“Numbers by themselves don’t mean anything. It’s how they relate to other numbers — last year, year-to-date and budget — that’s what’s interesting.” So says the director of finance for an educational organization.

One of the most important things a chief financial officer does is provide information for making good decisions.  The current Board chair and former treasurer of the Board added, “Treasurers and Boards have the responsibility to consider the format of the financial information being delivered. They must be cognizant of the fact that this information is essential to make good governance decisions.”  Which boils down to presentation: not too much information, but not too little, and make it clear.

For the organization to be well run, Board members of all backgrounds must be able to understand the numbers.  Boards need the insight of their Board members with regard to financials.  This includes the input of educators, program experts, consultants, and fundraisers—not just the bankers!  When a Board chair asks for comments on the budget, the response needs to come from everyone not just those with financial acumen.  Understanding and clarity are achieved by thoroughness, questioning, planning, and formatting.

Striking the balance

Too much information encourages micro-managing or confusion.  Line items on the budget should be condensed into categories, a task to be undertaken with the full knowledge of the Board’s finance committee … and with the understanding that the details are available anytime they are needed.  “As a Board treasurer, if you want to open a finance drawer, you can do it,” the director of finance says. “The accounts have to be open to scrutiny.”

But beware of over-simplification!  Board members must have confidence that any problems will be apparent to them, since they are the ones held accountable.  If the Board gets information that is too granular, someone will focus on a very minor point.  But the information has to be good, and credible as well as readable!

“Credible” means more than just columns that add up.  Prompt acknowledgement of changes and problems is critical.  If a line of credit had to be accessed some weeks earlier than planned, the treasurer should be notified, and given the reasons.  When it is presented to the full Board, that prior notification is crucial to building trust.  In all things financial, the first commandment is “there shall be no surprises!”

Clarity is achieved both by showing relationships among numbers and by explaining deviations.  For example, the “Budget vs. Actual” report includes columns for the dollar amount and percentage deviations from, among other things, the year-to-date budget.  Comments, such as “Grant has been denied,” explain a lower-than-expected income or “Switch in telephone systems has eliminated monthly service costs,” explain lower expenses.

It’s the “why” that makes the numbers understandable to everyone. Those with financial acumen should assume that not everyone shares their savvy, that some need to learn how to properly read a balance sheet.  This ongoing Board education is crucial.  One easy to understand report is a Cash Flow.  It shows monthly income and expenses (both real and projected), and it’s easy to see when a line of credit will be tapped or when the money for salaries is coming in.  It is, essentially, a picture of when and how the organization will pay its bills.

Timing

When the director of finance was hired, financial reports were passed out at the Board meeting which did not give anyone time to thoroughly review them. Now, a carefully timed sequence of events is in place to ensure that financial reports are reviewed and understood by the time the Board meets.

  • The Board knows when the books have been closed when they see reports at a September meeting.
  • Detailed reports are reviewed by staff for accuracy and to add the “why” for variances.
  • Two days later, less detailed reports — the ones in which line items are categorized — go to the finance committee.
  • A week before the Board meeting, the treasurer, the director of finance and any finance committee members meet via a conference call to discuss the reports.
  • The reports, as vetted by the finance committee, are sent to Board members the next day.
  • The Board meets and, ideally, the treasurer presents the reports for the approval of the Board.

This multi-level review allows time for asking questions and for finding the answers. “Spend the time to go over the financials before the Board meeting,” the director of finance says. “Don’t ever surprise them.”

Trust & Verify

“Find a treasurer who will challenge you, who will ask hard questions!” the director of finance advised.  Having a treasurer with good financial skills who can ask and anwser good questions can hold the Board and staff accountable.  The treasurer’s job is to have a deeper level of diligence, to raise good questions.  He or she has the responsibility to challenge financial matters and raise questions for insight and understanding.  If it’s not clear to the treasurer, it may not be clear to others!

Asking questions is not an issue of trust, but the Board’s job.