What Board Members
Need to Know About
Non-Profit Finance –
What’s Important,
What’s Distracting
Andrew M. Prather, CPA
Shareholder
aprather@clarknuber.com
425-635-4571
United Way Worldwide
Financial Management and
Human Resources Forum
October 8, 2013
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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
GOVERNANCE
Board
MANAGEMENT
Staff
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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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The Board’s Duties
• Duty of Loyalty
• Duty of Good Faith
• Duty of Care
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The Board’s Duties
• 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
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Finance Committee
• 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
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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 inbounds
• Periodically reassess
relevance of the issue
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What Does the Board Do With Dashboard Issues?
•
•
•
•
Example:
Identify the issue
• Need for operating reserves
Establish written policy to • Written policy; maintain
create the boundary
reserves of 8-12 weeks
Monitor actual results and • Monthly financial report on
hold management
month-end actual and yearaccountable to stay inend forecasted operating
bounds
reserve balance
Periodically reassess
• Annually reassess need to
relevance of the issue
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 Practice
http://independentsector.org/governance_ethics_resource_center
• AICPA NFP Audit Committee Toolkit
http://www.aicpa.org/InterestAreas/BusinessIndustryAndGovernment/Resources/NotForProfitR
esourceCenter/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
• BoardSource
https://www.boardsource.org/eweb/
• Clark Nuber’s In the Boardroom Governance Newsletter
https://www.clarknuber.com/news/publications.php#newsletters
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Questions?
Andrew Prather CPA
Shareholder
Clark Nuber P.S.
aprather@clarknuber.com
425.635.4571
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