by Frank Jakosz, CPA | February 01, 2016

Strong financial management practices ensure that association resources are used appropriately throughout the year so that an organization can continue to run smoothly. Though this is often easier said than done, the following three best practices can help associations position themselves for financial success.

Prioritize the financial statement audit. For a nonprofit organization, the financial statement audit is crucial as it demonstrates to members and the public that the association is operating in a responsible and efficient way. Further, an audit can be the basis for a comprehensive annual report that lays out the association’s plans to achieve its mission. However, to get the most out of the financial statement audit, an association needs to do more than hand the keys over to auditors and wait for the report. It is essential that a group’s audit committee includes individuals who have strong financial expertise. Sometimes associations will need to look outside their board of directors to find the ideal committee members. A knowledgeable audit committee will be able to help board or executive staff members effectively analyze the audit and act on its findings.

Additionally, an association needs to view its relationship with the auditor as one that goes beyond an annual audit. Instead of simply asking for written communication, an audit committee should plan to invite auditors to attend board meetings on a regular basis and meet auditors in person before and after an audit. The audit committee should also expect its auditor to keep it and management apprised of the ever-changing accounting rules for nonprofit organizations, which are notably different than the rules adhered to by for-profit organizations.

Build a strong and functional board. Associations need a strong and functional board, but many struggle to maintain a good relationship between the association staff and the board of directors. Boards sometimes take their oversight duties too far and micromanage, which can quickly inject dysfunction and inefficiency into a group and hurt management’s ability to do its job.

Executive leaders must work with the board to avoid these problems and, instead, develop open lines of communication. And while the executive director doesn’t decide who sits on the board, it can often help board members better define the experience and skill sets needed to operate at a high level by pointing to industry best practices and the characteristics of effective boards at public companies. Further, management can help identify talent and knowledge gaps on the board and work to fill them. For instance, if it’s apparent a board lacks key financial knowledge, the chief financial officer can conduct ongoing education sessions. The bottom line is that when a board is equipped with the skills and knowledge it needs, the association operates more efficiently.

Guard against hidden risks. Everything from employee theft to cyber attacks can derail an association financially. The threat of fraud exists in every organization, and because associations often accumulate a significant amount of information from members, they are an attractive target for cyber criminals. In the face of such potential dangers, associations need to adopt a comprehensive risk management plan. For starters, the board of directors should create subcommittees devoted to various possible risks. These subcommittees need to be charged with assessing risks as well as the capabilities of the various teams charged with managing these risks, and where possible, they should make sure the association is implementing industry best practices.

Associations should also tap into their network of providers. Auditors, for example, are in a good position to identify internal weaknesses, such as segregation of duties that might benefit from changes. Associations would do well to listen to advice and take immediate action to shore up any vulnerabilities.

As nonprofit organizations, associations face a unique set of financial challenges and opportunities. Those that take charge of their future, work to address potential areas of weakness and aggressively implement best practices will be better equipped for long-term success.