Finance And The Board Of Directors : simplebooklet.com

Copyright 2021. Roberta Katz Consulting www.rpkatzconsulting .com Preface . Although the Board of Directors is not responsible for managing the daily operations of a nonprofit organization’s finance department, they do have a fiduciary responsibility to oversee the financial health of the organization. They should be confident that the finance department is managed efficiently and effectively with the proper processes and systems in place to support the organization as they carry out their mission. To fulfill their responsibility, Board Members should ask senior management questions in five key areas:  Personnel  Policies and Procedures  Internal Controls  Allocation of Resources  The Financial Audit Having worked in senior financial management positions at major nonprofit organizations for fifteen years, I know what it takes to build and maintain a strong finance department. I experienced the day-to-day challenges finance departments face and was responsible for implementing innovative and practical solutions. In my roles, I worked with Boards of Directors and Board committees in providing them with the information and tools they need to carry out their oversight responsibilities. Collaboration between senior management and Boards of Directors is essential in ensuring the financial sustainability of an organization. Roberta Katz

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Copyright 2021. Roberta Katz Consulting www.rpkatzconsulting .com Key Area #1: Personnel One of the most, if not the most important resource of any organization, nonprofit or for- profit is their staff. For most nonprofits, personnel and personnel related expenses represent the largest percentage of their budgets. “Is there an adequate number of staff in key positions to operate the finance department efficiently?” Having well-defined roles and responsibilities facilitates the process of evaluating staffing needs and determining positions that can be merged or those that can even be eliminated. This became important during the Covid-19 pandemic when many nonprofit organizations have downsized their workforce in order to reduce costs. “Are the processes each staff member follows in performing their duties documented?” Due to the pandemic, staff roles and responsibilities have changed. Staff members were absent and unavailable for extended periods of time. Documenting processes and updating them when changes occur, is essential in ensuring the ongoing operation of the finance department.

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Copyright 2021. Roberta Katz Consulting www.rpkatzconsulting .com Key Area #2: Policies and Procedures “Does the organization have a formal Accounting Policies and Procedures Manual that is updated at least annually and approved by senior management and the Board of Directors?” What is An Accounting Policies and Procedures Manual? An Accounting Policies and Procedures Manual documents an organization’s policies for the operation of the finance department and the procedures to be followed in order to carry out these policies. It also serves as a guide for the finance staff to follow in order to produce accurate, reliable and timely financial reports. Why Do You Need the Manual? The purpose of an Accounting Policies and Procedures Manual is to:  Ensure consistency in processing and recording transactions.  Provide transparency in financial management and reporting.  Ensure financial resources are properly safeguarded and used only for authorized purposes.  Establish internal controls that help to mitigate the risk of fraudulent activity.  Ensure compliance with regulatory requirements and adherence to proper accounting principles.  Enable the ongoing operation of the finance department.  Serve as a training tool for new employees and when current employees are temporarily absent.

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Copyright 2021. Roberta Katz Consulting www.rpkatzconsulting .com Key Area #3: Internal Controls For example, Is there a formal bidding process in place for the selection of vendors?  Is the bidding process being overseen by those outside of the procurement department?  Is there a set schedule as to when vendor contracts are put out to bid?  Have the same vendors been given a contract without implementing and enforcing a formal bidding process? A formal bidding process is designed to obtain quality services, ensure cost savings and prevent favoritism which can result in fraudulent activity such as kickbacks. “Does the organization have sufficient internal controls, checks and balances in place to mitigate the risk of fraudulent activity and prevent noncompliance with regulatory requirements?” Internal controls are policies and procedures implemented to ensure: An efficient and effective operation Reliable financial reporting Compliance with laws and regulations Detection and prevention of fraud Safeguarding of an organization’s assets.

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Copyright 2021. Roberta Katz Consulting www.rpkatzconsulting .com Key Area #4: Allocation of Resources In approving the organization’s budget, the Board of Directors should pay close attention to the following areas: ReserveIT InfrastructureProgramsPrograms-The ability of a nonprofit to carry out its mission depends largely on efficient and effective programs. When evaluating the sustainability of individual programs and whether or not they should be eliminated, consideration should be given to whether the program is directly related to the organization’s mission. IT Infrastructure-Spending for technology such as automated systems for processing invoices or for cybersecurity has been a low priority for many nonprofits due to the cost and time involved in implementing these systems. However, as a result of the pandemic, with staff working remotely and an increase in cyberattacks, technology spending should become more of a priority and a greater portion of the budget should be allocated to it. Reserve-Nonprofits should set aside a cash reserve of three to six months of operating expenses to meet both planned and unpredictable expenses. The level of the reserve fund should be reviewed by the Board of Directors on a regular basis. Board members should ask enough questions to satisfy themselves that resources are allocated through a realistic budget that ensures the financial sustainability of the organization while carrying out its mission. Important Elements of a Budget

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Copyright 2021. Roberta Katz Consulting www.rpkatzconsulting .com Key Area #5: The Financial Audit The Board’s oversight of the organization includes: Selection of Accounting Firm-The Board of Directors through its Audit Committee and not management selects the accounting firm. Review of Management Letter-The Board reviews the Management Letter presented to it by the auditors. This Letter represents the auditors’ findings that can range from business recommendations to identifying material weakness in the organization’s internal controls. While it is the responsibility of management to address and correct the findings of the auditors, it is the responsibility of the Board of Directors to review the findings with management and to request periodic status reports on the progress the organization has made in addressing and correcting these findings. Auditor Rotation-Nonprofit organizations are not required to rotate audit firms. However, such a change might be prudent to ensure audit independence, objectivity, gaining new perspective and a “fresh look” at the organization’s finances. Replacing the auditors should be a decision made by the Board with input from management. Engaging a new audit firm can be costly and time consuming. The new audit firm will need time to familiarize itself with the organization’s financial records. The pros and cons of auditor rotation should be weighed before making a final decision.

Finance And The Board Of Directors

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