• Ron Wormser

    There are two basic options for increasing financial literacy of nonprofit boards: educate members or have board members with requisite financial acumen.

    The latter is more easily attained and the more effective use of all board members’ time. Given the need for a broad range of expertise on most boards, better to build a team with diverse expertise, a collection of specialists rather than jacks of all trades.

    A complementary tool is to make effective use of independent auditors by tasking them, during their periodic audits, to look for areas of financial vulnerability. It may cost a bit more, but is cheaper than trying to address long-festering weaknesses.

  • Kate Barr

    Good points, Ron. I have found that even board members with prior financial expertise still need to learn about nonprofit finance and to gain better understanding of the particular business dynamics and financial results of the organization. That’s why I made the point in this piece that board members should take advantage of cumulative understanding and get better and better at recognizing both success and problems – and to ask questions! I also believe strongly that all board members need to be invited in tot eh inner sanctum of finance and dispel the myth that they can’t understand the financials.

  • colleenL

    Thank you for writing this important piece. I have begun using these types of examples in a class I teach to those entering the Development field. We need to understand the financials, and ask the hard questions that potential donors may ask as well.

  • Ron Wormser

    Kate, I couldn’t agree more with you about the imperative for even the financially literate to learn how nonprofit finances differ from those in the private sector. (As an aside, the trend to making nonprofit financial reporting more similar to for-profit report has not, in my view,helped but hindered both awareness and understanding of our sector’s distinguishing characteristics.)

    On the other hand, while I understand and appreciate the theory of all trustees becoming minimally conversant with nonprofit finances and associated reports, despite years of effort, I’ve not seen that Nirvana attained. What I have seen too much of are the very real risks of a little bit of presumed knowledge being manifested, almost always causing more problems than not. Good idea? Yes. Achieveable? Doubtful.

    One final observation: too many nonprofits use financial reports that are designed for accounting purposes for reports to managment and the board. If you wanted to know what was going on in a checical laboratory, receiving reams of formulas would be more confusinig than illuminating. Using accouting data to inform nonaccountants about what’s going on with a nonprofit’s finances is similar.

    Presenting financial information in lay terms, in how management and trustees think about what’s going on at the organization offers a greater potential for the information to be understood and increases the opportunity for decision-makers to make more informed decisions.

  • Keenan Wellar

    Having a requirement that board members have “requisite financial acumen” as Ron suggests is highly problematic because it assumes those same people have the skills they need for governance – strategic and generative abilities that relate to the mission and the change the organization wants to create in the world. They may also be strong other other fiduciary responsibilities – perhaps they love updating bylaws or policies and are very skilled in those tasks.

    A non-profit agency can have a perfect balance sheet and be otherwise a complete disaster. In fact, interpreting financial documents without the requisite understanding of what the organization is trying to achieve and the environmental contexts of those pursuits is probably a much more common board deficit than “lack of financial people.”

    Where there are concerns, more frequent engagement of an independent auditor is certainly an option, but the auditor can report on financial health, but not on organizational health – that’s what non-profit governance is all about, and the financial picture is only one part of that.

    Fiduciary concerns often dominate strategic and generative efforts on boards to the detriment of organizational outcomes, but even then, boards that think they are strong on their fiduciary efforts often forgot that fiduciary responsibilities are not solely limited to bank balance.

  • Kate Barr

    Thanks for your comment, and a hearty “Hear! Hear!” to your observation about financial report format and content. Information created for accounting and compliance with accounting rules is not what boards need to understand and evaluate the financial condition of the organization. Good information takes time to plan and create!

  • Kate Barr

    Keenan:

    Your good points reinforce the reality that in all cases, there is no one question, one answer, or one factor that determines organizational health or success. Thanks for the comment.

  • Keenan Wellar

    Thanks Kate! I recently attended a service club meeting where members discussed a certain charity and other than a vague reference to their tagline, their encouragement to donate to that charity was founded mainly in “their low overhead costs.” And people actually got excited and clapped.

    This made me ever so sad. As it happens, I know the field where this group operates, and a lot of the work they do and the way they do it is arguably delivering very poor outcomes – but with low overhead.

    I’m afraid it’s not an uncommon trend to evaluate charities as though they are making widgets and their efficiency and outcomes can be judged in that light.

  • Gary Altheim

    Here is another Board of directors that has allowed willful blindness for nearly 2 decades. https://www.change.org/p/give-the-fort-washington-armory-back-to-the-community. How do you get Armory Foundation Board members to take responsibility when community board members, city, state and public officials are also turning a blind eye. Willful Blindness is severer and contagious and..

  • Warren Hawk

    I sat on a board for a short time, one year. During that time there was a continuous line item that was labeled miscellaneous in our budget reports, but there was no break down of expenditures. I continually questioned that but was never given a detailed analysis of what it was used for or why we needed it. I later discovered a company credit card was a part of that expenditure and use. At times the Director of the organization mistakenly used the company credit card for personal expenses at different times but was given time to reimburse that account.
    I resigned from that board as I felt there was no honesty or trust in the board member’s judgment.