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How to Increase Your Board’s Financial Literacy

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Mekea Roseman, Senior Accountant

By: Mekea Roseman, Senior Accountant
Cordell, Neher & Company, PLLC

Board decisions can sometimes affect an organization’s finances, so nonprofit board members should understand basic accounting principles and how these numbers impact their work in a meaningful way.

Nonprofit Boards review several different types of financial statements, and it is essential that Board members can read and interpret the financial information presented to them. Understanding the financial information presented to them allows Board members to adequately evaluate the financial health of the organization.

Not only should Board members understand the accounting terms that surround financial statements, but they should also understand the purpose and content of the financial statements themselves. The standard financial statements most nonprofit Board members will see are:

  1. The Statement of Financial Position (balance sheet) – This statement shows the assets and liabilities of the organization at any given point in time
  2. The Statement of Activities (profit and loss statement) – This statement shows revenue and expenses for the organization
  3. The Statement of Cash Flows – This statement shows where cash comes from and how it is spent

To help Board members become well-equipped to understand organization finances, Board meetings should have time allotted to educate about nonprofit accounting and encourage questions and conversation about what the information presented means and the accounting principles behind it. If there is still some uncertainty, or members would like more information, they should feel free to discuss this with the organization’s accounting professional, management, or the internal accounting staff. These resources can help Board members see the story behind the entity’s financial statements and the accounting methods surrounding them.

Once Board members understand the basics of the financial statements and can interpret them, they can then focus on what these statements mean to the organization. When reviewing financial statements in Board meetings, Board members should be encouraged to look at the overall picture instead of viewing the statement line by line. When reviewing financial statements, here are some questions for the Board to consider:

  1. How does this year’s gross revenue compare to last year’s?
  2. Are expenses within expectations of our budget?
  3. Do we have enough cash flow to cover upcoming expenses?
  4. How do our investment gains (or losses) compare with our benchmarks?
  5. Where do the trends point?

Asking these questions will help gauge the health of the organization. These questions likely lead to more in-depth discussion about the factors causing unexpected or unusual variances in both revenue and expenses. It also allows the Board to dig deeper on unusual and unexplained financial expansions and contractions.

Aside from understanding financial statements and accounting lingo, Board members should also stay up to date of the changes in nonprofit accounting. It may be helpful to have the organization’s CFO or an outside accountant make regular presentations to the Board. These presentations can focus on several topics, from explanations of basic accounting definitions and principles to issues related more specifically to each organization, including expected investment returns, benchmarks, compliance with regulations and granting authorities and future expectations.

Board decisions often impact an organization’s finances, even if the matter may not appear financial in nature. Please call Cordell, Neher & Company, PLLC at (509) 663-1661 if you have questions or would like a review of your organization’s financial statements.  Our professionals are well-versed in nonprofit accounting and are eager to help determine your organization’s financial well-being and assist in ensuring your nonprofit is set up for success.

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