Board Review of Financial Statements

As a board member, one of your responsibilities is to provide proper financial oversight which includes reviewing your organization’s financial statements.  This responsibility falls on all board members, not just the treasurer.  As you review your financial statements, whether they be internally developed monthly statements or year-end audited statements, here are some questions to ask.

Statement of Financial Position

• Does it balance?  If total assets do not equal liabilities + net assets, the statements are incorrect.
• What are the significant variances between periods and the reason for them?  Were these expected?
• Is there a healthy cash balance?  Best practice is to have a cash reserve to cover 3 to 6 months of operating expenses.
• Do we have any restricted cash?  Waht is it restricted for?
• Are receivable balances increasing?  Does this mean that we have old balances that are not being collected?
• Do our investments reflect what the stock market is doing?
• Is there a significant payroll liability balance?  Are we current on paying our payroll taxes?
• Are payables balances increasing?  Does this mean we are behind on paying vendors?
• Are current assets more than current liabilities?  If we had to pay off all of our current liabilities today, would we be able to?
• Do we have enough net assets without donor restrictions for our day-to-day operations?

Statement of Activities

• What periods are being covered?  Current month?  Year to date?
• What are the significant variances between periods and the reason for them?  Were these expected?
• How diversified are our revenue streams?  Are we relying to heavily on one funding source?
• Can we meet our restrictions?  Will we be able to spend monies restricted by donors for those specific restrictions?
• Do we have any unrelated business income?
• How is the budget doing relative to actuals?

Statement of Functional Expenses

• What period of time is being covered?
• What are the significant variances between periods and the reason for them?  Were these expected?
• Are the expense categories reasonable?  Are they too broad or too specific?  Are they providing the reader the proper amount of information on our activities?
• What allocation methods are being used?  Are they reasonable?
• What percentage of expenses is being allocated to program?  Management and general?  Fundraising?

An organization’s financial statements are reviewed by many people – management and the board to make decisions, donors and funders to provide grants, reporting agencies, bankers, and your auditors.  Your financial statements tell your organization’s story.  Make sure that they are telling the correct story.

Contributed by: Carrie Minnich, CPA, MAcct | Director | DWD CPAs & Advisors