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TOOL 6 Review – The Board’s Annual Financial Management Audit

By John Pearson

20 True or False Questions! (And…how does the board know if it’s true?)

Dan Busby notes, “In the worst-case scenario, clarity of ministry finances is a key to avoiding a financial shipwreck. In the best case, clarity prevents a ministry from becoming an embarrassment to Christ.”

Today’s tool features 20 statements that can be adapted for your ministry. Ask your CFO to provide the answers for the question, “How does the board know?”

TOOL #6: THE BOARD’S ANNUAL FINANCIAL MANAGEMENT AUDIT

Use this TRUE or FALSE audit annually as a first step in assessing your ministry’s financial health and integrity.

Tool #6 in the new resource, ECFA Tools and Templates for Effective Board Governance, is just one of six assessments in Part 2 of the book that will both educate your board members and enhance your board’s competencies in financial management, legal, fundraising, and other key areas.

The big idea: Trusted ministries manage resources with integrity. Boards should know and understand the three foundations of “Trusted Resource Management.”

  1. Understanding Finances: “Trusted ministries acknowledge the challenges of understanding nonprofit finances. It is certainly not a one-to-one correlation with the finances of a for-profit organization.”

  2. Achieving Appropriate Transparency

  3. Minimizing Fraud

Note: To go deeper on these foundational anchors, read TRUST: The Firm Foundation for Kingdom Fruitfulness, by Dan Busby.

Your board should expect clarity and honesty from the CEO, the CFO, staff, and the board’s finance committee. To provide clarity—so board members understand financial reports and financial trends—the information should be presented with a variety of approaches (for the diverse learning styles of your board members) and can include verbal and written reports, dashboards, and graphs.

But there is another important step—an annual checklist. This two-page checklist asks for a TRUE or FALSE response to each statement—and includes space for answering the question, “How does the board know?” Examples:

TRUE OR FALSE?

#1.     Our board receives timely, relevant, and accurate financial information that is readily understood by the board.

#6.     The average size of our contributions is increasing across all gift size ranges.

#8.     Our total unrestricted revenue is increasing.

#14.   Our bank accounts do not exceed FDIC limits.

#18.   All significant related-party transactions are reported to the board for their review and action.

A sample completed checklist is included with Tool #6 and features color-coded “Ministry Dashboard Signals” in the “How does the board know?” section:

  • Red: Act

  • Yellow: Watch

  • Green: Celebrate

Once you begin using this annual checklist, you will add it to your board agenda every year!

Order the tools book from Amazon by clicking on this title: ECFA Tools and Templates for Effective Board Governance: Time-Saving Solutions for Your Board, by Dan Busby and John Pearson. The book gives you full access to all 22 tools and templates—formatted as Word documents so you can customize the tools for your board’s unique uses.

BOARD DISCUSSION: Around the table, answer TRUE or FALSE to this statement: “#17. We have identified the three greatest financial risks of our ministry and the steps we should take to mitigate those risks.”

MORE RESOURCES: To go deeper on this topic, read Steve Moore’s color commentary, “Focus on Mission Impact and Sustainability. The ‘dual bottom line’ equips boards to address dead horses and sacred cows (or goats).” See Lesson 23, in Lessons From the Nonprofit Boardroom: 40 Insights for Better Board Meetings, by Dan Busby and John Pearson.

 

This article was originally posted on the “Governance of Christ-Centered Organizations” blog, hosted by ECFA.
John Pearson, a board governance consultant and author, was ECFA’s governance blogger from 2011 to 2020.
© 2021, ECFA and John Pearson. All rights reserved.

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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