As an executive director, I always valued the treasurers who helped me focus on internal controls and future forecasting. They could review the financial statements and cash flow projections with a “fresh eye” and point out some issues that I had not identified. Answering their questions or explaining an issue would often require “extra work” from me, but it was usually well worth my efforts.As a board chair, I sought to work with treasurers who didn’t just report what happened in the past by presenting the income and expense statement. I wanted a treasurer to serve as the board’s eyes and ears in our finance department and be a leader who would sound alarm bells if there were issues with internal controls.
A great treasurer doesn’t just look at the bottom line on the income and expense statement (sometimes called a profit and loss statement). Instead, they really comb through financial statements to identify trends and determine the organization’s financial health. Great treasurers will typically compare the actual YTD financials with budget projections and the same period for the prior year.
When great treasurers finish reviewing the income and expense statement, they turn their attention to the balance sheet, accounts receivable, accounts payable, and cash flow projections. They seek to fully understand the organization’s financial health by fully understanding these financial statements.
And the very best treasurers also ask to review the bank statements!
While none of us like to be in the hot seat, great treasurers ask executive directors and CFOs hard questions (diplomatically, of course). After all, it’s not unusual for management’s projections to be optimistic, and great treasurers sometimes offer a reality check for management.
Great treasurers may dig deeper to find out why a revenue line item is below budget or an expense line item is significantly over budget. They also ask tough questions about receivables and the cash flow projection. A few questions that great treasurers have asked me include:
- Why is YTD revenue from individuals 12% below budget? And your cash flow projections show meeting the donor revenue budgeted for the last six months of the year – – what is the development department doing differently to ensure it will meet these projections?
- The $25,000 reimbursement from the state has been on our accounts receivable for over 180 days, what must we do to receive these funds? Are we still confident that we will actually receive the $25,00? When?
- As you know, all checks over $5,000 require two signatures but last month’s checking statement included a check for $7,000 with only one signature. How did this check slip through without two signatures and what steps are you taking to ensure this doesn’t happen?
Great treasurers understand that an auditor’s review of the organization’s financials will be more thorough than the Finance Committee’s periodic reviews. Consequently, they will work with the audit committee (or finance committee) to carefully select the auditor, considering their experience and expertise. As part of an audit committee, they will also meet with the auditor before the engagement and share any questions they hope the audit will resolve. They will also meet with the auditor at the completion of the audit, and ask lots of questions about any weaknesses, deficiencies and recommendations the auditor may have included in the letter to the board.
Great treasurers will also ask management to give the finance committee regular updates on resolving any weaknesses or deficiencies noted by the auditor.
Great treasurers understand that risk comes in many forms (such as potential staff malfeasance, executive transitions, lawsuits, storms, looming recessions, etc), and they work with management to ensure these risks are managed appropriately.
An organization’s internal controls are among the best ways to manage the risk of staff malfeasance and executive transitions. Great treasurers understand the importance of producing written financial procedures and ensuring they are followed. These procedures not only make it easier to detect possible malfeasance, but they also provide a training tool when accounting or executive staff change.
As part of managing risk, great treasurers also ensure that the organization reviews its insurance policies at least annually and determines if the organization is adequately covered.
Most treasurers understand the importance of reviewing past financial performance (the income and expense statement), but great treasurers are focused on the future. They will, for example:
- Conduct a mid-year review and ask the board to consider changes to the budget
- Review long-term trends and work with management to determine likely scenarios for future growth
- Review capital needs and work with management to ensure equipment can be replaced and facilities can be repaired
Great treasurers have sufficient familiarity with the organization’s financial statements, budgets, and internal controls to give the finance report at the board meeting, and they don’t delegate this important task to the CFO or executive director.