Every nonprofit organization has an important mission to fulfill. One part of accomplishing the mission is attracting, engaging and cultivating a well-trained work force and volunteer team. The “hands” of an organization are essential to delivering the resources and services to the community and other beneficiaries. However, organizations also need to ensure they have proper funding to keep the necessary programs in place. This means paying careful attention to how funds, including donations and other charitable contributions, are used. More and more the decision to donate to one organization over another is being influenced by financial factors. Donors want to ensure that their money is getting to those who need it the most and not lost in funding overhead and other expenses. To help clients, prospects and others understand the industry standard for financial policy and reporting best practices, Barnes Dennig has provided the key financial principles below.
Essential Financial Principles
- Financial Records Maintenance – A charitable organization must keep complete, current, and accurate financial records. Its board should receive and review timely reports of the organization’s financial activities and should have a qualified, independent financial expert audit or review these statements annually in a manner appropriate to the organization’s size and scale of operations.
- Annual Budgeting – The board of a charitable organization must institute policies and procedures to ensure that the organization (and, if applicable, its subsidiaries) manages and invests its funds responsibly, in accordance with all legal requirements. This includes establishing a formal review process of the organization’s financial investments and implementing other essentials such as internal controls. In addition, the board should review and approve the organization’s annual budget and monitor actual performance against the budget.
- Loan Policies – An organization should not provide loans (or the equivalent, such as loan guarantees, purchasing or transferring ownership of a residence or office, or relieving a debt or lease obligation) to directors, officers, or trustees.
- Funding Allocation – A charitable organization should spend a significant percentage of its annual budget on programs that pursue its mission. The budget should also provide sufficient resources for effective administration of the organization, and, if it solicits contributions, for appropriate fundraising activities.
- Expense Reimbursement Policies – An organization should establish clear, written policies for paying or reimbursing expenses incurred by anyone conducting business or traveling on behalf of the organization, including the types of expenses that can be paid for or reimbursed and the documentation required. Such policies should require that travel on behalf of the organization is to be undertaken in a cost-effective manner.
- Travel Expenses – A charitable organization should neither pay for nor reimburse travel expenditures for spouses, dependents or others who are accompanying someone conducting business for the organization unless they, too, are conducting such business. Not having a formal policy in place for such expenses may raise the suspicion of donors and other about how donations are being spent.
Regularly reviewing your organization’s financial principles is essential for maintaining effective policies and practices, and the points outlined above will provide your organization with a basic financial foundation. To gain access to more best practices, Principles for Good and other resources can help guide you as they did above.. For additional information please call us at 513-241-8313, or click here to contact us. We look forward to speaking with you soon.