A few years ago, Jeanne Bell penned ‘Beyond Financial Oversight: Expanding the Board’s Role in the Pursuit of Sustainability’ for the Nonprofit Quarterly.
In the article, she describes two personas or dispositions towards financial oversight. One persona, she says, sounds like this: I’m not a numbers person. I leave that stuff to the treasurer. The better narrative, she suggests, sounds more like this: Our board is focused holistically on the sustainability of this organization. So everyone engages with our financial results. We will train you and support your development as a financial leader, but you have to be committed to our stance on this point to be successful on this board.
Insisting on financial leadership – it’s a strong stance to be sure. But it is critical to the veracity of your financial operations and organizational accountability that financial literacy is a cultural component of your board and executive team. But here’s the key – it won’t happen without commitment, continued emphasis and communication.
Financial oversight at the board level, as Bob Wittig explains, “assures the public-at-large that all resources and benefits received are used to support the nonprofit’s mission. Organizations run the risk of making headlines when boards fall asleep at the financial switch.”
Board members should be interested in the financial state of the organization – is the organization tracking according to revenue objectives to date? If the organization is behind revenue objectives – why? If ahead, is this a true boon or just a timing difference?
Do board members know to ask how year-to-date expense actuals compare to budget? If there is a variance, positive or negative, what is the cause of the variance? Will it impact program objectives?
What are the cash flow projections? Is the organization’s cash flow sufficient to support basic expenses? Are all balance sheet accounts (not just cash accounts) being reconciled monthly?
What internal controls are in place? Have the controls and separation of duties been documented?
If the board is not asking those types of questions, it could be that they have not been properly trained on reading financial reports, or are unaware of the fiduciary responsibilities.
It could very well be that there are board members who do not have comfort level when it comes to gleaning the meaning of the numbers or conducting a budget review. Make financial training a priority and offer it frequently. Use both internal and external resources (accounting software partner, CPA, or other experts). The goal is to give all members a level of confidence and to underscore the importance of financial intelligence to the organization.
Going forward, when looking to fill seat on the board, recruit candidates that have a strong financial background and can bring that expertise to your nonprofit.
Your financial health is the bedrock of transparency and accountability. Taking measure to strengthen your financial operations will ensure that you continue serving your community and constituents for years to come.
Other resources for nonprofits from Xanegy:
Essential Nonprofit Software Feature Checklist
Nonprofit Outcome Measurements – white paper
Nonprofit CFO Survival Guide – white paper
Best Practices and Accounting Webcasts