Ensure Your Board Is Ready for Its Financial Responsibilities
When it comes to the responsibilities of a board of directors, few outrank the importance of managing the association’s finances. This area of work might be second nature for directors who are also business owners or are responsible for their company or unit’s financials at their full-time jobs. However, not all directors have this kind of experience before joining a board.
That is why boards must clearly define the financial terms, documents and areas of work that they are expected to understand. Although each association is unique, there are common themes. They include, but are not limited to, the following:
Once the board identifies key areas to focus on, it must then develop a means to educate its less experienced directors. Below are three suggestions.
- What reserves are (as opposed to net assets), why and when it is OK to spend reserves and what associations should plan to hold in reserves;
- How to work within the association’s financial policies;
- How the annual budget is developed and how to forecast throughout the year;
- How to read, review and respond to income statements, profit and loss statements, monthly financial statements, statement of activities summary, etc.;
- How much readily available cash does the organization have, how much does the organization need and when should the board use cash for annual operations;
- How the annual audit is conducted and how it is reviewed; and
- How to use the association's financial vernacular.
Board members must fully understand their financial responsibilities. This goal requires a strategic, thorough and consistent approach. The board should partner with staff to create these onboarding processes and documents and then review the approach each year to make sure it continues to resonate with new board members and includes all critical areas of work.
- Offer a financial orientation/onboarding program for new directors. Consider offering multiple, shorter sessions instead of a day-long approach.
- Create a separate and more detailed orientation/onboarding program for treasurers, executive committee members and finance committee members.
- Establish a mentor/mentee system to pair new directors with more senior board members. These relationships often help accelerate the onboarding and learning processes, especially with complex topics like financial management.
APRIL 2015 EDITION
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