The Perfect Financial Report Format

9 Dec

What is the perfect financial report format for a nonprofit organization?

This is a reasonable question for a nonprofit to ask, and one that would appear to be easy to answer.

Some years ago we were retained by a small theater company.  They wanted us to show them the ideal “template” to use when budgeting and reporting their revenue and expenses.  They knew our firm worked with other theater companies, as well as nonprofits of all types, so they assumed we had this template, or format, and that we could simply share it with them, which we would have been happy to do.

The truth is, however, that there is no one format that serves all needs and all users of a financial report.

First consider that there are different types of reports.  Basic reports show actual performance while others show actual to budget comparisons.  Some financials compare this year to last year, while others just show the current year.  Reports can be prepared in great detail, or they can be prepared in various summary formats.  Reports can contain numbers, or they can include charts, graphs, explanatory text, and other dashboard information.

Financial reports must also serve the needs of multiple constituencies.

The executive director typically needs to see everything while program managers and department heads require financial reports for their areas of responsibility only.

The board of directors may desire to limit their financial report review to big-picture high-level recaps while the finance committee may need more detailed information.  Other board committees, for example the development committee, typically need more narrow financial information relevant to their area of oversight.

Funders need financial information too.  This can get complicated as foundations and government agencies can have different fiscal year-ends.  They may also have different budgets and different line items that they want to see tracked.

The organization may have one or more lenders that may require financial reports, possibly with some unique data that must be disclosed.

Then there is the annual financial audit, which many nonprofits have, where the presentation and format is largely determined by accounting and auditing rules.  In addition, if an organization expends federal funds above a certain threshold ($500,000 as of the date of this writing), OMB A-133 and other Office of Management and Budget rules dictate what additional financial information needs to be presented.

Most nonprofits, depending on their size and type, are required to file an annual Federal Form 990.  This has its own rules, formats, and disclosure requirements.

Government regulatory agencies may also require financial information using unique formats and budget line items.

So far, all of the above examples have been referring to historical financial reports, i.e. those looking at the past such as last month, last quarter, year-to-date performance, etc.  Reports that attempt to look at the future, such as forecasts, cash flow plans, budgets, and other pro-formas, can have widely different formats from one organization to the next.  In fact, we commonly find that a format preferred by one organization is rejected by another organization.

It should be clear by now that there is no single perfect financial report format.

The moral of this story: Nonprofit organizations of all sizes must have a financial department that is capable of meeting all needs.  The accounting system (and by accounting system I do not mean just the accounting software, but that is the subject of another blog) must be set up in such a way that these varying and sometimes inconsistent requirements can be met with a minimum of fuss.

Comments welcome.

Eric Fraint, President and Founder
Your Part-Time Controller, LLC

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