FINANCIAL REPORTS AND

The board has an obligation to regularly review the finances of the organisation. As noted in the section on reading financial statements, financial oversight is one of the most complex areas of governance and one too often relegated to the treasurer or finance committee. In addition to knowing how to interpret statements, the board needs to be clear on what it wants to review and how often. Only then can staff or the assigned individual or committee prepare the materials. Similarly the board needs to know what it wants audited, how, by whom, and when.

FINANCIAL REPORTS The Monthly Status Report () If the organisation has staff capable of preparing this information, it generally falls to them. Otherwise it is assigned to the board treasurer, if there is such a post, or to a committee. The organisation may have a specific committee for finance (or for finance and planning) or the terms of reference for the executive committee may include this. It is up to the organisation to decide how best to structure itself and assign work. Regardless of who is to undertake the analysis and prepare the drafts, the work is the same.

What boards need to know first and most often is whether the organisation is on track with the budget and if not, why and what if anything should be done. The report of actual income and expenditures compared to the budget is often prepared monthly for review by the designated committee with the board undertaking its review less often (e.g., quarterly or biannually).

The report is set up to reflect the same categories as in the approved budget. However, the report will show the month’s budgeted and actual expenditure and the variance along with the year-to-date budget and actual and the variance.

Figure 1. Monthly Budget Status Report Month of October Year to Date Budgeted Actual Variance Budgeted Actual Variance Licensing fees Exam fees

Sale of publications Total

Expenses Salaries Overhead Phone

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Month of October Year to Date Utilities Revenues Budgeted Actual Variance Budgeted Actual Variance Executive Committee Maintenance Exam Materials Printing Costs Other Total

Some boards will include columns for the same month and year-to-date budget and actuals for the preceding year to gauge changes.

A cover sheet should be prepared to provide an explanation of the major variances in income and expenditures. You may also choose to forecast anticipated future expenditures.

Depending on the state of the finances and the time of the year (e.g., early vs. late in the budget year) the committee may recommend some activity/spending changes to the board in order to balance the budget. If there is significant surplus , the committee may recommend adding to or creating a reserve for future use, adding funding to a current activity, starting a new activity (this would need to be funded in future if it is more than a single event), or buying new furnishings or equipment.

In many organisations, the and flow statements are only done annually and are prepared by an external .

FINANCIAL AUDITS An is a review of the organisation’s financial position that results in an opinion as to whether the organisation is managing its finances in line with set standards and norms. They are an important signal to stakeholders and donors that the board is acting accountably.

Audits are generally conducted by an independent third party and result in an auditor’s report, which is an explanation of the work done and their opinion. It is comprised of a balance sheet, an income statement, a statement of changes in , a , and notes. The latter is essentially a summary of significant policies and other explanatory notes.

In general, carry out the audit using national or international accounting standards. Many firms will provide recommendations for changes in management practices that will result in greater accuracy, transparency, and efficiency.

It is the board’s job to decide how often the audit is to be done (most often this is an annual occurrence but externally funded initiatives may have their own audit processes and timing). It is also the board’s job to appoint the auditor. While many boards appoint the auditor annually, where

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the individual or firm is known to the board, the appointment may be for two or three years. It is a good practice for the organisation to open the process every five years by soliciting at least three bids for this contract. While staff or a committee may review the bids, carry out any interviews, and write a report for the board (with or without recommendations), the board decides on who will undertake the audits. Finally, it is the board’s job to receive the report from the auditor, to review it carefully, and to approve the audited statements. Every board should have a policy and process for appointment of the auditor.

Tendering for an Audit The tender should include information about your organisation as well as information you want from the audit company. For example:

 Information about your organisation – consider including:  Along with the name, a brief description of what you do

 Structure

 Finance: enclose two previous years’ audited accounts

 Financial cycle of the organisation

 Timing of the audit

 Contact information as well as deadline

 Any specific expertise you are looking for (e.g., experience auditing small business, regulatory bodies)

 Information requested of the auditor might include:  Information about the firm (size, specialties, philosophy, and methods)

 At least two references from similar organisations they have had as clients

 A profile of the staff who would be assigned to the audit and the time each will devote to it (especially senior staff)

 The audit strategy

 Audit timetable

 Fees, and if not a lump sum fee, then hourly charges by pay grade and expected number of hours

 Billing schedule

REFERENCES CGIAR. 2008. Good Practice Note – Selection Criteria for External .

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