I’ll state from the outset that I’m no finance expert…but I know enough to know how important it is to keep abreast of your organisation’s financial position, so that you can ensure you don’t allow an organisation under your watch to get into financial trouble!
You need good information
To keep yourself informed you need to be getting the right information. What this amounts to will differ depending on the complexity of your organisation. Smaller community-based not-for-profits, with simple budgets or limited funds might be able to get away with just using a spreadsheet to keep track of funds. But as soon as any level of complexity starts to come into what your organisation does operationally, or the budget starts to get some extra zeroes on its figures, I’d really recommend using some sort of accounting software package to keep track of your finances.
This will allow you to easily generate robust financial reports for your board to use to keep track of your organisation’s financial position. And if you don’t have anyone within your organisation who has the skills to use an accounting program like this, you will need to work out how you are going to bring that expertise in – for example, hire a book-keeper, source a skilled board member, or employ a skilled staff member.
The most basic of finance reports you would need to provide from your accounting program are: a Profit and Loss Statement; a Cash Flow Statement; and a Balance Sheet. And if anything in these documents doesn’t make sense to you, or looks unusual, you need to ask the person providing the reports for clarification – possibly more than once if you don’t get this answers you need the first time.
At the end of the day, it is up to us to ensure we get the information we need to be able to make an accurate assessment of our organisation’s financial position – ‘I didn’t know’ is no defence in an insolvency case.
Seriously consider some financial literacy training
Running a not-for-profit – even a smaller one – is like running a business. And the financial oversight responsibilities of those leading either kind of organisation are significant.
Given the majority of us are not accountants, or even book-keepers, it is likely that most of us will need some sort of training in financial literacy at some point to be able to carry out our financial responsibilities adequately – I know I have certainly needed it over the years to enable me to be able to make a reasonable assessment of an organisation’s financial position.
So make it a priority for your board or management committee members to get some financial literacy training (including regular refreshers). This might mean making provisions for it in your budget, or seeking out opportunities for free training…whatever it is, make a commitment to making it happen for your people.
Undertake regular reviews
So now you’ve got the information you need, and you’ve had some training to help you to know how to use that information to assess your organisation’s financial position…the next thing to consider is how often should you be making that assessment?
Most boards would review their financial position at every board meeting, and most boards would meet monthly – and I do think that a monthly review of the finances would meet the financial oversight needs of most organisations.
But if your organisation has particular characteristics that would require more frequent reviews – for example, is particularly dynamic, or is going through a period of major growth or other change – you need to make an assessment of what is constitutes ‘regular’ in the context of your organisation.
Roles and responsibilities
While the Treasurer and/or finance staff might have the role to generate and present the financial reports, we all have a shared responsibility for the financial health of the organisation we govern.
This means all of us on the board or committee of management need to be actively engaged in the process (I mentioned in the previous section) of regularly reviewing the organisation’s financial position.
To come along to a board meeting not having perused the financial reports and understood them, and to sit on the sidelines relying on others to have checked the reports and raised any concerns, is a risky position for any of us to take.
What are we risking if we get it wrong?
Worst case scenario here is that the organisation gets into financial difficulties and becomes insolvent i.e. can’t pay its bills when they are due. If this happens we will likely be found to have been neglectful of our financial responsibilities, and we may be held responsible for debts of the organisation.
Check out Justice Connect’s fact sheet ‘Insolvency and your organisation‘ for more information on this important matter.
Even if things don’t get to the point of insolvency, neglect of our financial oversight responsibilities could also result in mediocre organisational performance, lost opportunities, wasting of the organisation’s money, fraud, the list goes on…and the impact of those kinds of things on the organisation’s reputation, partnerships, future opportunities, and more, can be significant.
So what do you and your organisation do to ensure you are meeting your financial oversight responsibilities?
Should you be doing more?
If you have any great suggestions for keeping your board’s financial oversight capability up to scratch, do let me know on megan@mjbconsulting.net.au so I can share them with others.
And if you would like to receive my fortnightly Good Governance E-newsletter, with governance tips, information, news of upcoming grants and events, just let me know.
I hope to hear from you soon!
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