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Presented by:
Date:
Lana Gray, Senior Manager, Organization & People
October 2015
Financial Responsibilities of
Non-profit Boards A conversation about management’s role in
supporting the board
SARC Fall Conference, Saskatoon
Page 2
Learning Objectives
As a result of participating in this workshop, you
will:
1. Understand the financial governance
responsibilities of the board.
2. Explore the information and support that
management can provide to help the board
fulfill its financial oversight role.
3. Engage with and learn from your colleagues.
Page 3
Workshop Outline
1. The Director's Responsibility
2. Best Practices in Financial Governance
3. Finance Related
Committees
4. Financial Risks and Mitigation
Page 4
The Director’s Responsibility
• Financial oversight and governance
– All board members, including those who do not
understand finances well are responsible
• Best tool to use…QUESTIONS
– Be curious and develop questioning skills
Page 5
Financial Responsibility Matrix
Activity Board
Executive
Director
Prepare operating and capital budget
Finalize, review and approve budget
Ensure that expenditures are within budget
Approve expenditures outside authorized budget levels
Provide for the audit and financial review
Develop financial policies and procedures
Approve financial policies and monitor that policies are being followed (policy
compliance)
Ensure there is adequate segregation of financial duties and controls in place so
that no one person is involved in all aspects of financial transactions
Establish audit committee to receive and review external audit
Page 6
Financial Oversight and Governance
Responsibilities of the Board
Financial Oversight
and Governance
Establishing financial policies
Monitoring finances
Ensuring revenues are secured
Ensuring all assets are protected
Ensuring a financial audit takes place
Supporting and monitoring the
executive director in their financial work
Page 7
Best Practice in Financial Governance
#1
Ensure financial activities support the strategic plan of the
organization
#2
Establish and regularly review
financial policies for the organization
#3
Recruit individuals who have financial
understanding
#4
Understand and ensure compliance
with all requirements
#5
Utilize board committees
#6
Understand roles and responsibilities
with regard to financial governance.
Page 8
Best Practice in Financial Governance
• Help formulate the strategic plan
• Ensure what is proposed in the budget supports the strategic plan
• Ensure sufficient funding for organization
• Other sources than government:– Business operations
– Fundraising
– Sponsorships/partnerships
– Private or public foundations
– Social enterprise activities
#1
Ensure financial activities support the strategic plan of the
organization
Page 9
Best Practice in Financial Governance
• Policies provide guidelines for appropriate financial transactions
• The board approves policy, the executive director and staff carry out the activities in line with policy
• Common financial policies relate to the following areas:– Budget responsibilities
– Budget monitoring
– Cash management
– Banking
– Accounting
– Finance committee
– Money management
– Fund development
Page 10
Best Practice in Financial Governance
• Directors should aim to:– Understand and analyze
financial statements in a basic way
– Understand accounting policies, estimates and judgments
– Understand the organization and how it organizes its accounts
– Understand the strategies of the organization
– Understand the risk environment of the organization
Page 11
Time For Conversation!
• In consideration of each of these best practices,
what are the implications for the executive
director and/or management?
• What do you currently do to support your board
in the areas discussed so far?
– What is working well?
– What have you tried that did not work well?
– Where do you struggle?
Page 12
Best Practice in Financial Governance
• Non-profit organizations have
reporting requirements
• Includes:
– Non-profit Corporations Act,
1995
– Statutory obligations (i.e.
payroll deductions to CRA)
– Funder reporting
requirements
Page 13
Best Practice in Financial Governance
• Subset of board and staff
• Used to focus on specific subject matter areas of governance
• Brings decisional items to full board
• Financial focused committees:
– Finance Committee
– Audit Committee
#5
Utilize board committees
Page 14
Best Practice in Financial Governance
• It is up to each director to
ensure that they
understand their role and
responsibility as it relates to
the finances of the
organization.
Page 15
Time For Conversation!
• In consideration of each of these best practices,
what are the implications for the executive
director/ management?
• What do you currently do to support your board
in the areas discussed so far?
– What is working well?
– What have you tried that did not work well?
– Where do you struggle?
• How well does your board currently line up with
these best practices?
Page 16
Board Finance Committee
Oversees the establishment of the
annual budget
Monitors budgets on a regular basis
Helps to prepare interim financial
statements
May provide advice (investment policies and/or investment
decisions)
Finance Committee
Page 17
Overseeing the Annual Budget
Preparation – What the Board Looks For
Are the objective and goals for the year as identified in the strategic/business plan represented in the
budget?
Overall, does the budget reflect the strategic plan?
Are there any significant changes planned for programs and services built into the budget?
Have the costs been realistically estimated for each activity/item?
Has the projected income for the year been represented realistically?
What are the key assumptions behind the estimates of revenues (income) and the estimates of
expenditures (costs) for the coming year?
What is the plan for staffing levels and staff compensation for the coming year?
Does the projected income compared to the annual costs ensure a small margin of safety? That is,
how much of a cushion do we have against unanticipated events?
Page 18
Board Audit Committee
Audit Committee
The preparation of
annual financial reporting
The external audit activities
The internal controls and
risk management
Other financial responsibilities as assigned by
the board
Page 19
Financial Risks
Financial Risk
Loss of funding
Unsuccessful fundraising
Fraud or theft
Reductions in the market
value of investments
Improper use of grant and donor money
Excessive increases in
costs to operate
Page 20
Transferring Risk
• Involves buying insurance to protect the
organization against fraud or theft
• Two kinds for financial risks:
– Directors & Officers’ Liability
– Dishonesty, Disappearance and Destruction Coverage
Page 21
Mitigating Risk
• “Mitigate” means to make less severe
• Mitigation tactics do not make the financial risk
go away, but they lessen the potential severity of
their impact to the organization
• Two key mitigation tactics:
– Internal Controls
– Reserve Funds
Page 22
Reserve Funds
• Financial risks such as losing a major funder, unsuccessful fundraising, loss in value of investments can be mitigated with reserves
• Reserve funds are like a “rainy day fund” and can provide some security to an organization in the case of unforeseen events
• A prudent organization would want to consider establishing a reserve fund of approximately three months of operating costs
Ultimately, the right amount depends on what the
organization is protecting against or what it wants to
achieve in line with its strategic plan.
Page 23
Best Practice Considerations –
Reserve Funds
Facility Exposure
to Risk
Payroll Size
OpticsRevenue Volatility
Page 24
Time for Conversation!
• What do you take into consideration when
setting up a reserve?
• How do you determine a reserve amount?
• If you don’t have any reserves set up – why not?
• For those of you who do, what have you learned
along the way?
Page 25
A Review of Our Workshop Objectives
Understand the financial governance
responsibilities of the board.
Explore the information and support that
management can provide to help the board fulfill
its financial oversight role.
Engage with and learn from your colleagues
Page 26
Reports that transform sterile and obscure
accounting reports into narratives that reflect
the flesh and blood reality of your
organization's day-to day life are the first step
in keeping your board as financially aware as it
should be.
- Chris Jenkins
Helping Boards Be Responsible Fiscal Stewards
Parting Thought…
Page 27
Contact
Contact: Lana Gray, Senior Manager
MNP Consulting
Phone: 306.751-7987
Email: [email protected]
