One role of the board of directors is to keep a watchful eye on the organization’s financial health. However, the quantity of financial information that nonprofit boards receive can vary from a brief verbal summary that “all is well,” reported sporadically from time-to-time, to a 30-page copy of the organization’s general ledger provided monthly. The Standards for Excellence® code has always recommended that the board of directors review the internal financial statements at least quarterly. But not only is the frequency important, the quality of those reports must be high so that the board can quickly react to unanticipated changes in funding, unexpected expenses, or changes in the demand for services. Of course, this is particularly important in the current economic climate.
A quality financial review will include a report on the overall financial picture, and a detailed report on the budgeted to actual revenues and expenses, making special notes of significant deviations from budgeted line items. Examining the profit and loss statement and the balance sheet may give a more complete financial picture. That said, all of these reports are likely done in vain if the statements are not detailed enough and interpreted well for board members that may not be strong in reading financial statements. This small step can go along way to empower those that lack the confidence to provide adequate fiscal oversight. Coordinating board training on financial statements might go even further to ensure that everyone is financially literate.
Did you know? The Standards for Excellence Educational Resource on Financial Planning and Monitoring includes a discussion of the importance of high quality financial statements as well as a sample for your review. The packet is free and available to Standards for Excellence Institute® members. It is available through the members only section of our website. Hard copies are also available upon request.