Arts Administration Midterm

Terms in this set (64)

non-profit sector
an organization whose purpose if defined by its charitable mission rather than the goal of creating profit for owners
for-profit sector
an organization whose purpose is to create profit for its owners
a non-profit organization's description
the description of what the organization does
a non-profit organization's mission
purpose for which a non-profit organization is granted tax exempt status (the purpose of the organization in itself).
a non-profit organization's programming (as fulfillment of mission)
strategic plan for an individual program or project within the organization.
a return on investment
the most common profitability ratio used to divide net profit by total assets. So if your net profit is $100,000 and your total assets are $300,000, your ROI would be .33 or 33 percent. This isn't necessarily the same as profit, but it deals with the money you invest in the company and the return you realize on that money based on the net profit of the business.
501(c)(3) (under the federal code; IRS granted tax exempt status)
section of the IRS code that defines charitable organizations.
incorporation in the state as a charitable organization
charitable status
tax deductible contributions
for-profits can receive contributions from donors, and those donors may receive a deduction on their own income taxes.
"governance precludes self-interest"
not-for-profit organizations
Why should a start up organization incorporate?
it protects individuals from liabilities of the business. It also allows the business to continue after the death of the original owner.
Why obtain tax exempt status with the IRS?
to get tax breaks
When a contributor makes a tax deductible contribution, how is this "taxable income?"
...
adjusted gross income
an individual's total gross income minus specific deductions.
Schedule A
if you have significant deductible expenses during the year, the total of which is greater than your standard deduction, you can itemize by reporting the expenses on this. (lists only those employees whose compensation is more than $50,000.)
itemized deductions
listing out each deduction you qualify for. People do this when the sum of all their deductions is greater than the standard amount.
Why do we need an organization chart?
to move plans from being broad to more specific
What are executive (or managing) director's prerogatives and responsibilities?
Managing staff
fiduciary responsibility of staff and board (IRS 990)
...
accountability
the principle that an organization is responsible for its actions and may have to report them to a government body, donor, or other entity.
Are arts organizations less structured than other types of organizations? Why?
The operate in a more informal corporate culture than other types of organizations because of the variety of types of workers that inhabit an arts organization.
What does "an organization must be accountable to its employees mean?
operating within the limits of the law and behaving ethically and within the parameters of the organization's mission.
"Employment at will"
If you are employed at will, your employer does not need good cause to fire you.
Unions, "right to work state"
law guarantees that no person can be compelled, as a condition of employment, to join or not to join, nor to pay dues to a labor union. This means that workers in unionized businesses cannot benefit from the terms of a law to be in a union.
What is the purpose of a board of directors (or trustees)?
The board is the eyes and ears of the government, and ultimately the taxpayer, who expects that in return for the 501c3 status, the organization's mission will indeed be fulfilled and the public will be served.
What are the responsibilities of the board of directors (trustees)?
They decide on the mission, policies, and plans of the organization. They are also responsible for:

Determine the organization's mission and set policies for its operation.

Monitor adherence to the organization's mission - guard against "mission drift."

Set the organization's overall program both from year to year and the through long range planning

Establish fiscal policy with budgets, financial controls

Provide adequate resources for the activities of the organization, through direct contributions and fundraising from others

Select, evaluate and if necessary, terminate the appointment of the chief executive (often called the executive director) of the organization

Promote the work of the organization to the community - be an enthusiastic spokes person for the organization and its cause
What should a board not do?
Engage in the day-to-day of other staff members, Hire staff other than the chief executive, Make detailed programmatic decisions without consulting staff.
What skills are needed on the board of directors?
Experience,

familiar with arts field,

Organizational planning

Financial/accounting

Fund raising (including business, government, individual, foundation)

Personnel management

Legal

Public relations
How does the "invisible hand of the marketplace" apply to the arts?
Everyone has wants & needs, everyone can do something and trade makes everyone richer. The result of free trade is that everyone can get what they want for some price commensurate with the costs involved.

In the arts, the whole of society is working hard every day to figure out what to sell you that you might want and would be wiling to part with money (the fruits of your labor) for. Everyone is trying to guess what you want, so that they can get what they want in trade. (Fundraising is a big part of this).
What are external environments that can inform and guide policy and plans?
...
In what ways can the economy influence the prosperity of an arts organization?
If the art field is going instinct, then an organization built on that field may be hard to supply for.
Why does an organization need a long range or strategic plan?
...
In what ways can a budget be considered a policy statement?
...
What is "financial planning done primarily from the balance sheet rather than the income statement?"
bookkeeping?
budget as a financial expression of your mission statement
the budget reinforces the overall goals of the organization by helping them to set program priorities so that funds are being allocated in a responsible way and that the mission of the organization is being achieved.
plug numbers
a placeholder number which is used in an overall cost or budget estimate until a more accurate figure can be determined.
fixed costs
the core expense of operating the organization. Rent, utilities, salaries of year round staff, mortgages.
variable costs
often associated with programs such as productions, exhibits. These costs can include temp workers, materials, insurance (such as a rider on general policy) and visiting artist's fees.
marginal costs
How much will it cost to produce the product again? Give example of opera touring productions...win-win.
hidden costs
These expenses are not obvious to us. For instance, suppose we want to hire a new curator at an annual salary of $40,000. In addition to this salary, you will pay Social Security tax of 6.2 % of that salary, and 1.45% for Medicare - add $3060. Then there are the medical benefits you promised that even with the group plan you got through the Chamber of Commerce come to $450 per month - add $5,400. The total annual expense for that employee will be $48,460.
endowment spending policy
determines the annual flow of funds from the Endowment to the operating budget.
Why calculate and budget revenues and expenses separately?
Nearly all companies budget separately for capital expenditures. Having a separate budget from operational expenses makes it simpler for companies to calculate the respective tax issues.
cash basis accounting
an accounting system in which transactions are recorded at the time they are completed.
accrual basis accounting
an accounting system in which transactions are recorded at the time they are initiated.
accrual budgets
matches income and related expenses in the same fiscal period, regardless of the timing of the receipt or disbursement of actual cash
fixed budget
a budget that remains constant, irrespective of the levels of activity
zero-based budgets
a method of budgeting in which all expenses must be justified for each new period, starting from a "zero base",every function within an organization is analyzed for its needs and costs.
capital outlay
money a company spends to either purchase a fixed asset or to extend its useful life. Fixed assets are those that appear on the balance sheet as property, plant and equipment, known as "PPE."
fiscal year
financial year (For lots of non-profits, their fiscal year ends at the end of June)
fund accounting
the segregation of donations in the accounting process so that they can be used for the purposed intended by the donor.
endowment
a permanent savings account set up so that the original funds are never touched, but interest from the savings can be used for the intended purpose.
income statement
day to day expenses and revenues as compared to budget projections. Important terms and concepts:
• FY is fiscal year
• YTD is year to date
• "comparable period in previous year"
• "variance" may show comparisons between two current and previous fiscal year, actual and budgeted expenditures; actual and budgeted revenues
restricted funds
when a donor has indicated that the donation must go for a specific program or purpose.
temporarily restricted funds
donated subject to restrictions that are limited to a specific period of time.
unrestricted funds
when a donor has placed no restrictions on the use of the funds they donated.
donor restricted funds
when a donor has indicated that the donation must go for a specific program or purpose.
board restricted funds
when a board has indicated that the donation must go for a specific program or purpose.
Paid staff
they work for the organization full or part time, qualify for benefits, receive a salary (or hourly), and are artistic or administrative.
Contract employees; separate vendors
they are hired for one shot gigs, you probably don't mess with taxes, benefits, etc. they work for themselves or another company, and are outsources staff.
outsources staff
work for you on a regular or temporary basis, but are not permanent employees; eg. bookkeeping services
Volunteers
non-paid workers who may have valuable knowledge and be able to get a lot of work done, but they have shorter attention span.
PAA
Need to be retrained, lots of turnover
Organization chart
list expertise needed vertically and board members horizontally. Gaps will be immediately evident.

• All employees have budgetary implications
• Even though the board will not hire your staff, (except ED) the board must approve expenditure
What are the purposes of employee manuals?
The manual spells out
• Vacation time
• Benefits
• Medical leave
• Substance abuse policy
• Office decorum
• Grievance procedure
• Causes for termination
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