This article was written and produced by Sam Pitts, CPA, Manager, The Bonadio Group. Looking to get in touch with Sam? Reach out today: spitts@bonadio.com.
Every financial executive knows the sense of relief that arrives once the annual audit process is complete. Audit fieldwork is wrapped up, questions are answered, financial statements are issued, all is well! That is until the date of the next audit/finance committee meeting begins to loom over your head.
Although your audit/finance committee is pleased that the financials have been issued, their main concerns as board/committee members are questions on what the future holds for your organization. They will want to dig deeper into the internal financials and the upcoming year’s budget, question how the organization fairs when stacked up against its peers, wondering what cash projections look like, etc.
One of the audit/finance committee’s primary responsibilities is to ensure that the finance department is able to provide timely, accurate, and complete financial information. In all likelihood they will be looking for more than just the month-to-date statement of operations and a balance sheet snapshot. Your job, as the financial executive, is to provide the committee with the tools they need to perform their due diligence with regard to financial oversight.
So, where to begin?
For starters, set up an “executive summary” template. While this process may already be in place for larger organizations, for the smaller organizations in the tax-exempt sector the proper steps may be less obvious. Identify the current month-to-date operations along with your year-to-date operations and assess where the organization stands in comparison to the prior year. It is important to fully understand the current year’s events that lead to large variances in your operations.
Next, provide your audit/finance committee a narrative that explains the numerical information being presented. Numbers tell a story, but no story is complete without the “why” behind it. In conjunction with your prior year to the current analysis, the implementation of the budget comparison into the analysis also plays a vital role in allowing the committee to do their job.
The budget is arguably an entity’s most vital document involved with the strategic planning of your organization. While it is crucial that the audit/finance committee understands the ins and outs of the budget, it is equally important to ensure that the entire board, as well as management, understands the assumptions inherent in the final budget. Assumptions regarding the revenue cycle and in-depth expense projections allow them to better prepare for the year ahead and enable timely and accurate operational decisions. Analyzing the actual results against the budget also allows for management and the board to understand the current financial status of the organization. Timely monitoring of expenses is also critical in an ever-changing financial environment.
In addition to the year-to-year and budget to actual analyses, creating a dashboard that identifies how you stack up against your peers with various ratios and metrics is a thorough, concise deliverable. Looking at operations in comparison to those who operate in the same industry can allow you to identify opportunities, potential shortcomings and can lead to a discussion on how to better improve your financial outlook. Your external auditors may be able to provide benchmarking information to enhance your presentation of internal information and analyses.
Further, understanding what ratios are relevant to your organization assists in identifying areas for improvement and further discussion. For example, perform a calculation on your days outstanding in accounts receivable. This ratio indicates the number of days it takes to collect for services performed. A high number could lead you to look at a multitude of things: are there issues with your major customers? Has your billing process become outdated? You can then compare and see if the high number of days to collect has been a trend (or an anomaly) and if further action is needed.
These suggestions are just the tip of the iceberg when it comes to your organization’s financial analyses. Providing your audit/finance committee and your board timely, in-depth analyses of the health of your organization can alleviate concerns or highlight issues that need to be addressed. Reach out to our experts today for suggestions on how to begin and what ratios and benchmarks are most beneficial for your organization.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
