How financial reporting can help foster board member involvement

From time to time, nonprofit organizations may experience a lack of engagement of their board members during regular board meetings. There could be many reasons why board members are not engaged in meetings, but sometimes it’s up to an organization’s staff to find ways to involve board members more in the decision-making process.

Smart Business spoke with Ben Antonelli, CPA, a principal at Rea & Associates, to learn more about what nonprofit organizations can do to increase board member engagement during board meetings.

What are some possible reasons for decreased board engagement?

While a large majority of board members have a passion for their organization’s exempt purpose, they may not be as engaged when it comes to making financial decisions. Maybe the organization’s internal financial reports are not provided in a timely fashion, are too detailed or do not provide narratives to be reviewed prior to meetings.

In order for board members to make sound decisions, they need to be equipped with the right information.

How and when should board members be provided with information?

Board packets and presentations that include financial reports should be available to board members several days before the meeting. Sending out the packet the night before the meeting can put unnecessary pressure on the members, and may make it difficult for them to make educated, well-thought financial decisions during these meetings.

How much detail should be provided in the financial reports given to board members?

Nonprofit organizations should be mindful about the level of financial detail provided to board members. There may be times when they are provided with too much financial data on large spreadsheets. It may be difficult for board members to digest and analyze the information in the time leading up to and during the meeting.

Although detailed financial data should be available to board members upon request, financial statements reviewed during board meetings should be limited to summarized data. In addition (and this varies by organization and industry), relevant metrics or ratios should be given.

This report should show the increase or decrease in various metrics over time, usually multiple years. In order to be meaningful, organizations should use the same report format during all meetings so board members can become familiar with it.

What else should be included in board meeting packets?

  • Show an analysis of the actual budget versus the approved budget or operating plan. Most organizations operate with an approved budget or operating plan. If organizations do not have such a budget, it is critical to create one. For organizations with a budget, showing a comparison of the actual budget versus the approved budget for the past month and the year to date is useful.
  • Provide a brief narrative of financial results. In addition to financial data, a narrative explaining the organization’s analysis of the most recent financial results is also very helpful. Organization staff typically knows much more about the organization than the individual board members, so providing an explanation as to why the numbers are the way they are will help provide a level of context.
  • Disclose the basis of accounting if it is different from generally accepted accounting principles (GAAP). Many organizations that produce annual board-approved GAAP financial statements also produce monthly board reports on a separate basis. If an organization reports this way, a simple footnote or disclosure to the board stating that a different basis exists will help avoid any confusion at the end of the year.

An engaged board can help propel an organization forward, and likewise, a disengaged board can hold it back.

Organizations should give board members the tools they need to be active, strategic and valuable.

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