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To provide proper, efficient financial oversight, your board must boost its financial acumen and that job is up to you. Here's the story of how the National Association of College and University Attorneys raised their board's financial IQ and ensured strong board leadership as told by its Deputy CEO Paul L. Parsons.

Nothing can be more dreadful or tiresome to a board member who attempts to provide appropriate fiscal oversight of an organization than to receive financial documents and statements that are stale or static, that include only debits and credits, and that do not bring those materials to life through a link to the organization's greater purpose, mission, and strategic directions.

At the National Association of College and University Attorneys (NACUA), there has been a healthy tradition of very strong volunteer involvement and support in the governance and finances of the association in its 42-year history. Moreover, the NACUA enjoys strong and appropriate board oversight and engagement, as well as a 17-member committee on finance that meets regularly during the year.

During the past several years, the NACUA board has undergone a comprehensive self-assessment, has reorganized and streamlined its governance structure and practices, and has completed an ambitious strategic planning effort, all of which were undertaken with a careful eye toward best practices in the not-for-profit industry. A major focus has been on improving the board's level of input and engagement in the fiscal and financial affairs of the association and on raising the board's awareness of financial issues that are of greatest consequence to the long-term financial health of the association.

What follows is a summary of steps that NACUA has taken to continue that level of engagement by its board and finance committee during each fiscal year, as well as suggestions that your organization can take to increase the board's "financial IQ."

It Begins with an Effective Orientation
NACUA's fiscal year is September 1 through August 31. In the early fall, prior to the first board meeting of the year, we conduct a special orientation session on NACUA's finances. Prior to this session, board members receive a "Finance 101" orientation handbook that they keep as background material during their terms of board service. (See the sidebar for a list of items that we normally include in this type of handbook.) The intent of this two-hour session is not to explain a debit versus a credit, or to describe internal control procedures or discuss the association's accounting manual. Instead, the orientation is held to walk board members through the most critical financial documents so they have a sense of the organization's areas of financial strengths and weaknesses.

What also makes the orientation session most effective is that both new and continuing board members are invited to attend, and the turnout is significant. Many continuing board members attend it as a refresher course so that they maintain their current awareness of NACUA's finances. It also is a very informal, interactive session, with lots of opportunities for questions and answers — which often translates into meaningful dialogue among board members about the association's fiscal affairs.

Breathing Life into Static Financial Statements
One of the most helpful documents is a trends analysis report that is taken directly from audited financial statements and presents, in narrative form, each of the major line items over a five-year period so that board members gain an historical perspective on the association's finances and financial health.

When a narrative explanation is given for each line in your audited financial statement, a board member gains a fundamental understanding of these documents. Equally important, there is "nowhere to hide" when presenting an organization's financial statements in this narrative format - by explaining each line item, whether it's positive or negative.

This exercise also gives board members the sense that the association's books are opened completely without steering the board toward micromanagement. Once they are satisfied that NACUA's financial status has been presented to them in a comprehensive, easy-to-follow format, they have fewer reasons to want to delve into the micro-level details. This particular exercise brings financial statements to life, especially when shown over a five-year time horizon, and it gives the board member a true sense of the organization's financial health.

Ongoing Engagement
Once board members have received an adequate orientation to the association's finances and financial documents, they are better equipped to become engaged in the annual budget planning cycle that occurs during their terms of board service. Our annual operating budget is approved by the board in June of each year. At its spring meeting, the board is presented with a "budget climate" document that presents, a narrative of all proposed operating revenues and expenses, with explanations given for each proposal.

In addition, several questions are posed in that document for the board's consideration concerning financial policy issues or budget approval items, either for the next fiscal year or beyond. This type of document allows the board to consider each major component of a proposed operating budget, with several considerations noted, before they are asked to approve the budget in June.

As a result, there is much greater awareness of how the association's operating budget is developed and presented; which issues of consequence (on a policy level) the board must consider; and a greater understanding of the actual budget that the board ultimately adopts. Moreover, there are fewer questions when the board adopts the budget in June.

It also allows your board to remain focused on the relevant financial policy issues supporting the proposed operating budget, rather than on individual line items (which should, in most cases, be the purview of management).

Linking Financial Planning to Strategic Planning
Perhaps the most effective way to raise the financial awareness of your board is to integrate all financial planning (including financial documents and presentations) with your organization's strategic planning. During the past two years, NACUA engaged in an ambitious strategic planning effort, and the board of directors adopted a new mission statement and a set of eight strategic priorities for the future.

Once the strategic priorities had been established, and all of the association's remaining core activities and departmental areas were identified under one or more of these priorities, so too were all of NACUA's financial resources. In short, our annual operating budget was redesigned - including a rebuilding of our chart of accounts and accounting databases - and reformatted to follow the association's strategic plan.

All existing or new core activities are now linked directly to NACUA's strategic plan; if they are not, they are considered candidates for phase-out or elimination. As a result, each time a board member refers to NACUA's strategic plan, they also necessarily receive accompanying financial information that supports the plan, making strategic and financial presentations more meaningful.

In addition, every NACUA activity is examined through a financial and strategic planning lens in terms of staffing impact, volunteer impact, member interest or usage of the activity, and financial impact. This process has raised the financial awareness and conscience of each board member as they make decisions about all of NACUA's programs and services.

The Final Analysis
Another way to raise the financial IQ of your board is to present them with information at the end of each fiscal year in a graphical format with the latest audited financial documents, so the board can assess the overall financial health of the organization. As part of the strategic planning process, NACUA presents the board with a collection of data that is representative of the organization in five major areas: strategic, programmatic, financial, governance-related, and operational, known as "dashboard indicators" of the overall health of the organization. These data are presented in graphical and/or narrative fashion and include information from the past five years so that board members can easily see any upward or downward trends, particularly in the financial areas. The graphical presentation is especially helpful to board members who may not be as comfortable receiving or understanding information in the usual financial reporting formats.

Typical reports that are included to assess the association's financial health include trends in assets/net assets; total revenues and expenses; meetings net revenues; other nondues revenues; percentage of nondues revenues; trends in reserves and investments; and trends in total expenses (direct and indirect) as percentage of revenues.

Conclusion
There are several steps management can take during the course of a fiscal year to heighten a board's awareness of association finances, beginning with orientation and continuing during the budget planning process as well as during the review process at the end of the year.

Associations employ many different types of ways to increase a board member's financial IQ. Some of the methods that NACUA uses could be considered universal and might be useful for others to consider. In addition to the mechanics that have been described earlier, what is most important to remember is that an integrated approach to the process of financial and budget planning throughout the course of a board member's term of service is key to more than just a fundamental understanding of an organization's finances.

Board member involvement in the process allows board members to feel engaged in the financial affairs of the association, which enables them to feel more educated about finances in general. When board members possess an adequate financial IQ, they increase their own level of awareness, which leads to greater accountability for both management and the board. This added level of awareness and accountability helps to protect the integrity of the association as a whole, in addition to its finances and financial practices, which is crucial during the time of increasing scrutiny that we are all facing today.

Items in "Finance 101" Orientation

Understanding Nonprofit Financial Statements

• Twenty questions board members should ask to assess an association's financial health
• A copy of Understanding Nonprofit Financial Statements from BoardSource
• Magazine articles and other resources on the basics of association budgeting

Overview of NACUA's Finances and Budgets

• A brief analysis of the association's statement of financial position
• A brief analysis of the association's statement of activities

Additional Documents and Reports

• Audited financial statement of the year just ended
• Narrative highlights of the past fiscal year
• Consolidated schedules of audited statements - five years
• Approved operating budget for the current year
• Financial policies and procedures
• Investment policies and procedures

Trends Analysis

• Reviews of assets and liabilities over a five-year period
• Reviews of revenues and expenses over a five-year period

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