Fiscal Health and Fiduciary Responsibility: Making Sense out of the Dollars and Cents

Fiscal Health and Fiduciary Responsibility: Making Sense out of the Dollars and Cents

Guest post from August Harris (Essential 2008). August is a consultant with Seeds for Change Consulting, LLC, owner of Covenant Financial Services, and Treasurer of Leadership Austin

Harris_AugustAs leaders or future leaders throughout our community, we bear responsibility for the sound fiscal health of the organizations we support and guide. If organizations are not fiscally sound, they will be challenged to fulfill their missions.

Questions often arise about how far boards should engage in management and operation to meet their threshold of fiduciary responsibility. Boards should not engage in day to day bookkeeping or financial management—that is the role of the executive director and staff. However, board members must exercise overall responsibility for the fiscal well being of their organization.

They should:

  • Have a keen interest in the organization’s fiscal affairs, including its overall and current financial position, the reliability of reports, and the effectiveness of fund management.
  • Require regular, timely and complete financial reports holding staff accountable.
  • Ask critical questions about the financial reports the board receives, including budgets, financial statements, the IRS Form 990 and annual financial statements.

To do this effectively, boards should include several members who are comfortable reviewing financial statements. Organizations also should be supported by capable finance committees made up of folks who have a range of financial knowledge. Note however, that having a finance committee is not an abdication of board oversight. Periodic training for all board members on aspects of organizational finance is critical. The objective is to give board members a basic understanding so that they may effectively govern. Boards shouldn’t be afraid to ask questions and executive directors and staff should anticipate these questions to the best of their ability. Key questions to consider are:

  • How are our finances aligned with our organizational goals/mission statement?
  • Is our spending in line with our budget?
  • Why are there variances, if any, particularly those of material significance?
  • What generates most of our funding?
  • Is funding addressed in our SWOT or Strategic Plan?
  • What are our most significant expenses and will they grow or can they be controlled?

Tools like financial dashboards can synthesize this critical information into something immediately digestible. Well thought out dashboards should answer the questions above and should include actual to budget numbers, variances and exceptions with notes, key organizational dates, etc. Pictographs are often helpful. Different folks have different interpretive skills, so no one set format is best.

As bylaws and governance are critical to the success of the organizations you lead, so too are well conceived policies and procedures. These should outline how organizations actually operate by clearly defining roles and responsibilities ensuring that the budget, staff and priorities are aligned with mission and strategic plan. Operations manuals should be detailed and comprehensive. Also critical to the long term health and well-being of any organization are other key fiscal policies. Organizations should have:

  • A reserve policy insuring a minimum of three months operating expenses, including in-kind gifts;
  • A cash management policy encouraging organizations to have funds not needed for immediate or current expenses generate a return, however nominal;
  • An investment policy defining longer term investment strategies;
  • A gift acceptance policy protecting the organization from more complicated gifts than it has the expertise to manage, while creating an opportunity for resource development; and
  • A clearly defined conflict of interest policy underscoring that employees and directors have a duty to act in the best interests of the organization.

Policies and procedures can be well conceived and well written, but they are all but meaningless if you, as leaders, don’t understand their role in the success of organizations and don’t ensure that they are being followed. Your organization’s financial well being and, thus, its ability to sustain its mission relies on your leadership and engagement.

NOTE: The opinions of Leadership Austin alumni, faculty members, and guest bloggers are their own, and do not represent an official position of the organization. Learn more about nonprofit board service and the local organizations looking for new board members at the Greenlights Board Summit—presented in partnership with Leadership Austin—June 12 at the Bullock Texas State History Museum.