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Financial oversight: Making it real

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Liz Heath

Liz Heath

Liz Heath

Are all the people with math phobia drawn to nonprofit board service?

I cannot count the number of times I have heard board members say, “Fred (or Jane or…) takes care of that. I don’t understand numbers so I don’t get involved with that stuff.”

Legally, that statement is not an option for board members.

The Duty of Care, embedded in corporation law, requires that each board member takes care to make well-informed decisions.

In Washington State, the law says board members must act “with such care, including reasonable inquiry, as an ordinarily prudent person would use.”

They are not allowed to pass off some of their responsibilities just because they “don’t understand numbers.”

So what’s a board to do? Especially since all nonprofits are faced with financial challenges these days? Here are a few suggestions:

Recruiting

In all recruiting for board members, make sure candidates are at least willing to learn to understand the financials and what they mean. The more members with financial expertise you can recruit, the better.

This does not mean just certified public accountants and bankers. Many people from a variety of walks of life have financial skills.

By the way, do you have a current board job description that includes the financial oversight responsibility, and do you use it in recruiting?

Training

For folks already on your board, provide training, and more training. Make it a regular part of your meetings.

If you have also created a culture on your board that encourages asking questions, you can address confusion over financials with very practical and helpful suggestions for understanding them.

Policies

Solid financial policies are essential for every organization, nonprofit or otherwise. Because we as nonprofits have a higher level of fiscal responsibility to our communities, these policies are essential.

Sadly, one of the most frequent calls we get at The Nonprofit Center is from nonprofit executives who have just discovered that their trusted bookkeeper has made off with thousands of dollars.

No matter how much you trust your financial staff, policies must be in place to reduce the likelihood of embezzlement and to provide assurance to donors and the community that the organization takes a responsible approach to its financial management.

Oversight

Having the policies isn’t enough, however.

Consider one nonprofit: It has a policy that limits the funds on deposit with any bank to the amount insured by the FDIC. Had a member of the finance committee not asked to see bank statements, that board never would have known the FDIC-insured limit had been exceeded significantly in virtually all its accounts,.

So, make responsible policies and then check to make sure they are being followed.

Financial reporting

The board should work together to determine which reports will give it the information it needs in a format that is understandable.

The finance committee is responsible for in-depth analysis of the financial reports, but that committee is made up of those with financial expertise, so it’s not so hard for them to do this work.

Once they have completed their analysis, they should translate the information into reports that all board members can understand.

Several organizations use Dashboard reports providing information on critical ratios such as receivables versus payables.

Finance committee members should work with the whole board to determine how best to present the current financial picture of their organization.

All nonprofit boards must take seriously their responsibility for being accountable to the communities that support them. The only way to do that is to make sure all board members clearly understand this responsibility and how to carry it out with respect to financial matters.

Strategies

Now more than ever, all board members must step up their focus on their organization’s financial condition.

Are you using cash-flow projections to make sure you know the timing of your revenues and expenses?

Have you established benchmarks that you can use to determine whether or not layoffs are necessary?

Did you have the foresight to build up a reserve for “rainy days” back when funds were plentiful?

If so, are you monitoring carefully how those reserves are being used?

Or, if not, are you now developing plans for building those reserves in the future?

None of these strategies are just for tough times. They should be employed at all times. But now more than ever.


Liz Heath is executive director of The Nonprofit Center in Tacoma, Wash. The Center provides capacity-building services to nonprofits throughout the South Puget Sound region.

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