisms, and should demonstrate compliance with alllegal financial obligations.2. A nonprofit board member should clearly understand how toread and interpret financial statements.3. Annually, the board should review and approve an annualbudget for the organization. While each board shoulddetermine the appropriate budget needed to achieve itsmission, various industry benchmarks provide target rangesof 65 percent to 80 percent of expenditures for programs, andno more than 20 percent to 35 percent for administration,fundraising and evaluation.4. In the event that a budget deficit occurs, the board must beaware of this outcome and must participate fully in determininga plan to restore the budget to a balanced state. 5. A nonprofit should generate accurate and relevant financialreports that include the comparison of actual to budgetedrevenue and expense totals, and that identify and explain anysignificant variances. These reports should be provided to theboard of directors for regular review and discussion,preferably on a quarterly basis.6. A nonprofit with annual total state revenues in excess of$100,000 3 or gross revenue in excess of $200,000 4 mustsubject its financial reports to an annual audit by a CertifiedPublic Accountant. A nonprofit under this threshold, orexempt by law, should have a CPA provide a review of itsfinances to the board annually. Financial audits must beapproved by the organization’s board and certified by theexecutive director and chief financial officer of theorganization. Connecticut Association of Nonprofits16