C LARK N UBER P . S .

1. What Board Members Need to Know About Non-Profit Finance – What’s Important, What’s Distracting United Way Worldwide Financial Management and Human Resources Forum Andrew M. Prather, CPA Shareholder aprather@clarknuber.com 425-635-4571 October 8, 2013 CLARK NUBER P.S.

2. Agenda • Board Governance 101 • Discussion: Focusing on mission outcomes; monitoring finances • Finances – What’s Important and What’s Not • Discussion: Key financial data points for UW Boards to monitor

3. Learning Objectives • Board Governance 101 • Refresher on the role of the Board vs. staff • Best practices on how to focus the Board on mission outcomes • Finances – What’s Important and What’s Not • How to distinguish between “dashboard” issues and “GPS” issues • Best practices on key financial data points for UWs

4. Case Study: The Board Debate on New Tires vs. Retreads “OLD” “NEW” February 2014 Report

5. Board Governance 101 • Role of the Board vs. Management • The Board’s Duties • Role of the Finance Committee

7. Role of the Board vs. Management • Board’s Role: • Ensuring that the organization is pointed toward the right target, that it is moving at the right pace toward that target, and that it stays in-bounds as it does so. • Management’s (Exec. Dir. & Staff) Role: • Getting people together to accomplish desired goals and objectives using available resources efficiently and effectively; including planning, organizing, staffing, directing, and controlling for the purpose of accomplishing the mission.

8. Role of the Board vs. Management • Board’s Role: • Ensuring that the organization is pointed toward the right target, that it is moving at the right pace toward that target, and that it stays in-bounds as it does so. • Management’s (Exec. Dir. & Staff) Role: • Getting people together to accomplish desired goals and objectives using available resources efficiently and effectively; including planning, organizing, staffing, directing, and controlling for the purpose of accomplishing the mission.

10. The Board’s Duties • Duty of Loyalty • Duty of Good Faith • Duty of Care

11. The Board’s Duties • Duty of Loyalty • Duty of Good Faith • Duty of Care • Regularly prepare for and attend board meetings • Read all the information provided to you • Actively participate in board discussions, exercising independent judgment in decision making • Ask questions so that you have a complete understanding of the organization’s financial picture • Understand the impact of various revenue development approaches on your organization’s financial health

12. Finance Committee • Committee of the Board • Spends extra time on financial matters on behalf of the Board • Allows more Board meeting time to be focused on mission • Advisory group to CFO

15. Focusing on Mission and Results Past emphasis on inputs and activities. Holding managers accountable for results encourages them to focus more on results. In the past, managers were primarily held accountable for the prudent use of the resources they were given, the authorities they used and the activities they carried out. The concern was to ensure that spending was within budgets and complied with established rules and regulations. This did not encourage a focus on the results produced by these resources; rather, compliance dominated managers' attention. 1997 October Report of the Auditor General of Canada

16. Discussion Question How does a UW finance leader direct the Board to focus on mission outcomes and less on financial metrics?

17. Nonprofit Finances & the Board – What’s Important, What’s Not? • What’s on the Board’s mind? • Dashboard issues vs. GPS issues

18. Topics from Audit Report Meetings • Operating reserves • Growing revenues • Quality of finance staff • Risk management

19. “We don’t want to be on the front page of the newspaper.”

20. What’s Important and Why? • Board’s Role: • Ensuring that the organization is pointed toward the right target, that it is moving at the right pace toward that target, and that it stays in-bounds as it does so. • How do we coach the Board to properly carry out its role in the area of financial governance?

22. GPS Issues: • Pointed at the right target • Moving at the right pace • Dashboard Issues: • Staying in-bounds

23. Distinguishing Between the Dashboard and GPS • GPS issues • Mission-related • Examples - • Strategies to improve education • Strategic partnerships • Dashboard issues • Boundary-related • Examples – • Financial – operating reserves, budgets, etc. • Compliance – legal, regulatory, best practices, etc.

24. What Does the Board Do With Dashboard Issues? • Identify the issue • Establish written policy to create the boundary • Monitor actual results and hold management accountable to stay in-bounds • Periodically reassess relevance of the issue

25. What Does the Board Do With Dashboard Issues? • Identify the issue • Establish written policy to create the boundary • Monitor actual results and hold management accountable to stay in-bounds • Periodically reassess relevance of the issue Example: • Need for operating reserves • Written policy; maintain reserves of 8-12 weeks • Monthly financial report on month-end actual and year-end forecasted operating reserve balance • Annually reassess need to maintain operating reserve and adequacy of policy

26. Discussion Question What information on a UW’s periodic financial statements should the Board be concerned with?

27. Resources • Independent Sector’s Principles for Good Governance and Ethical Practice http://independentsector.org/governance_ethics_resource_center • AICPA NFP Audit Committee Toolkit http://www.aicpa.org/InterestAreas/BusinessIndustryAndGovernment/Resources/NotForProfitResourceCenter/Pages/AICPANot-for-ProfitAuditCommitteeToolkit.aspx • National Center for Charitable Statistics – Nonprofit Operating Reserves Initiative Workgroup http://www.nccs2.org/wiki/index.php?title=Nonprofit_Operating_Reserves • BoardSource https://www.boardsource.org/eweb/ • Clark Nuber’sIn the Boardroom Governance Newsletter https://www.clarknuber.com/news/publications.php#newsletters

28. Questions? Andrew Prather CPA Shareholder Clark Nuber P.S. aprather@clarknuber.com 425.635.4571