Reports Board Members Want: A CFO’s Perspective
Mary Diegert is a recently retired CFO with 25 years’ experience in the nonprofit human services sector. She earned a master’s degree in Accounting and her CPA license (now lapsed) in the 80’s. Her most recent experience is fifteen years with a $20 million Catholic Charities agency in upstate New York. Her focus is on sharing with nonprofit finance directors her lessons learned from 25 years of on-the-job training. We wish to thank Mary for writing this blog post and sharing her wisdom.
About ten years into my fifteen-year term at a Catholic Charities agency in upstate New York a relatively new finance committee member, Mr. Shea we’ll call him, disappeared. I learned he had resigned but I didn’t know why. He was semi-retired, coming from an executive position in a regional health care facility. I knew Mr. Shea’s disappearance had nothing to do with me but I couldn’t help asking myself – did he resign because he was disappointed in our financial reports?
The agency’s corporate structure had recently become more complicated. Mr. Shea, with his corporate background, had high expectations for financial information. I used the input he provided during finance committee meetings as I developed a new reporting package.
The experience with Mr. Shea and many others along the way reminded me of the challenges a CFO faces in reporting financial information. Our organization’s volunteer board members came from diverse backgrounds. They ran the gamut from community leaders who had never seen an income statement to financial executives with far more experience than I could ever hope to have.
WHAT BOARD MEMBERS WANT TO KNOW
From my first day on the job to my last, my charge was to provide information that answers the questions
- “How are we doing?”
- “How will we come out at the end of the year?”
- “Are revenues and expenses following the budget that we approved?”
I knew that in addition to their commitment to the goals of the organization, board members are concerned about their personal liability and reputations. Good governance starts with staying out of the newspapers for any reason other than promotion of the nonprofit’s good works. My job was to make sure that they had the information they needed for good decision-making.
Despite some bumps in the road, over my fifteen-year tenure I learned how to tell the whole story for a $20 million agency in a four to five-page reporting package.
I cut my teeth on board reporting working with my first treasurer who I’ll call Mr. Green. Mr. Green was a VP of a large hospital system who towered over me at six foot four. Receiving negative input from that height kept me on my toes. After many tries, I finally came up with a monthly report format that satisfied him as well as my ED and the numbers-averse contingent on the board. The package included a well-crafted income statement and balance sheet. It also contained a narrative that summarized the important points and provided a few statistics to illuminate the story.
I eventually discovered that in addition to pithy qualitative information, comparative reporting—variance analysis—is key to the presentation of financial data. A lot of insight can be “wrung out” of a budget-to-actual report with good explanations for the variances. The same principal is true for any reporting, whether it be a monthly report, the annual budget, or a special purpose report.
THE MONTHLY BOARD PACKAGE
I always distributed the board reports a few days in advance of the meeting. I believe that board members can’t be expected to discharge their responsibilities without being given the opportunity to digest the information prior to the meeting. Does every member always study the materials in advance? Perhaps not, but the principle still holds.
I learned to organize the reporting package so that information flows from high level to detail. That way every reader can get the big picture as quickly as possible. For a monthly financial statement package the order might look like this:
- Consolidated year-to-date (YTD) bottom line with comparison to budget and last month
- Other critical metrics specific to your organization (tickets sold, Medicaid units billed, meals provided, etc.) with explanations for variances from expectations
- Updates on programs that have been identified as problem programs in need of close monitoring
- Updates on critical, ongoing issues
- Any new information that the board should be aware of
- Balance Sheet
- Consolidated comparative budget-to-actual income statement
- Individual program income statements—either condensed or in detail—that tie out in total to the consolidated income statement
My treasurer, Mr. Green, used to say that he wanted to look at the picture from 30,000 feet. The narrative does this by highlighting the essential points to be gathered from the entire presentation; it provides qualitative information that is important for decision-making alongside the numbers.
During the course of my career I learned that the balance sheet provides important information that the board should see throughout the year. The Mr. Sheas and Mr. Greens of the world can quickly scan a well-designed balance sheet to see the agency’s cash position, its receivable and payable balances, and changes in debt and other liabilities.
I recommend using a balance sheet format that classifies assets and liabilities as current and noncurrent. That way a working capital ratio can be calculated. The balance sheet I provided showed balances as of the last day of the reporting period and comparative balances for the prior period. I also included any accounts receivable or payable balances over 60 or 90 days past due.
If you have a small nonprofit with few assets and no liabilities, you may wish to omit a balance sheet. A list of bank account balances on the face of the income statement may suffice.
Consolidated Budget-To-Actual Income Statement
Still at a high level, the purpose here is to see the overall picture for the whole agency. The board of my organization wanted first and foremost to know that agency-wide, revenue is coming in and bills are being paid in accordance with the budget. They wanted to see significant variances in seconds so I would be careful not to clutter up this report with too many columns. I used four columns for
- YTD budget
- YTD actual
- Variance expressed in dollars, and
- Explanations of significant variances.
I added shading to the variance column to help it stand out.
Often, as the year progressed, actual results started to diverge from the budget. When the changes were significant the budget began to lose relevance. In that case, I provided a year-end forecast with the monthly statements.
Individual Program Income Statements
While board members are not expected to examine every line item every month, I always provided reports showing the programs that comprised the numbers on the consolidated income statement.
Depending on the size of your organization, individual program income statements can be detailed or condensed as long as total revenues, total expenses, and net income tie out to the consolidated statement.
I learned a ton from the Mr. Greens and Mr. Sheas whom I encountered over the years. Despite my worries about working with high powered board members, I gained valuable experience from my interactions with them. After a while I knew how to structure a financial package that would meet their needs.
I also got to know the preferences of my executive director and other members of the board and finance committee. I revised the reporting packages as conditions changed.
I learned through trial and error that even though some of the board members are afraid of numbers, they still care about good information. Board members are busy people and easily frustrated by pages of facts and figures that are not necessary but “nice to have.”
The tightrope never went away. But we did arrive at a point where every board member felt they could count on me to provide reports that got to the heart of the matter. Even Mr. Green appeared satisfied. I think Mr. Shea would have been happy, too.