Forum - May 2011

FINANCIAL PRIMING FOR NON-FINANCIAL BOARDS BY PATRICK W. MELVIN, CPA

Trade associations, profes- sional societies and mem- bership organizations — in fact, virtually all nonprofit entities — are indispens- able components of society, providing their members with information, education and representation.

Of course, the relevance of associations to their members is maintained in large part by their boards of directors through a tremendous self-regulatory emphasis on transparency and accountability — particularly when it comes to financial operations.

In the last 10 years, many organiza-
tions have created formal finance and
budget committees along with an audit
committee. Previously, it was common
for organizations to simply have an
executive committee, perhaps with spe-
cific financial oversight assigned to a
subcommittee. A positive development,
the expansion of finance committees is
owed in large part to Sarbanes Oxley,
recommendations from the Panel on
the Nonprofit Sector and the Internal
Revenue Service’s request for additional
governance information via Form 990.

To give board members a basic understanding of your organization’s finances, consider developing nontraditional financial reports and a “financial primer.”

Financial Reporting: Abridged

Financial reports to the finance committee can — and probably should — be comprehensive, in-depth fiscal documents. In-depth financial reports to non-financial board members, however, typically are too overwhelming, and therefore too ineffective.

To find out what kind of financial information your board needs — and in what format — consider surveying your full board of directors in order to find out what an effective financial report looks like. Typically, you’ll find that the Cliff’s Notes version is the best version.