MISSION ACCOMPLISHEDAs not-for-profits must increasingly achieve greater results with less resources, they are continually seeking ways to use such scarce resources with more economy, with greater efficiency of processes and people within their organizations, and with increased effectiveness of results in order to further their missions. Whether used alone or together with other tools such as benchmarking, activity-based management, and flexible budgeting, the operational review is the tool best used to perform an evaluation of these crucial three e's-economy, efficiency, and effectiveness. This book shows not-for-profit managers why conducting an operational review can be beneficial, explains the tools and personnel needed to conduct the review, and shows in detail how to conduct a review of operations in each area. It includes case study materials for a social service agency, a museum operation, an arts organization, a community service agency, and a college business office. Here is accessible, comprehensive coverage of: How to approach an operational review, judge its results, and make recommendations to management How to position your not-for-profit organization more effectively in the competitive world of funding, personnel, resources, and service results How to identify and implement best practices within funding and operational constraints in all areas of the not-for-profit's operations in an organized program of continuing improvements . . . and much more, including extensive exhibits, forms, working tools, checklists, and examples for conducting an operational review throughout all functions of a not-for-profit organization. Executive directors, outside auditors, CPAs, manage-ment consultants, boards, fund-raising executives, and all others involved in the not-for-profit's operations will learn to get the most for their mission from this indispensable book.

ROB REIDER, CPA, MBA, PhD, is the President and founder of Reider Associates, a management and organizational consulting firm located in Santa Fe, New Mexico. In addition to his extensive consulting experience, Reider is the author of nine self-study courses marketed nationally and is a sought-after discussion leader for over twenty different seminars conducted throughout the country. He has received the AICPA Outstanding Discussion Leader of the Year Award and is the author of The Complete Guide to Operational Auditing, Operational Review: Maximum Results at Efficient Costs, and Benchmarking Strategies: A Tool for Profit Improvement, all from Wiley.

Preface

xvii

Introduction to Operational Reviews

1

(56)

Introduction

1

(2)

General Concerns for Not-for-Profits

3

(1)

Specific Concerns for Not-for-Profits

4

(2)

Revenues

4

(1)

Expenditures

5

(1)

Operations

5

(1)

Balanced Budget Requirements

6

(2)

The Political Environment

8

(1)

IRS Concerns for Not-for-Profits

8

(1)

AICPA Internal Control Concerns

9

(2)

Accounting Principles for Not-for-Profits

11

(2)

Not-For-Profit's Ability to Continue as a Going Concern

13

(2)

Computer Processing Concerns

15

(1)

Specific Not-for-Profit Issues and Developments

15

(1)

Who Is the Operational Reviewer?

16

(1)

Operational Review Skills and Abilities

17

(2)

Why Not-for-Profit Are in Existence

19

(1)

Businesses a Not-for-Profit Is Not In

20

(2)

Basic Principles of Operations

22

(1)

Economy, Efficiency, and Effectiveness

23

(2)

Why Perform an Operational Review?

25

(3)

Assess Performance

27

(1)

Identify Opportunities for Improvement

27

(1)

Develop Recommendations for Improvement or Further Action

27

(1)

Specific Objectives

28

(2)

Benefits of Operational Reviews

30

(4)

What Functions to Review

34

(4)

The Budget

38

(1)

The Initial Survey

39

(1)

Engagement Development

40

(13)

Recognize and Define the Problem

43

(1)

Gather Appropriate Data

43

(1)

Evaluate the Situation

43

(3)

Proposal Letter

46

(6)

Perform the Operational Review

52

(1)

Operational Review Phases

53

(2)

Planning

54

(1)

Work Programs

54

(1)

Field Work

54

(1)

Development of Findings and Recommendations

54

(1)

Reporting

54

(1)

Conclusion

55

(1)

Operational Review Situation: Vehicle Insurance Costs

55

(2)

Question and Solutions for Consideration

55

(2)

The Planning Phase

57

(58)

Introduction

57

(1)

Planning Phase Overview

58

(1)

The Review Team

59

(1)

Identification of Critical Areas

59

(3)

Operational Review Process

62

(2)

Information to Be Obtained

64

(2)

Laws and Regulations that Apply to the Activities Being Reviewed

64

(1)

Material on the Organization

65

(1)

Financial Information

65

(1)

Operating Methods and Procedures

65

(1)

Management Information and Reports

66

(1)

Problem Areas

66

(1)

Sources of Information

66

(13)

Organizational Review Questionnaire

67

(1)

Effective Interviewing

67

(1)

Organizational Data

67

(8)

Financial Data

75

(1)

Policies and Procedures

75

(1)

Operating and Management Reports

75

(1)

Physical Inspection

75

(4)

Review of Not-for-Profit Planning and Budget Systems

79

(1)

Mental Models and Belief Systems

80

(4)

Organizational Structure and the Role of Management

84

(3)

Sample Planning Phase Work Program---Organization

87

(1)

Identification of Critical Problem Areas

88

(3)

Identification of Key Activities

88

(1)

Use of Management Reports

89

(1)

Examination of Past Review and Audit Reports

89

(2)

Physical Inspection of the Activities

91

(1)

Discussions with Responsible Personnel

91

(1)

Financial Statement Analysis

91

(4)

Comparisons

92

(1)

Trend Percentages

92

(1)

Common-Size Statements

93

(1)

Financial and Operational Ratios

94

(1)

Identifying Critical Areas

95

(1)

Prioritizing Critical Areas for the Operational Review

96

(1)

Final Planning Review

97

(1)

Areas Not Selected for Review

98

(1)

Conclusion

98

(1)

Operational Review Situation: Service Delivery Time Reporting Tolerances

99

(16)

Questions and Solutions for Consideration

99

(2)

A Social Service Agency

101

(14)

New Mexico Suicide Intervention Project

Work Program Phase

115

(36)

Introduction

115

(1)

Benefits of the Operational Review Work Program

115

(1)

Operational Review Work Program Standards

116

(2)

Who Develops the Work Program

118

(1)

Work Program Work Steps

119

(1)

Work Program Development Procedures

120

(1)

Sample Work Program

121

(8)

Operational Review Work Program: Fund-Raising Activities

124

(5)

Operational Review Engagement Budget

129

(2)

Assignment of Staff

131

(1)

Operational Review Management

132

(1)

Conclusion

133

(1)

Operational Review Situation: Client Case Records Deficiencies

134

(17)

Question and Solutions for Conosideration

134

(2)

A Museum Operation

136

(15)

Santa Fe Children's Museum

The Field Work Phase

151

(78)

Introduction

151

(1)

Field Work Considerations and Tasks

152

(1)

Factors in Reaching Conclusions

152

(2)

Specific Field Work Techniques

154

(2)

Analysis of Planning and Budget Systems

156

(15)

Strategic (Long-Range) Planning

159

(5)

Short-Term Planning

164

(1)

The Budget Process

165

(6)

Interviewing

171

(7)

Interview Agenda and Whom to Interview

175

(1)

Scheduling the Interview

175

(1)

Setting Up the Interview

175

(1)

Starting the Interview

176

(1)

Questioning Procedures

176

(1)

Note Taking

177

(1)

Effective Listening

177

(1)

Closing the Interview

177

(1)

Note Recording

178

(1)

Sample Interview

178

(1)

Internal Benchmarking

178

(7)

External Benchmarking

185

(1)

Performing an Internal Benchmarking Study

186

(6)

Comparative Analysis

188

(1)

Use of Borrowed Statistics

189

(1)

The Test of Reasonableness

190

(2)

Systems Flowchart

192

(8)

Layout Flow Diagram

200

(6)

Ratio, Change, and Trend Analysis

206

(3)

Other Techniques

209

(3)

Tests of Transactions

209

(2)

Performance versus Plans

211

(1)

Operational Review Situation: Case Management Procedures

212

(1)

Questions and Solutions for Consideration

212

(2)

A Performing Arts Organization

214

(1)

Santa Fe Chamber Music Festival

214

(15)

Development of Review Findings

229

(30)

Introduction

229

(1)

Attributes of a Review Finding

230

(10)

Statement of Condition

230

(2)

Criteria

232

(1)

Alternative Criteria

232

(4)

Cause

236

(1)

Effect

237

(1)

Recommendations

238

(2)

Review Findings Development

240

(2)

Approach to Developing Review Findings

242

(1)

Development of Review Finding: Example---Employee Leased Automobiles

243

(1)

Conclusion

244

(1)

A Community Services Agency

245

(1)

The Santa Fe Rape Crisis Center (SFRCC)

245

(14)

Reporting Phase

259

(24)

Introduction

259

(1)

Interim Reporting

260

(1)

Oral Reporting

261

(1)

Written Report

262

(1)

Sample Reports

263

(20)

Sample Operational Review Report

265

(18)

Index

283

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