Thursday, October 29, 2015

Governance Stew

Not every blog needs several hundred words. Sometimes one-liners are adequate and satisfying. Or a paragraph. So for today, I’ve tossed several governance ingredients into the kettle. After simmering, add your own spice as needed. 

Engagement Thermometer:
You can’t stick a cooking thermometer into a board member’s arm—so how do you measure board meeting engagement? Recently, a highly engaged church elder told me, “It’s fun when long meetings don’t even feel long!”

Aristotle (384 -322 BC):
“The soul never thinks without a picture.”

Board Member (21st Century):
Regarding the style, length and frequency of CEO written reports to the board, a board chair told me recently, “I’m more of a People magazine guy versus a Forbes magazine guy.” (So how would you characterize your board members’ reading preferences? One size doesn’t fit all.)

Poor Management Is Not a Crime. Discuss!
“The Justice Department won’t charge former Internal Revenue Service official Lois Lerner over tea-party groups’ applications for tax-exempt status, concluding that IRS officials bungled the matter but committed no crimes.

“Our investigation uncovered substantial evidence of mismanagement, poor judgment and institutional inertia, leading to the belief by many tax-exempt applicants that the IRS targeted them based on their political viewpoints,” Assistant Attorney General Peter Kadzik wrote to Congress on Friday. “But poor management is not a crime.” (The Wall Street Journal, Oct. 23, 2015)

Board Homework:

Peter Drucker:
“All the first rate decision makers I’ve observed had a very simple rule: If you have quick consensus on an important matter,
don’t make the decision.
Acclamation means nobody has done the homework.” 
(Peter Drucker’s Five Most Important Questions: Enduring Wisdom for Today’s Leaders, by Peter F. Drucker, France Hesselbein, and Joan Snyder Kuhl)

At your next board meeting, ask each board member to toss a memorable governance principle or axiom or complex issue into the governance stew—and then serve it up in small discussion groups (with food, of course).

QUESTION: What’s the best governance axiom you’ve heard—and why?

Wednesday, October 21, 2015

ECFA Financial Management Survey Highlights

Results from the first-ever survey of financial management practices of ECFA-accredited organizations was recently published by ECFA. The executive summary of the ECFA Nonprofit Financial Management Survey 1.0 can be downloaded here on the ECFA website.

Share the “Top 10 Highlights” with your board:

#1. CFO Hats. Chief financial officers wear numerous hats—including financial management. Only 10% of CFOs in the survey devote 100% of their time to the financial management role. Of the other 90%, just under 70% of those CFOs also have administration and/or operations roles. Plus, 21% of this group wear fundraising/development hats—in addition to their CFO hats.

#2. Written Policies. Almost 79% of CFOs said their financial policies are in writing, but only 59% said their most important financial policies are incorporated in a “Board Policies Manual” or other board-approved document.

#3. Financial Policy Trends. CFOs shared 90 comments in response to the question “What is one financial policy trend that you are observing that may have a significant impact on your organization in the future?” 

Trends included upcoming FASB changes, investment and operating reserve policies, authorization levels and thresholds for expenditures, sustainability policies, internal controls for internet protocol (keeping financial information confidential), credit card policies, volunteer policies (and replacing staff with volunteers), requiring performance management of all initiatives including new staff, program policies that impact fees and costs, “the trend to minimize the importance of financial policies,” and pushback by younger staff that there are too many policies.

#4.  ACA. Who is taking the hit on the Affordable Care Act? Responding to their budgeting assumptions about the ACA, almost 73% of ministries have not restructured some of their fulltime positions as part-time positions. Yet, 35% agreed or strongly agreed that employee contributions for health insurance will increase, while another 31% were undecided at this point.

#5. Budgeting for Reserves. When asked “Does your ministry annually budget for cash reserves?” 38% of organizations responded “Never” or “Rarely.” The remaining 62% responded as follows: 22.5% said “Always,” 16.5% said “Frequently,” and 22.8% checked “Sometimes.”

#6. Internal Controls Policies. Fraud prevention procedures and checklists, etc., are formally reviewed at least annually by the financial management team in over 60% of ministries. More than 79% of the survey respondents have a written whistleblower policy.

#7. CFO Measurable Goals. Fifty percent of CFOs said they had measurable goals that their CEOs have affirmed for this current fiscal year—but only 45% of that group report progress to their CEOs! Plus, just 40% of the direct reports to CFOs have annual measurable goals.

#8. Measuring Mission Impact. The survey revealed that almost 85% of CFOs agree or strongly agree that “Our donors are highly interested in knowing about our mission impact.” Yet, just 72% of CFOs agreed or strongly agreed that their boards are very focused on measuring mission impact.

#9. Effectiveness Ratings. While CFOs rated their effectiveness fairly high in five major categories, the two highest scores were in the financial reporting and internal control areas—a rating of 4.24 and 4.23, respectively, on a scale of 1.00 to 5.00 (5.00 being the highest). Financial performance was rated the lowest at 3.97, but still quite effective.

#10. Financial Dashboards. CFOs are utilizing a wide range of financial dashboards when reporting to the board of directors. More than 400 dashboard examples were submitted, including many duplicates, of course.

At your next board meeting, review these top 10 highlights and ask board members to complete the “Financial Management Organizational Assessment” included in the executive summary.

QUESTION: Of the top 10 highlights above, identify the one area that needs the greatest improvement so your board can more effectively steward your ministry’s finances.