c lark n uber p. s. what board members need to know about non-profit finance – what’s important,...
TRANSCRIPT
CLARK NUBER P.S.
What Board Members Need to Know About Non-Profit Finance –
What’s Important, What’s Distracting
United Way WorldwideFinancial Management and
Human Resources Forum
October 8, 2013
Andrew M. Prather, CPAShareholder
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Agenda
• Board Governance 101– Discussion:
Focusing on mission outcomes; monitoring finances
• Finances – What’s Important and What’s Not– Discussion:
Key financial data points for UW Boards to monitor
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Learning Objectives
• Board Governance 101– Refresher on the role of the Board vs. staff– Best practices on how to focus the Board on
mission outcomes
• Finances – What’s Important and What’s Not– How to distinguish between “dashboard”
issues and “GPS” issues– Best practices on key financial data points for
UWs
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Case Study: The Board Debate on New Tires vs. Retreads
“OLD”
“NEW”
February 2014 Report
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Board Governance 101
• Role of the Board vs. Management• The Board’s Duties• Role of the Finance Committee
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VISION
Executive Director
MANAGEMENT
Staff
GOVERNANCE
Board
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Role of the Board vs. Management
• Board’s Role:– Ensuring that the organization is pointed toward
the right target, that it is moving at the right pace toward that target, and that it stays in-bounds as it does so.
• Management’s (Exec. Dir. & Staff) Role:– Getting people together to accomplish desired
goals and objectives using available resources efficiently and effectively; including planning, organizing, staffing, directing, and controlling for the purpose of accomplishing the mission.
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Role of the Board vs. Management
• Board’s Role:– Ensuring that the organization is pointed toward
the right target, that it is moving at the right pace toward that target, and that it stays in-bounds as it does so.
• Management’s (Exec. Dir. & Staff) Role:– Getting people together to accomplish desired
goals and objectives using available resources efficiently and effectively; including planning, organizing, staffing, directing, and controlling for the purpose of accomplishing the mission.
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• Duty of Loyalty• Duty of Good Faith• Duty of Care
The Board’s Duties
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• Duty of Loyalty• Duty of Good Faith• Duty of Care
• Regularly prepare for and attend board meetings• Read all the information provided to you• Actively participate in board discussions, exercising
independent judgment in decision making• Ask questions so that you have a complete
understanding of the organization’s financial picture• Understand the impact of various revenue development
approaches on your organization’s financial health
The Board’s Duties
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• Committee of the Board– Spends extra time on financial matters on behalf of the
Board– Allows more Board meeting time to be focused on
mission
• Advisory group to CFO
Finance Committee
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Focusing on Mission and Results
Past emphasis on inputs and activities. Holding managers accountable for results encourages them to focus more on results. In the past, managers were primarily held accountable for the prudent use of the resources they were given, the authorities they used and the activities they carried out. The concern was to ensure that spending was within budgets and complied with established rules and regulations. This did not encourage a focus on the results produced by these resources; rather, compliance dominated managers' attention.
1997 October Report of the Auditor General of Canada
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Discussion Question
How does a UW finance leader direct the Board to focus on mission outcomes and less on financial metrics?
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Nonprofit Finances & the Board – What’s Important, What’s Not?
• What’s on the Board’s mind?• Dashboard issues vs. GPS issues
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Topics from Audit Report Meetings
• Operating reserves• Growing revenues• Quality of finance staff• Risk management
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“We don’t want to be on the front page of the newspaper.”
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What’s Important and Why?
• Board’s Role:– Ensuring that the organization is pointed
toward the right target, that it is moving at the right pace toward that target, and that it stays in-bounds as it does so.
• How do we coach the Board to properly carry out its role in the area of financial governance?
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GPS Issues:• Pointed at the right
target• Moving at the right
pace
Dashboard Issues:• Staying in-bounds
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Distinguishing Between the Dashboard and GPS
• GPS issues– Mission-related– Examples -
• Strategies to improve education• Strategic partnerships
• Dashboard issues– Boundary-related– Examples –
• Financial – operating reserves, budgets, etc.• Compliance – legal, regulatory, best practices, etc.
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What Does the Board Do With Dashboard Issues?
• Identify the issue• Establish written policy
to create the boundary• Monitor actual results
and hold management accountable to stay in-bounds
• Periodically reassess relevance of the issue
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What Does the Board Do With Dashboard Issues?
• Identify the issue• Establish written policy
to create the boundary• Monitor actual results
and hold management accountable to stay in-bounds
• Periodically reassess relevance of the issue
Example:• Need for operating
reserves• Written policy;
maintain reserves of 8-12 weeks
• Monthly financial report on month-end actual and year-end forecasted operating reserve balance
• Annually reassess need to maintain operating reserve and adequacy of policy
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Discussion Question
What information on a UW’s periodic financial statements should the Board be concerned with?
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Resources• Independent Sector’s Principles for Good
Governance and Ethical Practicehttp://independentsector.org/governance_ethics_resource_center
• AICPA NFP Audit Committee Toolkit http://www.aicpa.org/InterestAreas/BusinessIndustryAndGovernment/Resources/NotForProfitResourceCenter/Pages/AICPANot-for-ProfitAuditCommitteeToolkit.aspx
• National Center for Charitable Statistics – Nonprofit Operating Reserves Initiative Workgroup
http://www.nccs2.org/wiki/index.php?title=Nonprofit_Operating_Reserves
• BoardSourcehttps://www.boardsource.org/eweb/
• Clark Nuber’s In the Boardroom Governance Newsletter
https://www.clarknuber.com/news/publications.php#newsletters
