State Street on Board Leadership and Financial Literacy

Prepared by Lauricella and AssociatesFebruary 2013

Two Key Points

Basic financial literacy is a critical tool for nonprofit leadership

Financial literacy requires understanding:1. Nonprofit boards

• Modes of operation/Types of decisions

2. A variety of financial tools-more than budgets!

3. How different financial tools fit the different board roles

EFFECTIVE BOARD LEADERSHIP

STRATEGIC

•Establish organizational priorities

•Develop approaches and tactics

•Deploy resources

•Review performance

FROM OrgA to OrgA+

GENERATIVE

•Focus on purpose

•Discern problems

•Rethink and reframe work of the organization

CREATING a new Orgz

FIDUCIARY

•Faithful to mission

•Accountable for performance

•Compliant with relevant laws and regulations

STEWARDSHIP of OrgA

Governance as Leadership by Richard Chait, William P. Ryan and Barbara E. Taylor

FIDUCIARY

•Faithful to mission

•Accountable for performance

•Compliant with relevant laws and regulations

STEWARDSHIP of OrgA

Balances three modes of governance

Questions and Governance Modes

STRATEGIC

•Does our spending reflect our goals?

•Are we spending money efficiently?

•Did the organization do what it planned?

GENERATIVE

•Are we sustainable

•Do we have the money we need?

•Could we retool if we need to?

FIDUCIARY

•How did we do this year?

•Did we fulfill our obligations?

•Are we compliant with relevant laws

“Other questions that you have encountered?”

FINANCIAL TOOLS

Audit or ReviewStatement of PositionStatement of ActivitiesOperating BudgetYTD BudgetCash FlowTax Form- ‘the 990s”

CONTENTSINDEPENDENT AUDITORS’ REPORT 1

FINANCIAL STATEMENTS

Statement of Financial Position 2

Statement of Activities 3

Statement of Functional Expense 4

Statement of Cash Flows 5

NOTES TO FINANCIAL STATEMENTS 6 -10

1. Reviews and verifies the financial books of organization

2. Demonstrates that funds were used appropriately

3. Transparency4. Over $500,000 audit (U.S)

Annual Audit or Review

Sample Audit table of contents

FINANCIAL TOOLS

1. Snap shot2. Assets=Liabilities + Net

Assets3. Status of your

accumulated profits at a fixed point in time

FINANCIAL TOOLS

“How well has the organization done?”

Statement of Financial PositionBalance Sheet

1- “Is there cash?”

2- “Can I use it? Is it unrestricted and

available?”

3- “What is my debt position?”

FINANCIAL TOOLS

1. Income-Expense = Profit (Loss)

2. Income earned over a period of time3. The costs (expenses) of earning the

revenue during that period

“How well is the organization performing?”

Statement of ActivitiesProfit & Loss

1- “Did I make money?”

2- “Where did it come from?”

3- “How did I do compared with last year?”

Operating Budget

1. Planning tool2. Forecast revenue and expense3. Reflect mission and priorities

FINANCIAL TOOLS

“What is organization’s plan for the year?”

Is this magical thinking?

YTD to Budget

1. Project or Organization2. Developed before and

during a project/period3. Measure performance4. Management tool

“How is it working out?”

FINANCIAL TOOLS

Cash Flow

1. Developed after budget2. Forecast activity3. Various timeframes4. Adjusted depending on

need

“When is our money coming?” or “When do I have to pay this bill?

FINANCIAL TOOLS

Wrap up and Questions

Different roles, decisions, and questions

Require different tools

FIDUCIARY

STEWARDSHIP

Financial tools

1. Yearly audit (or review)1. Notes2. Management letter

2. Statement of Functional expense3. P&L4. Operating budget

Faithful to mission

Accountable for performance

Compliant with relevant laws and regulations

STRATEGIC

Tactics Financial tools

1. Operating budget

2. Budget to actual

3. Profit and Loss

4. Sources and Uses

Establish organizational priorities

Develop approaches and tactics

Deploy resources

Review performance

Out of the box Financial tools

1. Balance sheet

2. Cash flow

Focus on purpose

Discern problems

Rethink and reframe work of the organization

GENERATIVE

Thank you