Financial Report Literacy for Non Profit Boards

If you regularly read these articles on Non Profits, at this point, you are probably thinking that I am going to write an extended article on financial reports and how they relate to your volunteers. Thankfully, you can rest assured: that is not the case with this particular article. Instead, I have an even better focus: your Non Profit’s board of directors.

Because of the governance structure of Non Profit organizations, a board of directors is almost always required. Board meetings will vary (I prefer quarterly, since boards really should govern. Having monthly board meetings tends to open the door for boards to start working in the day to day aspect of the organization, running into open conflicts with staff who are actually being paid to do that work.) One of the key aspects of a Board of Directors meeting is that at some point, a financial report will be given by the treasurer.

In most cases, your board members should have enough financial literacy that reading and understanding financial reports are not a mystery. However, that is not necessarily the case (I have seen some boards where members acted like having Directors and Officers Insurance was no big deal at all and was not worth discussing). This however is a major problem, and you should take great pains to make sure that you have a board that has a good grasp of financial literacy.

The reason that this is such an important thing for you to consider is that your Board of Directors have a fiduciary responsibility in governance. It is their job to make sure that the organization is spending its funds properly. Even though fundraising is the most important part of a board member's job, governance is also crucial. Having people who simply do not want to understand (or make zero effort to understand in any capacity) are individuals that you should not select for your board.

To be clear, I am not proposing that you institute a financial literacy barrier exam, or that you should try to develop a board that is populated by only CPAs. That is complete overkill. What you should do is to ensure that your incoming board members do have a good business sense. A board made up of business people will more than likely have the necessary financial literacy for understanding your financial reports. They might not have the technical skills of a finance team member, but they will be able to understand the key components of it.

Thankfully, Non Profit bookkeeping does not tend to be too terribly complicated, especially in comparison to businesses that have multiple subsidiaries. This is also helpful in that the financial reports given will likely be fewer and have less information (while this is the case with many Non Profits, it is not the case with all; colleges and Universities are Non Profits who would have substantially larger financial reports to contend with; of course these institutions are normally governed by a Board of Trustees and the school itself likely does have its own finance team that might make presentations for the board of directors). If you are finding yourself on the Board of Trustees for a College or university, then there is a very good chance that you have substantial financial skills that would more than adequately prepare you for your governance duties.

While there can be some complexity with Non Profits and financial reports, at the end of the day, most Non Profits tend to be very straightforward with their bookkeeping and requisite reports. What is important though, is that you make sure that those who are on the governing mechanism (usually the Board of Directors, but as was pointed out earlier could be the Board of Trustees) have the necessary skills for understanding the organization's financial reports. This might seem like a given, but not all Non Profits function this way. Don’t be the one that does or else you will regret it.