4 Finance Fundamentals for Your Foundation - Exponent Philanthropy
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4 Finance Fundamentals for Your Foundation

Are your foundation’s finances well-managed? As a lean funder, you know the importance of keeping things efficient and organized. Taking care of the finance function is no exception. Follow these four fundamentals to ensure your foundation’s finances are in great shape.

1. Keep a Finance Calendar

At lean foundations, it’s common for one or two individuals to hold most of the institutional knowledge. Maintaining a finance calendar – and sharing it – is an easy way to make sure things don’t fall off the radar and that everyone stays in the loop. Also, a finance calendar serves as an opportunity to educate board members on crucial finance responsibilities.

Some essential duties to share on your finance calendar include:

  • Fiscal events, including payroll, financial reporting, board meetings, budgets, policy reviews, and grantee reporting dates
  • Regulatory responsibilities, including payroll tax remittance, W-2s to employees, 1099s and 1042s, substantiation receipts to donors, the annual audit, Form 990-PF filing, excise tax remittance, and business registration
  • Other reminders such as deadlines for health insurance renewal, business liability insurance, retirement plan contributions, or a worker’s compensation audit

2. Educate the Board on Fiduciary Responsibilities

While foundation managers or staff are responsible for day-to-day operations, board members are responsible for strategic decisions and governance. No matter the organization’s size, all nonprofit boards have a duty of care, loyalty, and obedience. This means actively participating in governance and board activities, acting in the foundation’s best interest, and ensuring the organization complies with applicable laws and regulations. Getting board members up-to-speed on compliance requirements is integral to ensuring they can meet their fiduciary and fiscal responsibilities.

Board education provides a way for board members to obtain information on:

  • Current board committees and the criteria for serving on them
  • Board meeting schedules and minutes
  • Training on reading financial reports
  • Access to past audits and information returns
  • Financial policies and procedures
  • Policy decisions supporting the operating budget

Because foundation board members and management can be held personally liable for unlawful acts committed while in office – including late and nonpayment of payroll and excise taxes – board education is crucial in mitigating illegal, unethical, and immoral situations.

3. Ensure You Meet Your Basic Finance Functions

Often, accounting is the last thing your foundation wants to worry about – until you need a financial report to hand to a donor, creditor, or board member. The start of any financial discussion begins with a solid set of reports. Financial reports should frame board meeting discussions and provide enough information to guide leadership and the board’s decision-making processes.

When it comes to finance, board members and management should expect:

  • Monthly bank reconciliations, including for investment accounts
  • Timely and accurate monthly reports, including a statement of financial position (balance sheet), a statement of activities (income statement), a cash flow statement, and a variance analysis
  • A memo that summarizes the financial story…and doesn’t shy away from sharing bad news
  • Reporting on the metrics that matter most to your foundation, such as monitoring and evaluating grant awards
  • Access to finance team members or other staff/consultants who can answer questions about financial performance
  • Separation of duties such that no one person can initiate, approve, and record a transaction

You can augment baseline reports with programmatic reports and forecasts of income, expenses, and cash as needed. Graphics – such as charts, diagrams, or pictures – can be an effective way to help tell your foundation’s financial story. They are most impactful when you need to trumpet a success, raise an alarm, or recommend an action.

4. Outsource Help to Address Financial Challenges

In lean foundations, the lines often blur between bookkeeping functions like paying bills, recording receipts, and processing payroll versus controllership activities like closing the books, reconciling account activity, and preparing basic financial reports. Performing additional functions like variance analysis, budgeting, cash forecasting, or strategic planning can be challenging.

Outsourcing some of these functions can be a cost-effective solution for many foundations. Outsourced help provides access to specialized expertise and brings a fresh perspective to an entity’s processes and procedures. Consider outsourced solutions when your organization needs support for a temporary or short-term project, to fill gaps in today’s tight labor market (such as those left by retirement or transitions), or to ease the burden on your staff. Plus, outsourced help can provide another level of separation of duties.

Ways outsourcing can help:

  • Audit preparation– creating work papers and schedules, and compiling tax form information
  • Investment accounting– recording and reconciling investment activity including alternative and program-related investments
  • Grant management– reviewing the financial health of applicants and grantees
  • Scenario planning– providing cash forecasts and cash management recommendations
  • Start-up– setting up a chart of accounts, implementing accounting software, and developing policies and procedures

Some words of caution: for outsourcing to be successful, the foundation’s key staff or trustees must be ready to heed the advice and make changes quickly. Any other staff should be willing to learn and contribute to the process, and the board needs to be engaged and supportive.

The actions and best practices described here will contribute to a best-in-class finance department for your foundation.

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About the Author

Your Part-Time Controller, LLC (YPTC) is a professional services firm that specializes in accounting and financial management for nonprofit organizations. Based on the level of services our clients need, we can serve as a bookkeeper, accountant, controller, or chief financial officer. YPTC serves nonprofits and foundations nationwide onsite or remotely. To learn more about YPTC and browse our educational content visit https://www.yptc.com/foundations-specialization/

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