Financial Literacy and Reading Reports
Serving on a board of directors is a volunteer role that requires prudence. Board members perform an essential function to a non-profit, because they monitor an organization’s actions and make its biggest decisions. A major responsibility of the board is to ensure that programs and services remain consistent with the stated objects and mission statement.
Programs and services cost money. The board sets the budget and ensures there are sufficient financial resources to cover forecasted costs. How does the board track the ebb and flow of money? Primarily, the financial standing of the organization is represented in financial reports. Typically, a treasurer will prepare financial statements for each regular meeting. Every board member must review the financial reports, because they owe a legal duty of care, loyalty, and obedience to act in the best interest of the organization. After the financial reports are presented at a regular meeting, they are simply filed for audit. Only the audited financial statements at the annual general meeting are formally adopted.
Check the bylaws to confirm when the annual audit is due and who is responsible to perform it. The bylaws will declare if either a professional external auditor or two people appointed will conduct the audit. The books can be inspected more frequently, if requested. This could catch fraudulent claims being paid or inconspicuous book keeping errors.
The two most common statements are the statement of financial position (sometimes called the balance sheet) and the statement of operations (sometimes called the income/expenditure statement). Having a pulse on the budget’s status helps to avoid cost overruns. If issues are detected, then adjustments can be made before the organization is negatively affected.
Reading and interpreting financial reports are part of a board member’s commitment. Good governance hinges on asking questions and knowing the organization’s financial condition to make sound decisions. Boards can protect an organization’s assets with proper financial oversight. Sufficient financial policies and internal financial controls help to safeguard money, assets, and other valuables.
Overall, the board must know the general rules and requirements for accurate accounting records. A single page report that shows the opening balance, itemized receipts and disbursements, and closing balance is usually enough to make financial decisions. Rubber stamping is not good governance. Keep abreast of the organization’s financial standing and feel confident of the decisions made in the board room.