There is no single standard for all not-for-profit organizations regarding which financial statements the Board should receive.

1. Internally prepared financial statements should be prepared monthly and reviewed by the Board on a timely basis.
2. Audited financial statements are prepared according to the guidelines for the Board of Directors - not for management.

Statements should include:

1. statement of financial position (balance sheet)
2. statement of activities (statement of support, revenue and expense)
3. statement of change in net assets (statement of changes in fund balances)
4. statement of cash flow (where cash came from and how it was used)

An audit is the process by which certified public accountants are able to form an opinion as to whether the organization's financial statements fairly reflect its financial position, the changes in its net assets, and its cash flow.

An audit does not guarantee that the financial statements are perfectly accurate, nor does it ensure the competence, wisdom, or honesty of management.

Separate opinions may result from an audit. Types of opinions include:

1. unqualified (clean) - It's the highest level of assurance.
2. qualified (auditor has reservations) - Board members should ask questions of auditor
3. adverse/negative - Financial statements are misleading; management will not correct them. This is an alert to Board that strong corrective action is required.
4. disclaimer (auditor is unable to form an opinion) - The Board should promptly investigate cause of disclaimer.

The management letter (letter of reportable conditions) should always be distributed to the entire Board; it provides information on any deficiencies in internal controls.

Required by federal government, state government, grantors, donors, or affiliated organizations.

• IRS Form 990 (or 990 EZ can be substituted) - Board members (or a committee) should consider reviewing before filing as this is the document which communicates to the IRS how the organization is fulfilling its tax-exempt purpose and is public domain.
• OMB A-133 Audit (organizations expending $300,000 in federal funds — five separate reports - assures organization is in compliant with regards to managing federal funds.
• grantors, funders, donor requirements
• Special reports as required by donors, especially pertaining to entrepreneurial collaborations.

Whenever a report involves the potential of substantially increased or reduced funding, Board review is advisable.

• Is our financial staff providing us with accurate and timely financial statements?
• Do the statements allow us to understand the financial operation of the organization?
• Could the statements be improved?
• Does our annual audit have a clean opinion?
• If not, why not and what is being done about it?
• Do we regularly review the form 990?
• Does the 990 accurately represent our organization?
• Are we filing on a timely basis all the reporting documents we are supposed to be filing?

Critical income sources are declining:

• Dues
• Contributions
• Grants
• program revenue

Certain expenditures are increasing:

• salary and benefits: track as percentage of expenses
• miscellaneous expense account: warrants inquiry
• consultant fees: possible undisclosed issue

Private inurement: Board members benefit financially

• threat to organization's survival
• IRS can revoke tax-exempt status

Unplanned auditor turnover:

• often signals substantial disagreement between auditor and management
• board should investigate any unplanned turnover
• board should meet with auditors without management present

Board micro-management:

• one of the most serious problems for not-for-profits
• board too involved in detailed operational management creates enormous inefficiencies

• Are our key sources of income rising or falling?
• If income is falling, what are we doing about it?
• Are our key expenses under control?
• Have we had an unplanned auditor turnover?
• Are we micro-managing?