Making sense of financial reports for board members

Many leaders and board members of Not For Profits are not “numbers people,” and that’s okay. The real challenge often lies in the language. You likely have a better grasp of financial concepts than you think and by focusing on a few key principles, you and your organisation can gain confidence in financial reporting and governance.

In this series of blogs, we aim to demystify financial reporting and unpack the purposes and nuances of financial reports.

As a board or management committee member, your responsibilities fall into three key areas:

• Setting direction – Approving strategic plans, budgets, and financial goals.
• Monitoring performance – Ensuring financial reports are accurate, timely, and aligned with the organisation’s objectives.
• Managing risk – Overseeing financial controls to prevent fraud, errors, and insolvency.

In addition to these responsibilities, registered charities must comply with the Australian Charities and Not-for-profits Commission (ACNC) governance standards. At the same time, incorporated associations and other NFPs operate under state legislation or the Corporations Act. Regardless of structure, the core duties remain the same:

• Acting with care and diligence in the best interests of the organisation.
• Avoid conflicts of interest and disclose when they cannot be avoided.
• Ensuring financial resources are managed responsibly.
• Preventing insolvency.

For board members who meet monthly and rely on financial reports to make decisions, the key is ensuring proper financial systems and controls are in place. Here’s what that looks like:

Gone are the days of managing finances through spreadsheets or shoeboxes of receipts. Today’s affordable and accessible accounting software makes financial oversight more efficient and transparent. However, software alone isn’t enough—a skilled person should oversee financial management, whether in-house or outsourced.

• Delegated authority policies – Clearly define who can approve purchases and payments and at what levels.
• Internal audits and external reviews – Providing an extra layer of oversight.
• Reconciliation processes – Ensuring accounting records match bank statements, payroll liabilities match payroll records, and BAS matches GST accounts.
• Stocktake and asset tracking – Confirming that physical assets match accounting records and their values are accurate and reasonable.

There are two key types of financial controls:

• Preventive controls – These reduce the opportunity for fraud or errors. For example, the segregation of duties ensures that no one person controls an entire financial process. In small organisations, this could mean requiring a second person to approve invoices or dual signatories on bank transactions.
• Detective controls. These identify discrepancies or errors that have already occurred. A simple example is reconciling financial reports with actual bank balances to detect inconsistencies.

Following these types of controls is how an organisation goes about making corrections to any errors it does detect. When an error is significant, a review should be conducted to understand how and why the organisation has come to be in this situation. Corrections should then follow an agreed-upon process, and policies should be reviewed and updated if they are found to be no longer appropriate. Additional training should be provided to team members.

As a board member, you should receive clear and concise financial reports that help you fulfil your oversight responsibilities. These should include:

• An annual budget – This is a fundamental tool for setting financial direction and ensuring alignment with strategic and operational plans.
• Regular financial reports – These should be timely, structured, and easy to understand. Ideally, reports compare actual performance against the budget and include visual elements (charts, graphs) and a brief written analysis.
• A profit and loss statement, a balance sheet, and a cash flow statement—While a profit and loss statement provides insight into revenue and expenses, a balance sheet gives a complete picture of the organisation’s financial health, including whether it can meet its obligations as they fall due. A cash flow statement provides a view on how the organisation’s cash has fluctuated over a period of time and complements the profit and loss and balance sheet.
• An independent audit (if required) – Engaging an external auditor provides additional confidence in your financial management. A good audit will often go beyond just the numbers and interrogate the policies, processes and procedures that produce those numbers. When you receive the audit report, read it carefully, and if the auditor offers to present their findings, take them up on it and ask questions.

Understanding financial reports doesn’t and shouldn’t require a finance degree—just a commitment to good governance and the right systems put in place. With proactive financial oversight, your not-for-profit can meet regulatory requirements and build trust with funders, donors, and the communities you serve.

At Accounting For Good, we work with NFP organisations with a turnover of $1M or more. We specialise in helping not-for-profits navigate financial reporting and compliance. If you need guidance on strengthening your organisation’s financial processes, we’re here to help.

Contact us for a free consultation. Let us handle your accounting needs so you can focus on what matters most—serving your community and driving positive change.