Dani Robbins

Compliance is not Governance: Financial Statements and Parliamentary Procedure

In Leadership, Non Profit Boards on November 4, 2014 at 11:37 am

As a blogger and a regular poster on Linked In and Twitter, it feels as if I’m putting ideas out there yet I’m never really sure if and where they connect to actual people in real agencies trying to better their communities.

Imagine my delight when I received a note that said: “Hi. I work for an association management company. I’m trying to settle a question here in our office. In a blog post about non-profit management you state that all monthly financials reports should be approved with a board vote. What is your basis for this statement? What are your thoughts on the following article – Approving the Treasurers Report Is Not Advised? Thank you for your time.”

Not only was I excited that someone was actually reading my stuff, but that I was being invited to defend my position. Sweet! I was appreciably less excited that doing so put me in the position of challenging an article written by a Parliamentarian.

I encourage you to read the article and come to your own conclusions. My take of it is that the author believes it is misguided for boards to approve financial statements monthly and a larger liability than to not, since the statements have not been independently verified. As such, until they have been independently verified she is recommending they not be approved by the full board.

Now, my goal is not to argue with a parliamentarian, which I clearly am not and which the author clearly is.  My goal is to demonstrate that good parliamentary process does not necessarily lead to good governance.

Robert’s Rules states the “Chair may ask for a Treasurer’s report to be presented” yet no vote be taken. Compliance with Robert’s Rules is not the goal of most boards. Good stewardship is the goal.

I recommend boards approve unaudited financial statements at every board meeting. It is my belief that everyone is quite clear the statements they are approving are unaudited. Boards also annually – if they have an annual audit and many agencies do – approve the actual independent audit.

The author states “I know of no federal, state, local or parliamentary rule that states the treasurer’s report is to be adopted.” Me neither. Yet rules and laws regarding board approval of statements would not be where the train goes off the track. Theft, misappropriation of funds and co-mingling are where the train goes off the track and where the board reviewing and approving fund expenditures might be the first step in ensuring against such eventualities.

Robert’s Rules is a parliamentary process by which to run a meeting, not an agency. In fact, Roberts Rules of Order newly revised in brief specifically defines parliamentary authority as “the book of rules the group names to govern its meeting procedures.” It is not and has never been intended to be a process by which to govern an organization. Compliance is not governance. For more information on governance, I encourage you to read  Generative Governance and The Role of the Board.

Being an engaged board member requires being a good steward of both the organization and the community’s resources including acting, along with other members, as the fiduciary responsible agent. That responsibility cannot be handed off to a Treasurer and you wouldn’t want it to be.

The author states “The treasurer is an office in which a group places a great deal of trust and therefore it seems that an assembly would believe their reports are accurate.” To that, I respond with a resounding “maybe”.

There are as many people serving as treasurers in nonprofits in this country who have no financial training or education as there are those that do. It would be irresponsible and naive to think the community and the law will not hold the entire board accountable in the case of financial mismanagement. That is why I recommend financial statements be reviewed at every meeting, and also that board members ask questions until they understand and are willing to have their name listed as approving of their contents.

Even in the case when you have a trained CPA as your treasurer, that CPA is not usually the CPA of record and even if they are,  the entire board is still responsible and will still be held accountable.

Being in compliance with Robert’s Rules of Order will not shield board members from collectively running their organization into the ground or from being held individually liable or criminally negligent, and that’s not what it’s designed to do anyway. An audit is critical, but it’s often conducted well after a problem has occurred and an issue can be corrected.

Not approving the financial statement will not protect you. Following Robert’s Rules of Order will not protect you. Paying attention, appropriately stewarding your organization and upholding your responsibilities might.

What’s your position on boards approving unaudited financial statements? As always, I welcome your insight, feedback and experience. Please share your ideas or suggestions for blog topics and consider hitting the follow button to enter your email. A rising tide raises all boats.

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  1. Excellent post. I agree wholeheartedly agree about the monthly reviewing of financials. And I am grateful for the in depth analysis and quick education regarding the legalities and complexities. This statement had particular resonance for me. “… rules and laws regarding board approval of statements would not be where the train goes off the track. Theft, misappropriation of funds and co-mingling are where the train goes off the track and where the board reviewing and approving fund expenditures might be the first step in ensuring against such eventualities”

    Warmly, Alisha Abboudi Development Associate Office of Institutional Advancement Gratz College 7605 Old York Road Melrose Park, PA 19027 215-635-7300

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    Like

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