Growth Exchange
Understanding Board Financial Reporting
Agenda
- Overview of financial reporting at a board level
- Unique aspects of non‐profit accounting
- Support Kansas City observations related to board reporting
- Examples
- Tools and Resources
Overview
Things to be aware of as a board member that will help in under
standing
financial statements
- Do I understand the organizations business model?
- Can I get answers to my questions?
- Is the organization on the cash or accrual basis of accounting?
- When is the year end?
- What are the filing and reporting requirements of the organizat
Overview
Standard report presentation for the board
- Statement of Financial Position
- Statement of Activity
- Statement of Activity – Budget vs Actual
- Cash Flow
- Net Asset Rollforward
The board should always receive a full set of financial reports, even if they are accompanied by a financial dashboard or other summary
Board reports can be summarized where committee reports can be more detailed
These reports are typically presented by the treasurer uring the board meeting for approval, therefore the treasurer must have a full
understanding of the financials
Statement of Financial Position
- Cash – understand the purpose of multiple cash accounts and availability for general operations
- Investments – understand the purpose of investment accounts and availability for general operations
- Liabilities ‐ What is the collectability of accounts receivable?
- Liabilities ‐ Are all accounts payable or liabilities captured?
- Net Assets (Equity) – restricted vs unrestricted
- Very important to understand the concept of equity
Statement of Activity
Statement of Activity – AKA Income Statement
This reports presents income and expense activity for the curre
- Revenue
- Understand the business model of the organization
- Fee for service
- Grant
- Donations
- Understand the business model of the organization
- Expenditures
- Typically wages are large part of budget
- Program expenses – what does this mean?
- Deeper dive reports
- By functional category – Program, Admin and Fundraising
- Trending
- Comparative
Statement of Activity – Budget vs Actual
Statement of Activity – AKA Income Statement – budget vs actual
This reports presents income and expense activity for a period against a board approved budget- Understand variances from actual
- Focus on year to date vs interim periods
Statement of Cash Flows
This reports presents the change in cash from accrual basis acc
ounting
activity
- Hard to understand if not from accounting background
- Presents change in cash based on operating, investing and financing activities
Net Asset Rollforward
This reports presents the change in restricted and unrestricted
positions in
equity – a detailed breakdown of equity activity during a year
- Provides detail on restricted funds
- Can explain how funds awarded in one year remain to be spent during the following year
- Can provide information as to liquidity outside of restricted cash
Unique Aspects of Non‐profit accounting
- No such thing as a “loss” – increase or decrease in net assets
- Funds reinvested for mission
- The concept of with and without donor restrictions
- It can appear that an organizatio
n is cash flush, but in realit
y they
can’t pay for all their expenses
- It can appear that an organizatio
- Functional expense allocation
- The administration slippery slope
- Fundraising
- Program
Support Kansas City Observations
- For board presentation, less is more
- Be careful with dashboards and ratios – what are they really telling the board?
- The most difficult conversation is around showing a “negative” net income when actually the organization is using reserves to deliver the mission
- The budget should align with strategic plan
- A well thought out chart of accounts and reporting will reduce confusion and increase transparency and understanding
- Spend time with Support Kansas City – board members, staff, volu
- Meet with new board members to explain the financial reports
- Don’t be afraid to ask questions
Support Kansas City Observations
- Many times new board members will have “ideas” on dashboards, ratios and report formats
- Ensure these align with your accounting and your strategic plan
Examples
Tools and Resources
Google it! Understanding financial reporting for nonprofit boards
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