Good governance depends on enlightened decision making. All too often, board members are either inundated with too much information from the organization’s fiscal department or not provided with enough; both of these scenarios can hinder rather than facilitate sound leadership. An effective board package should provide enough information for the members to make informed decisions to address the future well-being of the organization, not information that dwells in the past. With the increasing emphasis on not-for-profit organizations to be transparent and accountable, there are several aspects of financial management board members should consider to properly exercise their responsibilities, including:
- Protecting assets – understanding internal controls
- Raising revenue
- Controlling expenses
- Prudent management of investments
- Managing financial risks
In practice, the above aspects are often divided among several committees. Those committees receive more detailed reports and, in turn, summarize the respective information to present to the full board. For purposes of this article, the emphasis is on the finance committee. A good example is management providing detailed financial information to the finance committee so it can effectively monitor the organization’s revenue, control its costs and, in turn, report its conclusions to the board.
Because each not-for-profit organization is unique, the first step to providing the right financial information is for management to arrange to meet with the board/finance committee to discuss what type of information is important. To ensure the board/finance committee receives effective information, consider providing or developing:
- Actual to budget comparisons of revenue and expenses with explanations for any significant variances (Do not wait to be )
- A dashboard of key financial ratios and operational/ program metrics
- Adequate support for significant capital purchases, expanding programs or other unusual events
- A document to bridge cash basis reports to accrual basis, when applicable
- Enough information for the committee to provide adequate oversight to the organization’s operations, such as cash reserves, liquidity, status of investments, expected grants/ revenue, compliance with grant and donor restrictions where applicable and program activities
Once management gains an understanding of what information is important to the board/finance committee, it can take the proper steps to ensure the appropriate information is compiled.
To ensure board/committee information is effective, it should be:
- To the Consider graphic presentations; visuals often provide a better representation than words.
- Clear, precise and related to the topic at hand
- Based on current matters and metrics
- The best information available to address the Consider bringing in an outside resource if it is a topic that management does not fully understand, e.g. insurance, alternative investments, etc.
Financial information should be presented to the board in a way that allows it to easily check the financial health of the organization. If the finance committee receives the appropriate information, it will be more efficient and able to make more informed decisions on a timely basis and advise the board accordingly. The board, in turn, will be better able to respond quickly to ensure the financial health of the organization and will have more time to monitor and strengthen programs and services, as well as implement the strategic goals of the organization.