What financial data should board members review?
Writing for the Grant Thornton Forward Thinking newsletter, Frank L. Kurre, national managing partner of GT's nonprofit industry practice, notes that sound financial management is crucial to the vitality of every not-for-profit organization and that a soundly managed organization is more likely to attract contributions than one that is not. But what financial information should board members review?
Some board members, he said, feel they don’t see enough financial information while others are inundated and unsure what merits their attention. "In general, board members feel they need more focused information to properly govern the not-for-profit organization," Kurre writes.
"How much is enough? Several aspects of financial management are of special concern to board members of a not-for-profit organization: the budget process, overseeing assets, raising revenue and controlling non-progress expenses. As a general rule of thumb, however, the amount of financial and other information provided to board members does -- and should -- vary.
"For example, committee members typically receive more detailed reports, while the full board receives more summarized information. Using this approach, the full board is informed about, and included in, financial decisions, while the audit and finance committees have access to more detailed information so they can effectively analyze the organization’s finances, controls, etc."
Kurre says the following best practices should be considered to ensure all board members receive the right amount of information by which to govern the organization:
- Perform a brainstorming session with your board to determine what types of information members are interested in receiving.
- Develop a dashboard of key financial and operational metrics that provides information on the most relevant indicators. Dashboards are typically one or two pages in length and are provided to the board on a monthly or quarterly basis.
- Identify key metrics to assess the organization’s performance against its mission statement and strategic plan. This will help the organization stay focused on its objectives and allow for changes in direction when warranted.
- Inform the board on budget versus actual revenues and expenses as well as budget versus actual capital expenditures and debt payments.
- Provide the board with adequate financial information to support decisions such as adding or expanding programs, acquiring property and equipment, and making significant investments.
- Provide monitoring information so that the board can provide adequate oversight. Monitoring information is typically provided in the following areas, among others, liquidity, financial condition, reserves, revenue and expense activity, compliance with donor restrictions, where applicable, and status of significant investments
- Provide the board with information on programs and activities to ensure that members have an adequate knowledge of the current state of the organization and the expected future state.
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