Board of Directors | Responsibilities and Concerns Part II of II

Serving as a Director of a non-profit is both an honor and a responsibility. Many directors begin their service feeling like they could use some education and guidance, especially on financial and risk matters. Last week we talked about some of the main financial documents that are used to keep your agency financially healthy. This week we are focusing on managing or reducing risk.  Please remember that the financial health of your organization is fundamental to its success. To overlook the importance of financial reporting and management can risk the accomplishment of the mission for which your organization exists.

Integrity of Your Financial Documents

The first area to explore is that of assurance engagements, which are provided by an external, objective CPA firm. There are three levels of assurance engagements, which include audit, review and compilation.

A full audit is the most thorough type of engagement and provides the highest level of assurance. It involves the most time and investment and includes time onsite by professional auditors. Consequently, some organizations choose to do a full audit every two or three years with reviews during the other years. However, your organization may also be required to have an audit completed every year.

Reviews are helpful but less thorough than an audit. Depending on the size and complexity of the organization, it may be all you need some of the time; however, a full audit at least every three years is worth the investment. A compilation is the lowest level of assurance and may be more ideal from smaller organizations.

Managing or Reducing Risk

Now, let’s explore some steps that can reduce risk, especially of fraud or embezzlement. Make no mistake that these occurrences can happen to your agency just like they have happened to other organizations. Reducing risk starts with “segregation of duties.” This idea generally means that whomever is receiving checks is different from the person who will process and deposit them, etc. This reduces the opportunity for fraud that can happen when only one person is handling the entire process. Very small organizations can’t always put this separation of duties into action, but most can do something to address it.

There are also more “internal controls,” such as the review of bank statements, periodically, by more than one person, which can prove to be a strong protection against internal financial issues, as well.

Remember, as a director, engaging your fiduciary responsibility helps to keep your organization healthy and operating within its means. To do otherwise puts the focus and mission of your organization at risk.

If Price CPAs can be of service to you, your company, or a non-profit board on which you serve, please contact us at 615.385.0686 or through our website at www.pricecpas.com. (NOTE: Be sure to ask about our board leadership financial training presentation!)