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Part 3 of a 5 Part Series

An Organization’s management is charged with managing the day-to-day operations of the non-for-profit; however, this does not relieve Board Members from taking on certain oversight responsibilities.

Your oversight can prove to be very beneficial because the organization’s personnel are frequently so involved in day-to-day concerns they don’t see the big picture. As a Board you must fill the big picture oversight role. The following areas typically require heavy Board Member involvement:

Budgeting

The Budget is a decision making tool, not just another way to keep track of revenue and expense. When making any decision, the relevance of information is critical. There are 4 basic keys to any successful budgeting process:

1. Use appropriate level of detail – Budgets can often be vague and generic. When a program or cost center begins to go over budget, an Organization needs enough detail to determine what is driving the excess costs.
2. Timeliness of information – Up-to-date information allows cost cutting and resource allocation decisions to be timely and effective. Using out-of-date numbers can create situations where your strategic decisions are mitigated because management has continued to move in their own direction, between the time the budget was produced and when it was reviewed by the Board.
3. Re-evaluate - As new information becomes available or goals change, go back and update the budget. Comparing actual results to budgeted levels based on inaccurate assumptions is not going to give an accurate portrayal of your Organization’s performance.
4. Be consistent – Management may view the budget as the Board’s way of measuring their performance. To shed themselves in a better light, managers may find ways to exclude certain expenses or include certain revenue as needed to make the Budget appear more positive in their favor. Be wary of a budget that is consistently being changed to meet benchmarks or of management getting a head start on a next period’s budget by moving items into the wrong accounting period.

Information Technology Objectives

An IT degree is not required to ensure that the Organization’s information technology is operating effectively and meeting reporting objectives. Ask a few simple questions about the current system:

• Does our IT systems allow us to generate information to meet our reporting and decision making needs?
• Can errors, both human and electronic, be easily identified in a timely manner?
• Can departments easily communicate and transfer information without data re-entry?

If the answers to these questions are not favorable, it may be time to look into a change. Today there are so many software packages, it is more realistic than ever to find a product that meets your specific needs.

But keep in mind, when making a change in software it is essential to get involvement from employees at the user level. Be proactive! Find out what issues and obstacles are facing employees with the current software before choosing and implementing new software. Too often Organizations implement new software first, then ask for employee feedback and that may be too late.

Finally, as a Board Member, be aware you are only seeing the final reports that management has generated from the software system. When management hands you this report, you may believe it was easily generated with a touch of a button; however, when there’s a limited understanding of the software you will find that reports may have taken an overwhelming amount of time and effort to piecemeal together. Such piecemeal processes leave room for error and manipulation. Inquire and observe management’s process to determine if the output is worth the input:

• Excess software features may create obstacles. Is additional staff training required?
• A lack of features can prevent the Organization from meeting their reporting goals in an efficient manor. Is a software upgrade needed?

Investments

By nature not-for-profits receive large contributions and grants. Choosing to invest is an Organizational decision or a donor stipulation. Either way, the Organization, especially the Board, has a fiduciary responsibility over the funds.

It is difficult to maintain the fiduciary responsibility without a written investment policy. As management’s attitudes change the policy keeps their investment decisions in-line with the Organization overall investment strategy. Sound investment policy should address the following:

• Investment - objectives and returns requirements
• Authorized - persons to make investment decisions and procedures to do so.
• Types - of authorized investments.
• Approved - vendors and level of fees.
• Setting - maximum lengths of time cash can be committed.

Monitoring and measuring investments return requires transactions to be recorded on a timely basis. It is recommended that the investment statements are obtained monthly and reconciled to the accounting record. Recording investments on an annual basis can greatly sway the bottom line from day-to-day figures.

Insurance

The monthly insurance payment is a necessary evil. Nearly all organizations have some insurance, but unfortunately most organizations don’t have the right level/type of insurance. Furthermore, there are many cases where organizations believe their insurance coverage extends far beyond actual coverage.

An organization’s Board should designate a committee of the Board, typically the finance committee, to designate one meeting a year to review and report on insurance. The process should include:

• The valuation of assets (current and future revue streams.)
• The measure of valued assets against insurance coverages; adjust coverage levels accordingly.
• Perform ongoing risk assessments and determine what types of insurance will cover those risks.
• Understand what risks are covered vs not covered.
• Develop plans to mitigate or recover from risk that are not covered by insurance.
• Analysis the cost and coverages of different carries.
• Explore program, such as safety training, that may reduce insurance costs or grants to build up safety related infrastructure within the organization.
• Know the claim process to secure claims on a timely basis.
• Involve others at the ground level of the organization in the process as needed.

A major new area of in insurance related to the cyber-security and information technology environment. Nearly all organizations are exposed to these risks,, but most don’t have adequate levels of insurance or an understanding how the coverage works.

In the next part of our 5 part series, we’ll discuss the Board’s role with financial reporting. In the meantime, if you have any questions please feel free to contact your Zinner audit professional.