Accurate financial data for NFP reporting success

Charities and not for profit organisations understand the value and necessity of quality financial reports. They are much more than numbers on a page. For Boards, management teams and stakeholders, financial reports are the compass they need to understand financial performance, manage resources, meet obligations and make informed decisions.

For financial reports to optimise their information value, they need the best financial data possible.

Management and Boards have an understandable expectation that when they receive a financial report, the numbers provide an accurate picture of the organisation’s position. Behind the numbers, however, can lie hundreds or even thousands of individual pieces of information. Invoices, expenses, payroll, grants, donations, funding allocations, accruals, deferrals, reversals and other transactions all contribute to the financial picture.

Each of these data points must be recorded correctly, and, importantly, enough information must be provided to determine how it should be treated.

For example, an invoice is provided to your finance team without sufficient detail about which program, funding stream or cost centre it relates to. The dollar amount may be correct, but if the expense is allocated incorrectly, the resulting management report may be misleading about program performance. In this instance, the report has not necessarily failed. The information supplied to produce it was incomplete.

Accurate financial information is important in every organisation, but charities and NFPs operate in an environment where additional layers of complexity can arise. Organisations may manage multiple programs, restricted and unrestricted funds, government funding, philanthropic grants, donations and project-specific budgets simultaneously.

Management teams may need to understand whether individual programs are operating within budget. Boards require reliable information to fulfil their financial governance responsibilities. Funders may require expenditure to be reported against specific funding agreements, while auditors and regulators require appropriate financial records.

If transactions are incorrectly coded, supporting information is missing, or financial data is submitted late, those issues can carry over into reporting. The result can be inaccurate budget comparisons, incorrect program results, difficulties with grant acquittals, additional work at audit time and, perhaps most importantly, management and boards making decisions based on an incomplete financial picture.

It can be tempting to think of financial reporting as the responsibility of the finance team. In reality, financial information requires collaboration across an organisation.

Program managers need to provide appropriate information about expenditure. Employees need to submit expenses and documentation accurately and on time. Managers may need to identify which project or funding stream a transaction belongs to. Finance teams then need to process, review and report that information appropriately. Clear processes make this significantly easier.

Organisations should establish consistent expectations around what financial information is required, when it needs to be submitted, how transactions should be identified or classified, and, most importantly, who is responsible. Rather than finance teams continually chasing down missing information or trying to determine the purpose of transactions, the right information should be captured at the beginning of the process by the person responsible for that activity.

Timely data creates timely reporting, and timely reporting supports better decisions. Financial information delivered too late can reduce the value of financial reporting. Financial reports are designed to help organisations understand what is happening now so they can respond appropriately.

For example, if invoices, expenses or other transactions have not been submitted before reports are prepared, expenditure may appear lower than it actually is. A program might look comfortable within budget, but a decision to increase spending when significant costs are still waiting to be entered.

Charities and NFPs can help ensure their financial data is accurate by clarifying, enforcing, and reviewing the processes governing their purchasing and income-generating activities. Some practical tips include:

• Assigning coding responsibilities to those who are in charge of spending money and bringing in money.
• Establishing and maintaining a coding review process – coding is reviewed by someone other than the person who spent or brought in the money.
• Communicate and enforce cut-off procedures – setting deadlines and expectations around what information is needed and when helps the team understand their responsibilities and how their actions, or inaction, can impact reputation.
• Feedback – reviewers should provide feedback to coders, and those who receive reports should notify the finance team if errors or anomalies are detected.

Accurate and informative reporting is a shared responsibility that can only improve with collaboration.

A well-prepared financial report should provide clarity. It should help leaders understand where the organisation stands, identify issues and make decisions about where resources are needed. Achieving that clarity starts long before the report reaches the boardroom.

It starts with sound financial processes and a culture in which everyone who contributes financial information understands that the quality of their input matters.

Strong financial management is not only about producing reports. It is about establishing the systems, processes and disciplines that ensure those reports provide a meaningful and reliable picture of your organisation.