Certified Association Executive (CAE)
Study Terms
Budget: Strategic Program Budgeting - ANS-Strategic Program Budgeting is allocating
salaries and other overhead to know the true profitability of its products and services.
This concept is a best practice in program budgeting. It is achieved through conducting
a systematic study of allocation of staff time to program categories, then applying the
calculated prorated share of overhead expense to the programs identified.
Branding - ANS-Branding is a marketing process based in the concept of singularity. It
creates in the mind of the prospect the perception that there is no product on the market
quite like yours. The power of a brand is its ability to influence purchasing behavior.
Branding incorporates a singular look, feel and message in building a belief about your
association and its products.
Audit: Clean Audit vs. Unqualified - ANS-Audit Clean - A clean opinion provides the
highest level of assurance that the Statement of Financial Position fairly presents the
organization's financial position; the Statement of Activities fairly presents the results of
the organization's operations; and the Statement of Cash Flows fairly presents its cash
flows. Unqualified - An unqualified opinion provides the highest level of assurance that
an audit can provide with attention given to a particular matter and provides for
disclosure of additional financial statements provided or draws attention to an additional
important matter.
Accounting Practice: Segregation of Duties - ANS-No individual should control all four
aspects of any financial transaction: Initiation (check requests); Authorization (approval
to pay); Asset custody (keeping the checkbook); Recording the transaction (posting)
Financial Controls: Segregation of Duties - ANS-Management is responsible for the
organization's financial reports and the information contained within; the auditor's role is
to verify the amounts included in the reports. In its fiduciary responsibility, it is the
Board's job to hire the external auditor and receive the report; it is a conflict of interest
for the CSE or CFO to hire the auditor. Financial records must agree with the financial
report certified by the auditor; any changes the auditor deems necessary are subject to
acceptance by management. Sarbanes-Oxley has created regulatory requirements for
corporations related to the audit function.
,Financial Controls: Sarbanes-Oxley - ANS-Sarbanes-Oxley requires compliance with a
comprehensive reform of accounting procedures to promote and improve the quality
and transparency of financial reporting internally and externally. While the initial law
applies to publicly held corporations, many of the requirements are being practiced in
the non-profit community in expectation of expansion of the law's outreach.
Sarbanes-Oxley requires establishment of an audit committee and: -Requires the audit
committee to have a financial expert as a member -Requires the audit committee to hire
the auditor -Requires five-year audit partner rotation -Requires audit committees to
establish procedures for processing whistle blower complaints by employees -Requires
a code of ethics for financial officers -Increases penalties for document destruction or
alteration -Requires certifications by the CEO and the chief financial officer regarding
the financial condition of the company and internal controls. Nonprofit recommendations
include: -A code of ethics for the board of directors -Regular board training -Regular
board self-evaluations -Audit committee members who are financially literate.
Financial Controls: Annual Audit - ANS-No individual should control all essential aspects
of any transaction: initiation, authorization, asset custody and recording. Segregation is
the heart of any internal control system. Other steps include: a well-designed record
keeping and information system, a sound budgetary process, and an independent audit.
Financial Controls: Factors essential - ANS-Four factors essential to good internal
financial controls: 1. Clear lines of authority; 2. Clear definition and acceptance of
responsibility; 3. Authority commensurate with responsibility; 4. Proper training.
Financial Statements: Management Letter - ANS-Is issued by an independent auditor.
The Management Letter communicates those areas that management needs to address
in order to come into compliance with GAAP accounting practices.
Financial Statements: Combined Cash & Accrual Statement - ANS-In a combined
statement, certain transactions are recorded on an accrual basis and others are
recorded on a cash basis. Usually, unpaid bills are recorded on accrual and uncollected
income is recorded on the cash basis. Many organizations keep books on the cash
basis and convert them to accrual at the end of the month for accounting purposes.
Financial projections - ANS-Financial projections forecast future financial results.
Usually presented in a "pro-forma" statement, financial projections are generally
speculative and investors are cautioned to recognize the projections are not guarantees
of performance. Sound financial projections should be based on credible assumptions,
a conservative projection of revenue and an aggressive projection of expenses.
,Financial Key Indicators - ANS-Selected by leaders, they are quantitative
measurements of strategic importance that will indicate a fairly accurate picture of the
organization in relation to its strategic plan. Indicators might include: # of new members,
% of retained members, # of new business starts, # of organizational members
participating in programs, # of accounts
Financial Terms: Classes of Funds - Restricted, Unrestricted & Temp Restricted -
ANS-There are three classes of funds in a 501(c)3 organization: unrestricted,
temporarily restricted (as to time and/or purpose), and permanently restricted.
Unrestricted funds are funds which can be used at the discretion of the management
within the range of uses defined. Temporarily restricted net assets result from
contributions of assets when use by the organization is limited by donor-imposed
stipulations that either expire or can be fulfilled and removed by actions of the
organization. These assets are shown on the Statement of Financial Position. These
assets are also reported on the 990 Long Form. Permanently restricted net assets result
from contributions where the donor has stipulated a specific use that do not expire with
time and cannot be shifted by the organization. "Endowments" are one common type of
permanently restricted net assets.
Financial Terms: Association Reserves - ANS-Net assets minus net liabilities. This is the
"surplus" or "rainy day" fund for an association. Reserves are usually protected by the
board. Some organizations budget to contribute to the reserve fund annually; others
contribute if they have extra cash at the end of the year.
Financial Terms: Accrual vs. Cash Accounting - ANS-Accrual-basis accounting
recognizes revenues when earned and expenses when incurred. Cash-basis
accounting recognizes revenue when cash is received and expenses when cash is
expended. Best practice in association accounting is to use accrual accounting;
allocating dues when earned monthly, rather than recording a lump sum when received.
Accrual accounting gives a much better financial picture and cash flow projection than
cash accounting.
Financial Terms: Chart of Accounts - ANS-A system for organizing financial data, a
listing of all the line item accounts being used by the organization. Numbers are
assigned to each account to facilitate account identification. Accurate and appropriate
entry into proper accounts is key to sound financial management and reporting.
Financial Terms: Capital Budget - ANS-The financial plan for long-term expenditures
such as land, buildings or equipment, including depreciation.
, Financial Statements: Statement of Financial Position - ANS-The Statement of Financial
Position was formerly known as the Balance Sheet. It summarizes financial makeup of
the organization at a point in time. It reflects: the assets owned by the organization, the
liabilities owed by the organization, and the residual net assets (representing net worth.)
Financial Statements: Statement of Activities - ANS-The Statement of Activities was
previously called the Statement of Revenue and Expenses or the Profit/Loss Statement.
It shows the organization's financial activity by the month and on a year-to-date basis. It
reports: revenue generated, expenses incurred, and results in net income or net loss.
Financial Statements: Reporting capital gains - ANS-Capital gains or losses should be
reported in the unrestricted class. There are two exceptions to the rule. Gains must be
reported in the restricted class if: 1) there are explicit donor restrictions on the gains; 2)
applicable state law is judged by the organization's governing board to require the
retention of some or all of the capital gains/losses in the restricted class.
Financial Terms: Net Assets - ANS-Residual value of the association after liabilities
have been paid. Contains three classes of assets: unrestricted net assets, temporarily
restricted net assets, and permanently restricted net assets.
Financial Terms: Financial Ratios - ANS-Liquidity ratio measures the organization's
ability to pay its short-term obligations. Current ratio measured current assets divided by
current liabilities. Profitability ratio measures the profits (losses) over a specified period
of time. Coverage ratio measures the projections for the interest and principal payments
to long-term creditors and investors. Activity ratio measures the resources required to
carry out certain activities and are sometimes referred to as efficiency ratios.
Financial Terms: Financial Narrative - ANS-Tells a story of how all the elements relate.
Must provide more than just numbers. Must highlight key financial issues, concerns and
trends. Numbers only have meaning in a context, which is defined in a financial
narrative.
Financial Terms: Capital Expenditures - ANS-Requirements for long-term objectives,
such as: major equipment purchases, major improvements, or additions to the physical
facilities.
Marketing: Cause Related Marketing - ANS-Through corporate collaborations
companies gain the image of being socially responsible and nonprofit organizations
benefit from marketing efforts that put them--and their missions--into the limelight. Such
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