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Finance And The Board Of Directors

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Finance and The Board of Directors What Every Nonprofit Board Member Needs to Ask An Insider s Perspective

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Preface 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 Roberta Katz between senior management and Boards of Directors is essential in ensuring the financial sustainability of an organization Although the Board of Directors is not responsible for To fulfill their responsibility Board managing the daily operations of a nonprofit organization s Members should ask senior management 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 questions in five key areas Personnel Policies and Procedures Internal Controls Allocation of Resources The Financial Audit Copyright 2021 Roberta Katz Consulting www rpkatzconsulting com

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

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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 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 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 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 procedures to be followed in order to carry out Enable the ongoing operation of the finance department these policies It also serves as a guide for the Serve as a training tool for new employees and when finance staff to follow in order to produce accurate current employees are temporarily absent reliable and timely financial reports Copyright 2021 Roberta Katz Consulting www rpkatzconsulting com

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Key Area 3 Internal Controls 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 For example Is there a formal bidding process in place for the selection of vendors outside of the procurement department Compliance with laws and regulations Detection and prevention of fraud Safeguarding of an organization s assets Is the bidding process being overseen by those 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 Copyright 2021 Roberta Katz Consulting www rpkatzconsulting com

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Key Area 4 Allocation of Resources 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 In approving the organization s budget the Board of Directors should pay close attention to the following areas Programs 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 Programs Reserve IT Infrastructure 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 Copyright 2021 Roberta Katz Consulting www rpkatzconsulting com

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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 Copyright 2021 Roberta Katz Consulting www rpkatzconsulting com

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Roberta Katz Consulting Nonprofit Finance Consultant For more information www rpkatzconsulting com robertapkatz gmail com 917 359 1158 Copyright 2021 Roberta Katz Consulting www rpkatzconsulting com