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Jun 23

The Significance of a Sound Financial Reporting System for a Non-profit Organization

Posted on June 23, 2016 at 4:00 PM by Web Master

Image of a Financial Report


They say that numbers don’t lie. Did you know that a board member is answerable to a non-profit’s financial position? One of the main responsibilities of a board member is to provide financial oversight. It is not uncommon for a board member to avoid asking for facts or justification of expenses. A board member may fail to take a closer look at financial statements for many different reasons, but one common grumble is that the financial statements are confusing.

How can a board member fulfill this duty? A sound financial reporting system that presents accurate numbers is what a board member relies upon to perform financial oversight. A treasurer, bookkeeper, or chief financial officer (depending on the size and capacity of the non-profit) will record financial transactions and present them to the board. Typical reports include income and expense statements, balance sheets, and change in financial position statements.

Sound financial reporting is dependent on a well-designed system. Financial accounting software, such as Sage One® or Intuit QuickBooks®, may be an improvement to Microsoft Excel® spreadsheets. An Excel spreadsheet can be cumbersome and vulnerable to tampering. Financial accounting software can produce reports that are easier to interpret. If available, make use of the free trials offered by financial software companies. Prior to making a purchase, it is a good idea to talk to other non-profits of similar size and function about their preferences.

Be sure to read the financial reports that are circulated during board meetings. Compare the financial reports against the budget. Ask questions about the organization’s financial standing. Insist on a consistent and well-designed system to track revenues and expenses.
A treasurer can help to develop the financial literacy of fellow board members. A board member that doesn’t understand what they are reading should turn to the treasurer for tutoring. Ignoring financial reports puts the organization at risk.

Remember that there must be other checks and balances in place, too. No one likes to think cynically about a non-profit organization, but financial policies and procedures need to be enforced in order to protect its financial assets and reputation.

Ponder these questions. Does the non-profit organization have a skilled treasurer, bookkeeper, or CFO? Does the board have the correct financial information that it needs to make decisions? Is it using suitable financial accounting software? Does it have financial controls in place to deter fraud?

A non-profit board of directors needs the proper tools and expertise to provide financial oversight. Do not minimize the finance function of the board. All financial reports should be examined and then filed for at least six years.

As a volunteer, one may not have the financial acumen required, but it is a board’s responsibility to learn how to interpret financial reports. Aside from people, money is a non-profit’s most important asset, and it is important to steward it properly. Become familiar and comfortable with financial reports, because the numbers don’t lie. 

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