Let’s Talk Policies – Financial Management Policies
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Numbers Articles

Let’s Talk Policies – Financial Management Policies

December 15, 2019 | by |
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Far too often, the Boards of non-profit organizations fail to memorialize financial management policies. Decisions are made on the fly about how to deal with donations of stock, who needs to approve spending, and how many signatures are required on checks of a certain size, and more. Best to create a formal set of financial management policies before questions arise to prevent misunderstandings down the road.

How to do it

Before you sit down to draft your financial management policies, talk with your treasurer, your organization’s financial committee, the board’s executive committee, and your organization’s accountant. As a group:

  1. Come up with a list of the policies that need to be created. The ones that most often need to be addressed are discussed later in this article and are broken down into the following categories: Authority, Responsibility, Budgeting, Gifts of Stock, In-Kind Gifts, Asset Protection, and Internal Financial Transactions.
  2. Assess the risk that exists in each of the policy areas so that you know what needs to be addressed by the financial management policy for that area.
  3. Draft your financial management policies and then discuss them with staff and your Board’s leaders to see if you have everything covered. Make revisions as necessary.
  4. Present your financial management policies to the Board of Trustees for adoption.
  5. Train staff on each of the policies. Have staff members sign a document saying they have received a copy of your financial management policies and that they agree to adhere to them.
  6. Review your policies every year and revise as necessary.

 

Before You Start

Keep in mind that every non-profit organization is unique. The following policy areas are the ones that most often need addressing but you should come up with your own list. They are presented here in an abbreviated matter for illustrative purposes only. You will want to create your own financial management policies and add detail as you see fit. Don’t adopt a policy before considering the needs of your organization. Have you considered risk and liability? Have you looked at operations and structure? What makes the most sense for you?

 

SAMPLE FINANCIAL MANAGEMENT POLICY DOCUMENT

 

RATIONALE

The purpose of this document it to ensure that all financial activities of ORGANIZATION are supporting the ORGANIZATION’S mission, vision, and values in in an efficient and effective manner. Doing so assures our donors, constituents, employees, and community that we are managing ORGANIZATION’S finances appropriately, and that ORGANIZATION is being a good steward of donor funds. To this end, ORGANIZATION is committed to providing accurate, timely, and complete financial data for use by our Executive Director and Board of Trustees.

AUTHORITY

 

  1. The Board of Trustees has ultimate responsibility for the financial management of all activities.
  2. The Treasurer advises ORGANIZATION on all financial management activities and is authorized to act on behalf of the Board of Trustees on financial matters when action is required in advance of a meeting of the Finance Committee or Board of Trustees.
  3. The Executive Director is responsible for the day-to-day financial management of ORGANIZATION. The Board of Trustees authorizes the Executive Director to hire and supervise personnel, independent contractors, and to pay bills, receive funds, and maintain bank, credit card, and vendor accounts.
  4. The Executive Director is authorized to sign checks not to exceed $5,000. Checks in an amount greater than $5,000 shall require the additional signature of the Treasurer or Board Chair.
  5. The Executive Director is authorized to execute contracts that have been approved by the Board of Trustees as part of ORGANIZATION’S annual budget or plans. The Board of Trustees must approve any contracts not covered by the annual budget or plans and all contracts with a financial value greater than $20,000.
  6. The Executive Director is authorized to manage expenses as he or she sees fit within the overall parameters of the approved annual budget. Material variances will be reported on a quarterly basis to the Treasurer and Finance Committee along with the reason for those variances.
  7. Use of the Board designated cash reserve fund must be approved by a majority vote of the Board of Trustees.

 

RESPONSIBILITY

 

THE EXECUTIVE DIRECTOR SHALL:

  1. Report on the financial operations of ORGANIZATION as per a schedule set out by the Finance Committee and approved by the Board of Trustees, but at least quarterly.
  2. Record and satisfy all financial obligations.
  3. Not enter into any contractual commitments for bank loans, corporate credit cards, leases or purchases without the approval of the Board of Trustees.
  4. Record fixed assets with purchase prices greater than $500 as capital assets in accounting records. Depreciation of capital assets will not exceed five years for furniture and equipment or three years for computer and other technology equipment.
  5. Obtain bids for items or services exceeding $5,000. Selection of the winning bid will be based on cost, service, and other elements of the contract. ORGANIZATION may award the bid to any vendor and is not required to select the lowest proposal.
  6. Segregate donor-restricted and board-designated funds from general operating funds and define the restriction of those funds.

 

THE BOARD OF TRUSTEES WILL:

  1. Familiarize itself with generally accepted accounting procedures.
  2. Provide training to all new Board members to ensure each Trustee can fulfill their fiduciary responsibility adequately.
  3. Review financial reports prior to each board meeting and be prepared to engage in discussion.

 

BUDGETING

To ensure that programming and other activities minimize the risk of financial jeopardy, are aligned with board-approved priorities, long-range plans, and short-term objectives, the Executive Director will:

  1. Prepare operating and capital budgets and submit to the Finance Committee to allow sufficient time for the Committee to review before submitting to the Board of Trustees prior to the start of each fiscal year.
  2. Provide year-over-year comparisons noting and explaining material variances of 10% or more for each income and expense line in the operating budget.
  3. Use sound and well-researched assumptions and projections when preparing ORGANIZATION’S operating budget with the overall goal of generating an unrestricted surplus.

 

GIFTS OF STOCK

ORGANIZATION will accept gifts of stock as a means for donors to transfer assets to ORGANIZATION.  The transfer and recording of such gifts will be done in compliance with accounting standards. The Executive Director shall instruct that gifts of stock be sold immediately upon receipt by ORGANIZATION or as soon as it is reasonably possible.

IN-KIND DONATIONS

ORGANIZATION will accept contributions of goods and services other than cash that are related to the programs and operations of ORGANIZATION. Any other contributions of non-cash items must be reviewed and approved by the Board of Trustees.

PROTECTION OF ASSETS

To ensure that ORGANIZATION’S assets are sufficiently protected and maintained, the Executive Director shall:

  1. Insure against theft and casualty losses to ORGANIZATION and against liability losses to the Board of Trustees, staff, or ORGANIZATION itself at levels arrived at through consultation with suitable professional resources and approved by the Board of Trustees.
  2. Devise and execute a plan to protect and maintain ORGANIZATION’S physical property, building, and equipment.
  3. Protect ORGANIZATION’S intellectual property, files, and information from unauthorized access or loss.
  4. Use generally accepted accounting practices to receive, process, and disburse funds to maintain basic segregation of duties protecting bank accounts, income receipts, and payments.

 

INTERNAL FINANCIAL TRANSACTIONS

Advances of funds to employees, officers, or trustees is prohibited. Direct and necessary expenses including travel for meetings and other activities related to carrying out responsibilities shall be reimbursed. In no case, shall ORGANIZATION borrow funds from any employee, officer, or director of ORGANIZATION without specific authorization from the Board of Trustees.

 

 

John Thew is President of CRUNCHING NUMBERS, a company founded to help organizations create and manage effective accounting systems. He has over 30 years of experience working with companies in the for-profit and nonprofit sectors helping them to grow top and bottom line revenue.