Do Board Members Know How to Read Financial Reports?

Nonprofit board of directors are held responsible for the overall operations of a nonprofit agency. This can seem like a daunting responsibility -- especially when board members realize that they have the financial health of the organization under their oversight. While executive staff may present the board with '˜financials" on a regular basis: cash flow statements, balance sheets, current financial reports, etc. -- it is often just assumed that they know what they are looking at. Unless all the board members have a background in fiscal fields, they may be confused or uneducated and not want to appear ignorant by admitting that they don't know how to read financial reports.

Executive staff and board leadership can collaborate to make sure that board members are educated and informed regarding financial documents. It can be helpful to use a style of reporting that is accessible: a balance sheet and a simple profit and loss statement may be all you need to provide at board meetings. This lets board members know how much money is in the bank, the accumulation of assets, as well as the revenue and expenses of the organization. Even these terms, however, may not be household words to every single board member. Consider some "training" in how to read the documents whenever new board members come on and consider taking the time during a meeting to go over what the numbers mean -- pointing out the key and important columns and line items to be paid attention to.

Disclosure and transparency are important in the financial oversight of a nonprofit organization. Encourage board members to participate in the budgeting process and share "real numbers" with them. By making sure that the financial numbers are accurate and correlate directly to the work that is being done; further confusing board participants may be avoided. It is common for board members to be perplexed by financial data and, instead of appearing ignorant, they choose to NOT ask questions or look closely at financial documents and this can cause problems with lack of oversight.