When taking on a new CFO or CEO position at any organization, you don’t fully know what you’re walking into until you’re there. This is especially true for executives of nonprofit organizations, which do not always have adequate resources to devote to internal controls, processes and compliance.
When it comes to the financial function of a nonprofit organization, incoming CFOs and CEOs should ask themselves two main questions: Is the function supporting risk management, and is the organization employing best practices and procedures to support it?
As you seek to investigate the answers to these questions, watch out for these ten red flags to identify where your priorities should lie:
#1. You ask for a policies and procedures manual, but no one can provide them, or the one you receive is dated.
Policies and procedures are the backbone of operational efficiency, which is vital to cost savings and sustainability. If these are not documented, there is a good chance that they have not been communicated and universally employed throughout the organization. In addition, if the manual has not seen updates for a while, it may mean that best practices are being ignored.
#2. You cannot find basic financial reports to gauge financial health.
Regular financial reporting is the starting point for many best practices, including budgeting, benchmarking, cash flow projections and more. It should be the compass that guides your initial and ongoing decision-making process as a nonprofit financial executive.
#3. No one has spoken to the insurance broker in years.
Carrying too little or too much insurance coverage is a risk that is easily avoidable through period review with the insurance carrier. In addition to general liability and employment-related coverage, inquire about the latest recommendations for other policies, including cybersecurity and business disruption insurance.
#4. Finance staff does not have clear job descriptions.
Not only an HR best practice, job descriptions are also essential to identifying where there may be labor gaps, redundancies, inefficiencies and other high-cost risks associated with your human capital.
#5. Bank account reconciliations are not done often enough.
Timely reconciliations of the organization’s bank statements will help the finance team identify and correct issues as soon as they arise. Performed at least monthly, this best practice can detect fraud, overcharges, suspicious activity and costly errors before it’s too late.
#6. Finance office does not maintain a current calendar of responsibilities and deadlines.
One of the first things you will want to create, if it does not exist, is a shared calendar that provides transparency and ease of communication between the different branches of the finance department. Make sure key deadlines and who is responsible for each one is clear and regularly updated.
#7. Finance staff has collective frustration with fiscal software.
Even state-of-the-art software can be ineffective without the proper implementation, utilization and training. But with outdated systems, which many nonprofits tolerate due to budget constraints, there is even greater risk. Don’t assume the technology chosen under a prior management team is the right one for the organization, especially if it is the cause of employee frustration or errors.
#8. Fiscal office relationship with fundraising and programming is tenuous or non-existent.
The organization may have one mission, but that doesn’t mean all departments are working toward the same goals. Communicate the strategic vision, budget, priorities and financial condition with department leaders, so they all have the same information on which to make decisions and drive the organization in the same direction.
#9. There is an absent or disengaged audit/finance committee.
Your board members should bring specialized experience in each area they are governing – including the annual audit and financial function. These accounting and finance professionals can help you find the right audit firm, advise you on audit readiness and be part of the solution to any deficiencies the audit uncovers.
#10. Audits and 990s are completed last-minute.
With such high scrutiny around nonprofit organizations, compliance with audit and 990 requirements is not to be taken lightly. Hold planning meetings before, during and after the audit to help ensure your financial statement and 990 are putting your organization in the best, most accurate light and protecting it from non-compliance and reputational risk.
This list may feel like a lot to cover on top of adjusting to a new role and culture. Lean on your department heads and board to uncover much of this information. And consider obtaining an Operational Review from a qualified business advisor. This assessment of your operations, technology, finance function and workforce by an objective third-party provider can help you dig deeper into the cause of these red flags and the solutions to resolve them.
New and tenured nonprofit executives can benefit from an operational review and the cost-savings opportunities it uncovers. For more information, please contact Bryan Fryer, Consulting Principal in Grassi’s Nonprofit group, at bfryer@grassiadvisors.com.
