As a member of the business or finance office, you hold some of the most sensitive and important information regarding the operation of your non-profit. Budgets, cash flows, obligations, covenants, financials, audit, internal controls, legal and regulatory matters….all of these can have a tremendous impact on how the individuals running the program activities accomplish their goals. Matters surrounding finance can provide stepping stones or significantly hinder the progress of the organization’s mission.
The finance office is charged with providing the most useful and pertinent information to the Board, which will enable them to fulfill their responsibilities of providing guidance and decision-making, most importantly surrounding fiscal matters.
As the CFO, Controller or Business Manager, have you thought about what you should be providing to the Board and in what format? Boards typically meet for an hour or two once a month or quarter. Given the limited time frame, this should be the time that they discuss critical matters, review accurate and timely financial reports and vote on high-level governance matters. Providing a great deal of extraneous data can muddle the waters and prevent them from understanding the true issues and being able to make timely resolutions. Here are a few areas to focus on which will help to ensure the Board has the tools to be most effective in fulfilling their responsibilities.
Organizational, legal and regulatory matters:
First and foremost, the Board should be well informed of any and all potential risks that arise in these areas. Has the organization consulted an attorney for any claims or potential litigation? Are there new financial, reporting or other regulatory matters that are coming down the pike that may affect the organization? Significant accounting or audit standards, personnel matters, 990 reporting, communications from regulators, filing complications, due dates, donor matters, etc. can all have an impact on the organization and its ability to continue with its mission.
The Business Office should be preparing timely, summarized financial reports that are relevant to the Board’s responsibilities. Reports should be formatted in a way that does not confuse, overwhelm or complicate discussions surrounding finance. Discuss with the Treasurer of the Board the most effective method of providing these reports. Have the Treasurer review the reports, and other more detailed information prior to submission to the Board, which may help to identify any questions or concerns ahead of time. It is probably helpful if the Board can review current month/quarter budget vs. actual reports as well as year-to-date compared to budget and prior years. A concise analysis of the significant activities of that period, such as large new contributions, significant past due balances or write offs and reserves, unanticipated expenses or capital purchases as well as high level departmental budget to actual comparison. Most importantly, having the most relevant and timely reporting available will enable the Board to make decisions on a timely basis, and avoid surprises at the end of the year.
Conflict of Interest and Related Party Activity:
All Board members should be reading and signing a conflict of interest (COI) policy each year. All possible related parties and transactions should be disclosed in full, and any interested person should be excused from those discussions and determinations. One misconception is that it is undesirable to have any related party activity, such as a Board Member who can provide professional services to an organization. Often times, a Board member can give back to an organization by providing expertise that the Organization would otherwise have to incur significant expenses for. This is ok, as long as regulation allows for it (for example, a financial statement audit must be conducted by an Independent Auditor), and provided that the Organization follows its COI policies surrounding disclosing, understanding and voting on these relationships and the transactions. The Business Office liaison is often times the individual who ensures that the Board has all of the relevant information, that these matters get on the agenda and that the process adheres to approved policy.
The Business Office is typically the department that ensures that the Form 990 is prepared timely and accurately. One section of the 990 includes several questions surrounding governance and policy. It goes without saying that the Board should be well aware of these policies at the time that they sign on to be a Board member. However, one question asks whether the Board has received a full copy of the 990 (as filed), and what the process is for the review of the 990. These questions are really aimed at shining a light on the Organization’s responsibility for ensuring that the 990 contains accurate information. Typically, the auditor/CPA is preparing the form, however there is so much more than quantitative data on the 990 as compared to any other IRS tax form. The qualitative data must come from the leadership of the Organization. Each Board member should be aware of what is contained in the filing, and be expected to understand the questions and implications of the Organization’s responses.
As the key financial officer of a non-profit, the CFO or Business Manager should aim to provide the financial reports to the Board members in advance of their meeting dates. Having the appropriate amount of time to carefully review reports, budgets, forecasts and analysis will enable the Board members to prepare thoughtful questions and commentary on the information given. This will set the stage for a more meaningful discussion and proposed responses, ultimately benefitting the mission of the Organization.
Jeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.