Question: what is the easiest way to get a story about your nonprofit on the front page of a major newspaper? Unfortunately, financial irregularities rank pretty high on the list. (Good news about nonprofits tends to appear deep on the inside pages.) Financial integrity, then, is one of the most critical responsibilities that nonprofit leaders must assume. And managing your money in true alignment with your organization’s mission is the core of financial integrity.
In this era of unavoidable transparency, ubiquitous watchdogs, and high expectations from funders and donors, it’s more important than ever to be sure that your organization manages its finances responsibly, and that the financial image you present is not only technically accurate but also tells the world how you use money to carry out your mission. Your finance staff is a critical ingredient in making this happen, but they can’t do it alone. Below are a few tips for helping to ensure that your organization manages and reports on its finances with integrity.
Tips to Ensure Financial Integrity
- Foster collaboration and communication. Financial management has to be an interactive endeavor—you can’t just lock the accountants in their office and hope for the best! In our experience, the nonprofits with the biggest operational challenges around finance are those in which the fiscal office is seen as separate or isolated from the rest of the organization. The finance team requires input from and communication with program and development staff to create meaningful budgets, report accurately on grants, and understand cash flow needs. Likewise, program staff may need help from the finance department to understand their fiscal situation and be sure that their plans make programmatic as well as financial sense. So it’s important that the finance team and their colleagues in other departments develop good relationships—both formally and informally. A monthly staff lunch can go a long way!
- Establish proper oversight. “Internal controls” is a buzzword that generally connotes protections against employee theft and malfeasance. And it is unquestionably important to take steps to ensure that resources aren’t improperly diverted away from mission-advancing activities. But a structure of segmented responsibilities and strong oversight is just as important for finding and correcting the honest mistakes we all make, and which are much more common than dishonest ones.
- Maximize technology. The days of keeping the books in actual books are fortunately long behind us, with new technologies appearing all the time to streamline and automate accounting tasks. Technology helps to make financial reporting not just quicker and more efficient, but more accurate as well, since each manual process introduces the possibility of human error. Technology also opens up the possibility of reporting in much more detailed and sophisticated ways to answer important questions from internal as well as external audiences. Don’t stop with the general ledger, either: time and expense reporting, requisitioning, fundraising, client tracking and billing can all be made more efficient and reliable by maximizing technological tools.
- Leverage professional expertise. Your audit provides you and your organization’s stakeholders with an independent assessment of the integrity of your financial statements. If you are engaging with your auditor only to pronounce on your finances after the fact, though, you are missing a great opportunity to leverage that expertise to make ongoing improvements to your financial systems. Your auditor should be willing (and is usually eager) to provide advice on structuring internal controls, applying accounting rules, and improving financial reports. Remember that your auditor is independent, not adversarial: feel free to ask questions, share challenges, and take advice.
- Involve the board. An organization’s financial statements, and thus the financial picture that it presents to the world, is ultimately the responsibility of its board of directors. Board members should be willing (and encouraged) to dig deeply into the numbers and to understand what financial reports are saying about the organization as a whole. The board should pay particular attention to the annual Form 990 filing, which as a publicly (and easily) available document is often the first place that potential donors and funders look when researching an organization. Financial integrity is an organization-wide responsibility, encompassing everything from a front-line staffer following the proper protocols for purchasing supplies to the board’s approval of a budget that prioritizes resources to best meet the mission. An organization in which financial integrity is considered a job for the finance staff alone is one that risks ending up on the front page of the newspaper, instead of comfortably tucked away in Section B.
Article written by: John Summers, Manager, FMA