Successfully Transmitting Financial Transparency

Successfully Transmitting
Financial Transparency
Adjusting to the New Normal:
Putting Transparency into Practice

June 14th, 2012

The Nonprofit Banker nonprofitbanker.com

Transparency is a…


Transparency
Boils down to:

What you’re doing

Why you’re doing it


Treasurer
“The Treasurer, subject to the order of the Board of Directors, shall have the
care and custody of the money, funds, valuable papers, and documents of the
Corporation and shall have and exercise, under the supervision of the Board of
Directors, all the powers and duties commonly incident to such office. The
Treasurer shall deposit all funds of the Corporation in such bank or banks as
the Board of Directors shall designate. The Treasurer may endorse for deposit
or collection all checks and notes payable to the Corporation or to its order,
may accept drafts on behalf of the Corporation. The Treasurer shall keep
accurate books of account of the Corporation’s transactions which shall be the
property of the Corporation, and shall be subject at all times to the inspection
and control of the Board of Directors.” – Template from Nonprofit Assistance Fund

•Boring!
•Bookkeeper’s job description with legal
responsibilities

Treasurer
Financial leadership
• Knowledge (financial reports)
• “To manage your finances as
effectively as possible, you should, at
least, have an understanding of the
basic accounting process."


Treasurer
• Communications
• Translate financial information &
concepts for the Board
• Explain & re-frame financial reports
• Interpret & translate Board’s
questions, goals, and concerns to staff


Treasurer
• Planning
• Partner with staff to create a budget
• Prep Board for budget discussions
• Ensures that budget priorities reflect
the intentions & objectives of Board


Treasurer
• Strategy
• Financial options & decisions for long
term goals
• Initiate to connect finance & mission


Take-Away

Financial Leadership
Liaison


Why are Boards Crucial?
• People give to people
• The more involved, the greater the trust
• Recently – People give to person
• Charismatic Leader model is breaking
down
• USA – expense account scandals
• ISRAEL – recent amutot scandals


Boards in USA & Israel
Very different:

Legal – YES

Fundraising – YES

Management – NO!


Nonprofit Finance Fund
2012 State of the Sector Survey

•4th Straight Year:
• Demand Continues to Rise
• Funding Continues to Shrink

•What does this mean for the Board?


Nonprofit Finance Fund
2012 State of the Sector Survey

•In order to remain relevant
• Meet increasing demand
• Develop innovative solutions
• Require Human Capital
• (a.k.a. The Board)


Trust
Twofold:
•Donors trust in the organization, it’s staff,
and it’s Board
•The Board trusts and believes in the
financial decisions of the organization


NP Business Model Statement

Must consider financial viability
and mission impact together!

• Internal document
• Describes what fuels the economic
engine of the organization
• More than listing all the types of funding
• Strategy for financial sustainability
• Reference guide for organization's focus
& strategies


• Ex: (Blue Avocado)

• Food Bank: "We obtain donated food from
businesses (85%) and individuals (15%),
sorted and distributed largely by volunteers,
and financially supported by individual donors
and the community foundation.“

• Affordable Housing: "We build affordable
housing for low-income people where
government and developer fees are
available."

Create an Involved Board
Use Financial Transparency to connect to
your Board
•If I don’t understand
• Then my opinion doesn’t count
•If they take the time to explain
• They see value in my opinion


American “Friends Of”
• USA org is separate & independent
• BFF
• Need transparency with all stakeholders
• Place one of “their” people on the
Board
• While avoiding conflicts of interest
• (Perhaps, vice versa too)

• Who’s proving to whom who’s worthy?


Take-Away

Use Financial Transparency to
Increase Engagement & Trust Internally


Financial Reports

“The quality of financial
decisions is directly related to
the quality of the financial
information.”


Financial Reports
Should be:
•Accurate and Consistent
•Available soon enough to be of use in
monitoring and planning
•Understood in context of history & planning
•Understood in relationship to programs


Financial Reports
Basic “Must-Have” Financial Information:
•Balance Sheet
•Income Statement
•Annual Budget

Understand not just the NUMBERS
but the SIGNIFICANCE of the reports


Watch Out for “Flags”
Yellow Flags
•Income Statement
• Short Term

Red Flags
•Balance Sheet
• Short AND Long Term


The Challenge
• Balance Sheet is more important
• Balance Sheet is harder to understand
• Based on accounting terminology,
standards, and rules
Simply providing the reports isn’t good
enough!


The Solution

Narrative Explanations
in conjunction with the
Financial Reports


Income Statement
Includes:
•Income and Expense Reports for the
accounting year

•Can be compared to the Budget


Income Statement
Create a Narrative that:
•Relates to tracking progress and expense
controls
• Limited because of short time period

•Alerts Board of big variances
•Analyzes deficits


Balance Sheet
Includes:
•Assets
• What the organization HAS
• What are they?
• How liquid?
• Are there any restrictions?


Balance Sheet
Includes:
•Liabilities
• What the organization OWES
• What are they?
• When are they due?
• Long or short term


Balance Sheet
Includes:
•Net Assets
• What the organization is WORTH
• Are assets greater than liabilities?
• Has the organization accumulated
surplus over time?


Balance Sheet
Create a Narrative that:
Demonstrates a cumulative effect of all
financial activity
Healthy Org Problematic Org
Cash reserves Diminishing Cash
Built-up assets Insufficient working capital
Unrestricted net Diversion of restricted funds
assets Too much restricted funds
Reasonable debt Creeping debt

Take-Away

Narrative Explanations
Of Financial Reports


Reporting
• See Reporting as an opportunity
• Too much focus on secrecy and
protecting
• Lawyer in the USA:
• How much are we forced to disclose?
• Compare it to parenting
• Maybe instinctive reaction should be
“yes” unless proven otherwise


Internet
• No longer need a printed copy
• Post on charity’s website
• Budget is no longer a restriction
• Any organization of any size can compete
for transparency
• (Anyway, disclosure requirements are
pretty minimal)


Control the Environment
#1 Reasons to Post Financial Information
•Agencies & Watchdogs are already posting
• Have the Charity present the info
• Frame it in a way that it constructive
• You tell your story the best

#2 – Mitigate against public criticism


Which sites post financials?
USA
•Guidestar
•Charity Navigator

Israel
•Registrar of Charities / Tax Authority
•Guidestar
•Midot


The Bare Minimum
Post government-required reports
•USA – 990
•Israel – Financials & Narrative Report

Official Financial Reports
What, just the bare minimum?!?
•But people don’t understand them
•If the Board has trouble then certainly
donors will too


Best Practices
Charities Review Council of Minnesota
•Within 3 clicks:
• Financials
• Leadership
• Mission
•Narratives should always be present
• Don’t give people a chance to pass
judgment


Franchise Rules
Need to worry about Parent Charity AND
Supporting Charities
Potential Solution
•Ex: Groups using your name need to
maintain a minimum rating score

In General,
•Consider posting in two languages


Take-Away

3 Clicks
Post Narratives Too


Drama Queen
Is all this really necessary?
•Today, nothing is sacred
• Not the people & not the causes
•Still in early adoption phase - be a leader!
•These trends will soon be in Israel
•Fight the good fight!
• Promote a better, professional sector

Examples

The Jewish Federations of
North American
www.jewishfederations.org


Annual Report is easily
found on
organization’s
homepage.

www.amutot.u-bank.net

Annual Report is
housed in a separate
website.

Two clicks brings us to
the Financials
(Balance Sheet).

Site takes advantage
to make readily
available
organization’s mission
& goals (see above
navigator bar) while
viewing the Financials.


Examples

Nonprofits Assistance Fund
www.nonprofitsassistancefund.org


Two clicks brings us to
overflowing list of
various Financial
reports.

Site takes advantage
to make readily
available
organization’s Strategy
(above & not shown)
and History (bottom).


Annual Report is very
narrative:

Explains services
offered, what money is
used for & various
accomplishments.


Annual Report is very
narrative (continued):

Provides both Balance
Sheet & Income
Statement and
provides additional
details of services
offered (graph above).


Thank You
Shuey Fogel, The Nonprofit Banker
nonprofitbanker.com
@nonrprofitbanker
facebook.com/nonprofitbanker

Photo Credits
“Buzz Aldrin” by Scott Beale (Flickr)
“Buzz Lightyear Air and Space” by Nasa HQ Photo (Flickr)
“Buzz” by Sean MacEntee (Flickr)
“Ripples” by Bill Gracey (Flickr)

Successfully Transmitting Financial Transparency

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