The lack of trust in financial statements is a significant challenge for many nonprofits and their leaders. There are many reasons why nonprofit leaders do not fully trust their organization’s financial statement(s), and one of the most prevalent is...
Financial statement issues are often compounded by other factors.
1. Employees have come and gone(In many instances, outreach personnel have not been afforded the same level of staffing longevity as program staff.
2. Staff turnover tends to lead to poorer recordkeeping.
3. Employees often do not keep current with access to financial records.
It is easy to see why finance-related concerns are often elevated to the point of becoming operational concerns; thus creating an operational culture and procedural environment characterized by indecision, confusion, and potentially legal/civil issues.
This frenetic pace often leads the leadership team to perpetuate confusion and misunderstandings arising from finance-related problems, further complicating matters.
In fact, many nonprofit organizations do not understand the difference between the terms “budget” and “narrative report.” In the nonprofit sector, the two terms are synonymous when referring to an organization’s financial position; however, they have completely different meanings in the for-profit sector.
Finally, the intersection of nonprofit financial leaders at the board level who struggle to interpret and use financial statements in a timely manner often leads to miscommunication about available versus restricted funds, non-budgeted expense projections, and overall nonprofit financial accountability.
The issues reported here often lead to higher operational costs, creating a lack of trust among employees and finance staff, as well as with funders and donors.
Therefore, it is critical to foster a culture of trust within a nonprofit organization and to build financial transparency through simpler systems of accountability for both financial reporting and oversight.
That said, many underlying factors have caused the issues faced by nonprofit organizations. The questions posed earlier should help clarify the relationship between the finance team’s efforts and the finance team members’ personal needs.
We can then use our findings to identify potential solutions and actions to build trust within the organization.
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