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Clear financial reporting to the Board of Directors is essential for good financial management in any organization. Budgets and accurate day-to-day financial records are of limited use if the information they contain is not communicated clearly to the Board and those people responsible for managing the organization.
The essential elements of good financial reporting are:

  • All information must be relevant.
  • Financial information must be understandable.
  • The information presented must be reliable.
  • Financial information must be timely to be useful.

Reported information must be relevant
The Finance Committee and/or Board of Directors should determine what financial information they require to monitor the organization=s financial progress. Information should include a summary of results of operations (revenues received and expenses incurred), financial position (assets and liabilities) and key statistical data such as present and expected enrolment to help the Board determine the financial outlook for the future. Specifically, monthly financial reports should at a minimum include totals for:

  • Revenue from fees, grants and other sources.
  • Salary and benefits expenses.
  • Food costs, if significant.
  • Other expense information as the Board considers necessary.
  • A summary of significant assets at the end of the month including cash, accounts receivable, accounts payable (outstanding invoices) and grants not yet paid out.
  • For childcare centres, enrolment statistics by age-group and/or room.

The above information should give you an idea of the organization’s current financial status and progress since the last Board meeting.
A comparison of actual with budgeted results is also very useful. Actual-to-budget comparisons will enable the Board to determine whether approved financial policies are being followed (Is the centre operating at a break-even level as directed by the Board?) and whether corrective action needs to be taken. The actual-to-budget analysis is most useful when accompanied by a brief narrative explaining significant variations.

Some Boards require monthly as well as year-to-date information for actual and budgeted revenues and expenses. The amount of detail reported is, of course, up to the Board of Directors.

Following is an example of a two page monthly report to a Board:

Other financial information such as uncollected parent fees and enrolment statistics should be reported in a format agreed upon by the Board of Directors.

Reported information must be understandable
Your monthly financial reports should neither be so summarized as to be superficial nor so detailed and voluminous as to be unintelligible. The ideal amount of information reported to the Board will be a function of the culture of the Board members together with the level of their involvement. Some Boards require reams of detail while other Boards prefer a simple one page summary assuming that all of the details have been taken care of by the staff. The ideal amount of information reported usually lies somewhere between these two extremes.

One strategy to determine the appropriate amount of information is to start with a fairly summarized report (e.g. the two page variety presented here) and then add information as requested by Board members. For example, if your Board wants details of advertising and professional development expenses reported each month then expand your initial summarized version of the report to include these amounts. If your Board requests a copy of the monthly bank reconciliation then attach that to the statement of financial position presented. You might want to revisit the content of monthly financial reports with each newly appointed Board of Directors.

Reported information must be reliable
Financial reports to Boards of Directors are only useful if the information is reliable. You do not have to have a monthly audit to achieve reliability. It is generally sufficient that the bank be reconciled to the accounting records each month and that the reconciliation be reviewed periodically by the Treasurer or another member of the Finance Committee. The Finance Committee or the Treasurer might also periodically (once or twice a year) make sure that amounts reported actually agree with those in the financial records.

While a bank reconciliation will help ensure that all cash transactions are reported, it will not guarantee that all transactions have been classified properly. For example, an invoice for play supplies for $2,571 may be inadvertently misclassified as a food expense. Significant misclassification errors should, however, be detected by a comparison of actual to budgeted amounts. If, in the above example, the monthly food budget was $2,500, the misclassification would result in the monthly food expense being twice that budgeted. Hopefully the Board would question this variance at the monthly meeting.

In summary, to help ensure that data reported is reliable you should:

  • On a monthly basis reconcile all bank account balances with those reported to the Board of Directors.
  • Compare actual to budgeted amounts and explain variations. This procedure will help determine whether significant expense or revenue transactions have been misclassified.
  • Periodically (twice a year) compare amounts reported to the Board with those in the underlying accounting records.

Reported information must be timely
Reporting the results of operations and financial position on time is essential if corrective action is to be taken by the Board. For example, if you report September activity in January it may be too late to adjust salary expenses and/or fees to avert a pending financial crisis resulting from a drop in enrolment. Timely financial reports are essential!

Reporting financial information more than two months in arrears should raise warning flags for the Finance Committee and/or Board of Directors. Steps should be taken immediately to make sure that financial information reported is no more than one month old.

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