FINANCIAL ISSUES BOARD MEMBERS SHOULD ADDRESS

FINANCIAL ISSUES BOARD MEMBERS SHOULD ADDRESS

Identify the organization's Mission
Develop a strategic plan to fulfill the Mission
Identify/select programs to achieve the Mission
Identify available resources and resources needed
Identify real or total costs of a program effort and create a business plan for it

QUESTIONS THE BOARD SHOULD ASK:

Do we have a current, functional strategic plan?
Has it been updated in the last three years?
Is our financial plan (budget) consistent with our strategic plan?
When was the last time we reviewed each of our programs - for its ability to achieve the mission? For its financial stability?

Sufficient cash on hand is critical to any not-for-profit
One month cash on hand to pay salaries and expenses
Alternatives to cash:
1. certificates of deposit
2. other investments
3. line of credit
4. other borrowing ability

QUESTIONS THE BOARD SHOULD ASK:

Gauges of financial strength can be defined (calculated) in different ways:

Assets (things of value the organization owns)
(minus)
Debt (the organization's liabilities)
(equals)
Reserves or fund balance
Assets (unrestricted and reasonable liquid and current inventory)
(minus)
Liabilities (that must be paid off quickly and currently)
(equals)
Reserves:
1. ideal reserves: one year's operating expenses
2. practical reserves: 35-40% of a year's expenses
3. funding reserves should be a line item in the budget

QUESTIONS THE BOARD SHOULD ASK:

Do we have sufficient reserves?
Has the board adopted a formal policy for the establishment of reserves?
If we have permanent endowments, has the board considered a spending rate policy to ensure safeguarding the principal?

QUESTIONS THE BOARD SHOULD ASK:

Are related revenue and expenses "in line"?
Does program income exceed expenses?
Does non-program (dues, professional) income exceed expenses?
Do you think you're making a profit in an area where you're actually not?
Have we run at a gain or loss?
Do we have management reports that identify program and non-program revenue and compare them with assigned costs?
Are any specific expense areas rising faster than their sources of income?

Fulfilling the Mission is the bottom line, while balancing the budget makes it possible.
Budget equals expected performance.
Poor management not reflected in budget.

QUESTIONS THE BOARD SHOULD ASK:

Are we regularly comparing our financial activity with what we have budgeted?
What procedures do we use to make sure the differences between what was budgeted and what was actually spent are being appropriately documented in the financial statements and addressed?

Not-for-profits operate in a fishbowl.
Activities open to scrutiny by any and all. Invite inquiry!
IRS Form 990 must be available to anyone who requests it.
The organization MUST fulfill its exempt purpose.
How efficient is the organization perceived to be?
The organization must have stringent rules about excessive personnel compensation or unreported benefits. Build in proper checks and balances.

QUESTIONS THE BOARD SHOULD ASK:

Does the Board provide oversight to safeguard against waste and fraud?
Does the Board provide oversight of contractual agreements to ensure the organization's exempt status will not be questioned or impaired?
Does the Board provide for internal controls over expenditures to ensure their propriety?
Are we fulfilling our tax-exempt purpose as granted by the IRS?

Even with the greatest vigilance on the part of Board and Staff, problems may arise that threaten the financial health of the organization.
Board members need to make sure that the organization is managing risks, either by insurance or by other means, to ensure its continued existence.

QUESTIONS THE BOARD SHOULD ASK:

Are assets insured?
Is everyone who handles cash, checks, or investment bonded?
Do we need business interruption insurance?
Have we had a recent update of the insurance the organization is carrying?
Do we carry appropriate insurance to ensure the organization can continue to function under adverse circumstances?

Organizations that receive funding from the federal government, foundations, individual donors, or other entities must usually follow specific rules and guidelines.
The Board is ultimately responsible for ensuring such income is managed properly.

QUESTIONS THE BOARD SHOULD ASK:

Has the Board established internal controls to ensure that restricted funding is appropriately spent and accurately accounted for?
Are we providing timely reports as requested by funders?

Opportunities for conflicts of interest are growing dramatically?
Not-for-profit Board members must remain vigilant in their efforts to avoid such conflicts by providing full disclosure of their relationships to outside entities.
The appearance of conflict must be avoided, as well.
Receiving an inappropriate financial gain from the organization is a serious conflict of interest (private inurement).
Board members can be assessed penalties if they knowingly approve a private inurement transaction or contract.

QUESTIONS THE BOARD SHOULD ASK:

Do we have a policy prohibiting conflicts of interest?
Do any of our Board members have potential, perceived, or actual conflicts of interest, e.g., when a board member is involved at a significant level in another competing or potentially competing organization, either for-profit or not-for-profit?

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