Financial Information for The Board and Accounting programs

James Provenza's Nonprofit and Charitable Organizations Legal Blogs

Licensed for 37 years

Attorney in Glenview, IL

We
have discussed in the past that a nonprofit Board needs financial information
to help them make informed decisions. But what kind of information do they
need?  We have seen a number of practices some of which we do not
recommend.

Here
are some common practices of which we do not approve:

1. 
Excel spreadsheet. While an Excel spreadsheet may be an inexpensive way to list
financial information is it does not group items by categories and therefore it
cannot give a complete picture of the organization’s finances. You don’t
generally see  liabilities for example. In addition, a simple listing on
an Excel spreadsheet will not help prepare a form 990, if one is required. You
will need to categorize income and expenses.

2. Bank
statements. We have seen executives bring the bank statement as their
financial information to a board meeting. While cash in and cash out is
important, it also does not provide a complete picture.  It will not list
the balance of a liability or restricted account, for example.  The bank
statement won’t remind the board how much is restricted.

3. Quicken
and other personal finance programs. We have also seen organizations use
Quicken and other personal finance programs. While these are very useful for
household finances they aren’t appropriate for reporting an organization’s
finances. You will find it cumbersome to put together a balance sheet or income
statement if you have any volume of transactions.

We
believe that an organization needs to invest in accounting software to give the
Board appropriate information.  While it is more expensive,  it will
in the long run save time.  Do you want to spend more time than necessary
on administrative tasks?

You
need to present the following items to the board on a regular basis:

Statement
of assets and liabilities, also known as the balance sheet. This statement is
designed to list cash in the bank as well as other assets the organization may
own as well as liabilities. It would also list restricted funds such as the
estate gift I previously described.

Income
statement. You need you need to present income and expenses not only for the
current month but also year to date and if possible a year-over-year
comparisons. The board needs to see where income is coming from where it’s
going to and what trends may be relevant to the organization’s future. If
income is declining or expenses are increasing the board needs to know this in
order to chart future direction.

Sources
and uses of cash. Some transactions show up on a balance sheet or the income
statement.  For example, if you distribute from a restricted fund, it will
be on the balance sheet.

Any
good accounting program will have all three of these statements. They can be
easily produced once a program is set up with a an appropriate list of
categories, call ed chart of accounts. We have experience helping organizations
set up charts of accounts so please call us if we can help you. We can also
recommend accountants who have experience in the nonprofit area. The future of
your organization will be stronger with appropriate financial information.

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