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A CEO's Guide to Assessing and Monitoring Stewardship
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By Jean Hardy Robinson, Consultant

Growth Design always strives to communicate and share best practices in relation to sound fiscal management and stewardship with its clients. A best practice we have found to be a critical success factor in creating and maintaining a fiscally healthy nonprofit organization involves the financial benchmarks and reporting processes available to a CEO.

Businesses have almost universally used a series of monthly accounting reports to track the management of functions tied to cash inflows and outflows. These same reports are a key tool for any CEO of a nonprofit service organization who is responsible for monitoring the organization's financial health and stewardship of funds entrusted to its care.

All but the smallest nonprofit organizations are required to have Audited Financial Reports and the IRS Form 990 prepared annually. However, a savvy CEO should require more frequent financial oversight. Monthly accounting reports provide data that show changes in the organization's financial picture. A good monthly financial reporting package from the Chief Financial Officer (CFO) will include the following:

  • Current month revenues and expenses with a comparison to budget, previous month, and same month prior year actuals
  • Current year-to-date (Y-T-D) revenues and expenses with a comparison to Y-T-D budget and previous year Y-T-D actuals

Monthly attention to some additional accounting reports or line items of reports will help a CEO to identify trends that are positive or negative indicators of fiscal health and good stewardship:

  • Total billings for service contracts or services rendered
  • Total accounts receivable including a breakdown by relevant categories such as current or overdue accounts
  • Total payroll disbursements
  • Total disbursements for trade payables and other expenses
  • Total payables outstanding (purchases booked, but not yet paid)

Treasury reports are distinct from accounting in that they track actual cash in hand rather than the balance resulting from transactions posted to the accounting system. For example, new service contracts may show an increase in revenue from an accounting perspective, but the compensation for services provided cannot be spent until cash is in the bank (i.e., billed, collected, and deposited). The following reports allow a CEO to assess stewardship from the treasury perspective:

  • Average ledger and collected balances in all non-interest-bearing bank accounts combined (provided by banks by month and year-to-date)
  • Average investments for the same period and effective annualized rate of return
  • Average debt for the same period and effective annualized cost of funds

To ensure good stewardship, a CEO must have appropriate financial policies in place and hold staff accountable to follow these policies. Written policies and procedures that are reviewed periodically protect staff from potential judgement errors that are made when no written guidance is available. These written policies can often guide the following responsibilities:

  • Investment
  • Borrowing
  • Cash handling and deposit
  • Endowment fund management including method of calculating earnings and communication to donors of restricted funds
  • Foreign exchange management (if applicable)

Finally, a CEO needs to be prepared to evaluate the performance of the CFO. In our experience, trust develops from a good working relationship based on frequent communication. To make that communication effective, CFO's who teach the following concepts to the entire management team serve their organizations (and their CEO) well:

  • Strategic budgeting, which links programmatic planning to the annual budget cycle
  • Accrual accounting (versus cash flow)
  • Fund accounting

Once a CEO understands and relies on the numbers presented on monthly accounting and treasury reports, it is a small step to design a financial reporting package for board members, donors, and potential donors. The following are frequently requested and provided:

  • Most recent Audited Financial Reports
  • IRS Form 990 (on request except contributors list with amounts, which is protected under the Privacy Act)
  • Most recent annual report
  • Book and Market Value of any endowed fund
  • Annual earnings from endowed funds available for disbursement (including methodology for calculating this amount)

For more information on assessing and monitoring the stewardship activities of your organization, contact Jean Hardy Robinson, Consultant, through the Growth Design Customer Service Center, 414-224-0586.

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