Home » Board Café

Board Café

The Board and the Budget: Beauty and the Beast?
09-27-2002

For many nonprofits, “approving the budget” is the cornerstone of board financial oversight.  Unfortunately, though, this act is too often an empty ritual: one where board members peruse a budget that they are unsure is either appropriate to the planned activities or is realistic.  This issue’s Main Course Article takes a look at the problem and suggests some fixes.  There’s also a note on the responses from Board Café readers on taking the minutes.  Enjoy the fall! –Jan Masaoka

WHO TAKES THE MINUTES AT A BOARD MEETING?
Many thanks to Board Café readers for their responses to this query.  Two strong concerns emerged: one from board members who felt that the executive director was controlling the board by having staff take and write the minutes; the other from executives who felt that certain board members were controlling matters by taking the minutes.  These responses reminded me of John Kenneth Galbraith’s comments on serving in the federal government: he would often volunteer to write up the notes from a meeting, because by doing so, he controlled what was reported out as decisions from the meeting.  Clearly, there isn’t one right way to do the minutes.  In some organizations a board member takes and distributes them; in others a staff member writes them up for review by a board member.  In either case, it’s important for board members to read the drafts and make corrections to them before they are approved.  If there is resentment or distrust about the minute-taking, this mistrust reflects differences about larger issues, and should be taken on directly rather than through a proxy argument about who takes the minutes.  In a future issue, the Board Café will discuss minutes in more detail.

WHAT ARE WE ALLOWED TO DO IN THE ELECTION?
With the election just a month away, many boards are wondering what election-related activities are legal and which are not.  What nonprofits are NOT allowed to do: take a stance in support of or against a candidate.  What IS allowed:  holding candidate events, developing nonpartisan educational materials comparing stances of candidates on an issue related to your organization’s field, voter registration, and encouraging people to go out and vote.  A great resource is http://www.clpi.org (Charity Lobbying in the Public Interest) that also has good links to guidelines for holding candidate debates, ideas on “how to listen to a debate,” etc.  

SHORTEN YOUR MEETINGS WITH PLANET 501c3
CompassPoint’s comic strip, Planet 501c3, has some funny ideas for how to make a long meeting into a short one.  www.planet501c3.org

Now for this month’s “Main Course” at the Board Café:

The Board and the Budget: Beauty and the Beast?
Have you ever witnessed the following scene?

The finance discussion is scheduled for the end of the meeting, so it is hurried.  Given a complex budget that “needs to be approved,” board members react first by looking for things that they can understand. . . usually a relatively small expense item:  “Why is this travel budget so high?”  “Can this phone budget be reduced?”

As each question or suggestion is raised by board members, staff respond by explaining why each suggestion is unrealistic.  “The travel budget has been funded for Program X so we have to do it.”  “Actually the phone budget is not that big.”  After a few instances of staff “explaining” line items, board members realize that asking such questions isn’t really going anywhere.  In the backs of their minds is the thought, “It’s probably okay.  It was okay last year and I didn’t understand it then either.”  So they vote to “approve the budget.”  

In short, board members first nit-pick, staff reacts to questions as evidence of the board’s ignorance, and then the board rubber-stamps the budget.  

The truth is that such approval of the budget isn’t a meaningful act on the part of the board.  The staff does know more about operations, and appropriately, staff should develop the budget.  So what would be meaningful work for the board on the budget?

In its governance role, the board is responsible for the organization’s finances: ensuring that the budget reflects the organization’s priorities, that new programs are in line with the overall direction, and by reviewing financial statements, seeing that adequate funds are being obtained and used appropriately.  A strong Finance Committee can hold an initial discussion with the board, and then work with staff to bring a budget to the board that reflects those directions, and the board can approve the budget, thereby authorizing staff to go forward with raising and spending funds as planned. Here are some questions that take advantage of the board’s diverse community perspectives, as well as a knowledgeable and skilled finance staff:
  • What are two or three important choices we face right now?  Examples: Drop the membership newsletter?  Institute a 401K program? Hire staff with a “pretty certain” commitment from a foundation?  Use some reserves on new technology?  Set a financial objective of building a cash reserve of $100,000? The board should discuss important choices, ask for an analysis of the financial implications, and see that agreed-on choices are embedded in the budget.
  • Are we bringing in more money than is going out—this year, over the past few years?  Is this the right time to spend down some extra reserves, or is it the right time to be saving for the future?  How much do we need to build up in unrestricted cash reserves to smooth out cash flows and to prepare for a rainy day?
  • Are our dollars generally in line with our priorities?  For example, if an organization started as a performing dance troupe that secondarily held a few dance classes, it might consider, over time, whether the organization’s attention—as reflected in the budget—has come to over-emphasize the classes over dance performance, without an intentional shift in that direction.
  • Is the fundraising goal based on realistic planning, or is it part of a “plug” that only serves to balance the budget? Think about the predictability of projected income, and which fundraising objectives will depend on board efforts.  Are we comfortable with the “revenue mix”—the relative dependence on various types of income (such as government funding, membership dues, etc.)? 

For many organizations, the budget process is, in fact, the process through which an organization decides on its priorities, interprets its vision in operational terms, negotiates compromises, and agrees to go forward together.  In different organizations, this process is bound to look different.  A key in all processes is finding a way for the board to act in a meaningful way, exercising their governance role in both financial oversight and maximizing resources.

See also at www.boardcafe.org:
A Contract Between Board and Staff for Financial Accountability
www.compasspoint.org/boardcafe/details.php?id=64  

Six Things the Board President Should Check Before the 990 is Filed
www.compasspoint.org/boardcafe/details.php?id=82

© 1998-2006 CompassPoint Nonprofit Services

Back to Board Café
Board Café Archives

 

Home About Locations Shopping Cart CompassPoint