Going Formal With Policies And Procedures

There are few things more troubling to an association executive than discovering that funds have been misused. To decrease this likelihood, association executives ought to consider adopting formal financial policies and procedures as a part of an overall compliance program. Such programs should be created, implemented and updated with your organization’s size, resources and values in mind. Here are several practical concepts that are indispensable to any effective plan.

Increased Board Involvement. If you don’t already have a finance committee that operates as a subset of your board of directors, consider creating one. However, before doing so, take a step back and consider the composition of your leadership: Is your board supported by individuals with financial expertise? If not, you should consider adding one or more such individuals.

Once your finance committee has been created, use it to help oversee your staff’s development of and adherence to an annual budget. Once the budget has been approved, the staff should understand that it is responsible for submitting written status reports at regular intervals (monthly or quarterly) describing variances in budget line items that arise throughout the year; with these, the finance committee can then report back to the board of directors on an as-needed basis. This “specialization in trade” will make your association more effective.

Segregation of Duties. To the extent possible, you should attempt to distribute authority over acts affecting your financial resources among an appropriate number of different individuals. To help frame a segregation-of-duties policy that works for your association, start by asking the familiar set of questions—who, what, when, where and how—about acts that might affect your financial resources. Then distribute authority in a way that creates reliable checks and balances.

Do you think you don’t have enough staff to make segregation of duties workable? Whether or not this is the case, all associations can (and probably should) consider involving an independent contractor to, among other things, process checks requested by staff and create financial reports describing the group’s financial activities. If you are unable to afford an independent contractor, consider involving volunteers with a proven track record of reliability and honesty in a limited oversight role.

Use of Cash-Flow Analysis. At the end of the day, there is no substitute for an association’s understanding of its own financial condition. A top priority of any effective plan should be establishing reliable procedures by which the staff can track its financial condition and report it to the board. In addition to standard budget documents (a balance sheet, income statement, etc.), one or more high-level staff members with financial responsibility should create and maintain a detailed cash-flow analysis.

Such an analysis typically identifies, on an estimated and actual basis, money received and money spent in relation to the budget at a given point in time. The analysis serves an effective planning role by allowing the association to create more accurate budgets based on past experience. It also serves as an important oversight role by forcing those with financial responsibility to review and interact with this information on a consistent basis. Most importantly, it allows the staff, in consultation with the board, to make adjustments in programming to compensate for revenue shortfalls and expense overages.

Following Through With Details. Developing a plan that works for your particular association will require some work. Be sure to involve both the decision-makers and the decision-implementers in the process. Avoid committing to actions that are overly burdensome or redundant. Make the plan broad and comprehensive, but also simple, clear and realistic. Be sure to include an annual review requirement, and amend the plan as necessary to avoid having a strategy that calls for acts that aren’t being taken.

Lastly, before getting started, take a close look at the revised IRS Form 990. Make sure you understand the questions your group will be asked by the IRS. These can prove useful in developing a comprehensive plan that helps to manage audit risk while protecting your organization’s status as a nonprofit entity.

And, it should be mentioned, the information described in this article is general in nature and may not apply to your association’s specific situation. Legal advice should be sought before taking action based on any of the information discussed here.

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