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Communicating fiduciary responsibilities for not-for-profit boards
January 28, 2020
Authored by RSM Canada LLP
Tony McGregor, CPA, CA shared this article
INSIGHT ARTICLE |
Financial results and forecasts are an important element for not-for-profit organizations (NPOs) in guiding and evaluating their mission. However, accountants and treasurers need to be cognizant that some board members have a lower degree of comfort with financial reports. It isn’t uncommon for board members to defer to the accountant, auditor or treasurer to assume responsibility for financial results, even though boards have a fiduciary duty as part of their mandate. In these cases, this can lead to a lack of clarity into the roles and responsibilities of the board. Board oversight into the financial results is an important element to ensure appropriate use of funds and prevention of fraud.
The goal of this article is to assist accountants, treasurers and other financial professionals in the NPO industry to communicate financial results clearly with board members so that they can understand the results and improve the quality of their decision making.
Recognize and address resistance
It is no secret that math anxiety is a prevalent condition amongst many adults and children. This can translate into fear as it relates to reading and understanding financial information. NPO board members typically demonstrate varying degrees of comfort with financials: some will have a basic understanding of accounting standards yet little awareness of NPO accounting standards; others will defer any financial questions to their accountants. When preparing results and reports, it may be helpful to begin by understanding each board member’s professional background and board responsibility and tailor the message accordingly. As the resident ‘numbers person,’ it is important for financial professionals to impress upon the board their role in reviewing and approving financial statements, budgets, and ensuring that assets are accounted for and not mishandled.
Making the link
A number of board members in the NPO industry spend a good deal of their time participating in the development of their organization’s mission. Some will argue that the mission is the most important function of the board. Therefore, an opportunity exists for accountants, auditors, or treasurers to make the link between the financial results and the realization of this mission. Consider how to frame the discussion of financial results and projections to the key pillars of the mission. If there is a clear link between mission and money, the board can make better decisions.
The importance of language
For many boards, a simple shift in language results in a major shift towards understanding. When addressing boards and communicating financial results, be sure to use the same language as the mission. Rather than using accounting jargon, take the time to rephrase key accounting terms and financial results. There is also a potential to teach as you explain results (i.e. be sure to reiterate what certain numbers mean versus just stating what the number is).
Consider approaching the financial statements first from the bottom as opposed to the top. Begin with the overall conclusion of the financial report and then go into specific details as they pertain to relevant areas of the mission. For example, on the statement of financial position, in most cases the net assets are more important than the cash balance. Forcing readers to deviate from the normal reading protocol of starting at the top of the document could change how they read and understand results.
The power of visuals
In times when we are used to receiving information quickly, with the click of a button, using visualizations can further enhance the board’s understanding of the current financial results and projections. Solutions can range from graphics that showcase the percentage spent on key areas in alignment with the mission, to dashboards that illustrate several areas of growth, trends and shortfalls.
In the NPO industry, board governance is critical to the success and sustainability of an organization. Accountants, auditors, and treasurers who understand and appreciate that not all board members share their understanding of or enthusiasm for numbers and financial results can help board members to fulfill their fiduciary responsibilities and simultaneously set the NPO on the best possible path towards attaining its mission. Good governance practices are fundamental for NPOs, as our interactive resource illustrates.
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This article was written by Stephen McCourt and originally appeared on 2020-01-28 RSM Canada, and is available online at https://rsmcanada.com/our-insights/nonprofit/communicating-fiduciary-responsibilities-for-not-for-profit-boar.html.
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