Reporting Financial Information to the Board
Have you ever needed information in order to make a decision, only to find out that the information you have available doesn’t actually help you? If you are a Board member of a nonprofit organization, this scenario could have some serious consequences, especially when it comes to finances. Because the Board of Directors is legally responsible for the work of the organization and for ensuring that systems are in place to safeguard the program, it is critical that Boards are able to make informed decisions. Clear financial reporting is vital for good management in any organization.
Four essential elements of good financial reporting are:
1. Information must be relevant. Financial information should be presented in a way that matters to the decisions at hand. The information must be related to the history, goals and programs of the organization, and fulfill FASB requirements by including a Statement of Financial Position, Statement of Activities and Statement of Cash Flows. These reports tell a Board how much money the organization has on hand, how much money they’ve acquired and spent, and whether they are on track to meet their financial goals and obligations.
2. Information must be understandable. Periodic financial reports should have just the right amount of information, presented in a format and on a schedule that make sense. Reports that over-summarize data will result in a superficial understanding of the financial status, and reports that flood the reader with numbers are overwhelming and often dismissed as confusing. The ideal amount of information reported to the Board will lie somewhere in between and will change based on the needs of the organization. If the Board Chair fosters an environment that encourages questions, the reporting format can easily be refined to match the knowledge level and role of the board members.
3. Information must be reliable. Financial reports to Boards of Directors are only useful if the information is reliable. By reconciling reports against each other, with outside documentation (such as bank statements), and by different reviewers (including the finance officer on staff and Board treasurer), you can be confident that the information presented is correct and accurate. Audits by external individuals or firms are also valuable in ensuring the reliability of financial information.
4. Information must be timely. Reporting on the organization’s financial position on-time is essential, if necessary corrective action is to be taken by the Board or future plans are to be made. When data is unavailable at the time of discussion, a decision may be delayed or skipped, possibly resulting in programmatic complications, financial crises, or missed opportunities. To make an informed decision, the Board must have information.
Having reports that are informative and understandable will give the Board the tools needed to make appropriate decisions to move the organization forward. Consider whether the reports enable the Board to focus on big picture decision-making, or hinder progress. As a Board member, ask yourself these questions to determine if you have the information you need to guide the organization:
- Is an orientation to and overview of the format provided for new Board members, and are changes made to meet the Board’s evolving needs?
- Can I determine from reports what the organization’s financial health is—can we pay our bills?
- What has been our financial performance this month and to date? Are resources being used as designated and are we operating efficiently?
- How does our actual financial experience compare with the budget and plan? Do we need to make any changes to stay on track?
How you answer these questions, and how comfortable you are with your answers, may be an indication of the quality and types of reports you receive as a Board member.
Bottom Line: You must have the information you need to make good decisions for your organization. It is your responsibility.
Sherry Heuser is president of Capability Company, a Raleigh, N.C.-based executive-search firm serving the nonprofit sector.
