One of the board’s most critical roles is to ensure that the organization’s financial resources are effectively managed. And yet, most organizations don’t pick board members because of their financial capabilities. This is one of the most common reporting mistakes.
In fact, it’s not uncommon for board members without extensive financial expertise to rely on the handful of bankers, CPAs and financial advisors on their board to tell them whether the organization is in good financial health.
Since board recruiting criteria are unlikely to change, it’s important to help out. Give your board the tools they need, and avoid the following common financial reporting mistakes made by nonprofit organizations.
[Related: Speed-Reading Nonprofit Financial Statements]
Reporting Mistake #1: Not Assessing Board Skills and Knowledge
Ignorance may be bliss in the short term, but rarely in the long run! To avoid this mistake, assess the needs of the board before recruiting new members. You should also assess board members’ comfort level surrounding financial information and adjust your approach accordingly. Washington Nonprofits provides a FUN Quick Assessment tool to help assess board skills.
Reporting Mistake #2: Not Providing Adequate Training on Financial Reports
Only 89% of nonprofits provide copies of their nonprofit financial statements during board orientation, and only 74% supply the most recent Form 990[i]. Providing these documents and basic training in financial statement analysis are among the easiest ways to improve board performance.
United Way of King County provides an excellent course on speed-reading financial statements for board members, and Washington Nonprofits’ FUN program provides free materials for use in board orientation.
Reporting Mistake #3: De-prioritizing the Importance of Discussing Finances
De-prioritizing your finances is one of the biggest reporting mistakes you can make. You don’t want to send a message that financial review isn’t a critical board function.
- Including the finance report on a consent agenda
- Giving the report limited time
- Routinely cutting the report when other items run long
Do make sure the finance report is given adequate time for discussion.
Reporting Mistake #4: Showing the Same Finance Presentation Over and Over
To add variety to your nonprofit audit results presentation, rotate presenters at both the committee and the board meetings, encourage board members to ask questions, and consider assigning questions to start a dialogue.
Reporting Mistake #5: Using Hard-to-Understand Accounting Terminology
Those three-letter-acronyms that are our bread and butter are a mystery to most board members. Translate technical topics into plain English, provide a glossary or cheat sheet to board members, and understand that most people who read your reports will not understand accounting jargon.
Additionally, JJCo’s publication, What Board Members Need to Know About Not-for-Profit Finance & Accounting, includes an easy to use glossary of terms.
Reporting Mistake #6: Giving Board Members Too Much Information
While we are comfortable sifting through massive spreadsheets to spot anomalies, it is important to remember that board members may not have the same gift. Giving board members too much information is one of the most common reporting mistakes. By limiting details, it is easier for reviewers to focus on the information that is important. Keep financial packets simple, avoiding multiple reports and multiple pages, and consider providing different levels of detail for the committee and the board.
[Related: Why Your Nonprofit Needs an Audit Committee]
Reporting Mistake #7: Not Giving Board Members Enough Information
While information overload is a problem, so is providing insufficient information. In some cases, reports omit key financial statements such as the balance sheet or cash flow projections, or the reports cover only a subset of the organization, making it difficult for board members to see the organization’s full financial picture.
Reporting Mistake #8: Reports Have an Ever-Changing Format
Most board members will commit only a small amount of time to your organization’s financial analysis. If the report format changes from one meeting to the next, they’ll need to invest some of that time trying to understand what they are seeing — and may miss important details.
To avoid this reporting mistake, use the same format, timing, dating and budget figures at every meeting, and take advantage of projections and forecasting to help board members understand the organization’s financial position.
Reporting Mistake #9: Using Dashboards the Wrong Way
Dashboards can be useful in helping organizations focus on problem areas or strategic initiatives. However, they should never be a substitute for financial statements. If the metrics presented are misleading, irrelevant or insufficient, the board would be better off without a dashboard.
Reporting Mistake #10: Not Understanding the Underlying System
It is our responsibility to understand how the numbers on the financial statements got there. Additionally, whether they match the underlying accounting system, and how we manage internal controls to control fraud risk. It is also our responsibility to educate the board on these processes. This helps them be better equipped to ask critical questions about financial data integrity.
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