The Secret to Strong Financial Management

The Secret To Strong Financial Management

You might be asking, “What's the secret to having the very best financial management system?” Well, in order to answer that question, let’s first ask an equally important question, “What leads to a really bad one?” This reminds me of something a wise mentor shared with me. He told me, “Every fight is really a fight about power and control. Who has the power? Who’s in control?” This struggle can take many forms in a nonprofit, but here's a couple of examples:

The accounting staff asking questions like…

•  Why does this person spend money on this? 

•  Why did they buy that?
•  Why are we buying this? 
•  Why are we buying that? 

In the payroll department, this may look like…

•  Someone who is privy to payroll information asking, “Why is this person getting paid that much?”
•   Differing opinions about who brings more value to the organization 

It can even take the form of a practical question like, “Why does that department get to take so many conferences?” or “Why do they get to have that?”

Well, all of these scenarios are really questions about power and control. Who's setting the rules for how the nonprofit is going to spend money. 

I’ll tell you the secret to having a very solid, strong financial management environment. The secret is… accountability. 

Accountability is really for all levels, and the tone is set at the top. So who's at the top? The board of the nonprofit.  The board should be approving a budget. The budget should set the boundaries for what is okay. This starts at the “big-picture” level and helps us answer these same questions more objectively. 

Conferences? 

      Conferences: $____ (This is how much is available for conferences during the year.) 

Staff Pay?

      Salary: $_____ - $_____ (This is the compensation scale the board has approved.) 

“Why are they spending money on ____?”

     Does it fall within the scope of our purchasing expectations?

     (Purchases over $___                                         require the additional approval from ___.) 

 That's how you establish accountability as an antidote to the battle of power and control. 

Moving on to the next layer of leadership, all staff should have budgets! They should have clear purchasing expectations that address specific dollar limits at which they can make purchases. They should know whose approval is required when they need to exceed their purchasing limit. What kind of bidding or quote procedures are required when a purchase exceeds $____? What kind of receipts and documentation of purchases are expected to be filed for every purchase? The approval for these purchases should then go through an approval process that even involves the finance staff. The finance staff should also know the expectations and how to examine transactions in light of these expectations.  Most of all, finance staff need to know that they've got the support of leadership and, if necessary, the board, to continue to maintain a culture of accountability. 

So the secret is accountability. 

Now accountability is an interesting word. The definition actually tells us that it's “the quality or state of being accountable.” The second part of that definition is that there's “an obligation or willingness to accept responsibility or account actions.” So, when dealing with money, everyone touching it needs to know that they're accountable. It's not our own; therefore, we expect that we should be able to share and show what's happening behind each transaction. I think accountability practically starts with clear expectations- having a written set of purchasing guidelines, a written statement about how we use and manage our budgets, and a written statement about how we compensate employees.

The wisdom of scripture tells us that you should take a vision for something and write it- make it plain on paper so that anyone who reads it can run with it. So if you've written down your expectations and something doesn't seem to be going right, you'll be able to do one of two things: (1) You may just get what you expect! (2) You’ll be able to have a clear conversation when there is a gap between expectation and reality. That is true accountability.

 If you're not sure how your organization measures up in this respect, I've prepared a 12 question quiz that's really helpful at identifying the strength of the accountability culture in your organization. You can find this free quiz here!