ROLE OF THE NONPROFIT CFO IN EXECUTIVE MANAGEMENT
The CFO-ED Relationship
A version of this article appeared in Blue Avocado in March of 2022
In the past 25 years in the capacity of CFO I have partnered at the executive level with seven executive directors (EDs) in four different nonprofits. I have worked with an athletic director, an artist, and a number of social workers, and I have found nothing more satisfying than the give and take of a mutually respectful relationship with my ED. The chemistry was different with each relationship, but I was always able to demonstrate that I had a lot to offer both as an educator in the ways of nonprofit accounting and as a partner in executive level decision-making.
THE WAY TO THE EXECUTIVE DIRECTOR’S HEART
Over time I learned what the ED needed from me. Whether they admit it or not, EDs, first and foremost, need peace of mind. Financial successes and failures are ultimately their responsibility. So how can the CFO lessen the ED’s burden?
- Safeguarding agency assets
The CFO is responsible for assuring that all transactions (both money in and money out) are carried out with an adequate system of authorization, approval, and account coding. This includes safeguards against fraudulent electronic withdrawals and counterfeit checks.
- Compliance with laws, regulations, and contracts
Nothing will ease the ED’s mind more than a partner who is committed to keeping her out of jail. The CFO assures that IRS laws are followed, grant stipulations are met, and best practices are followed for capital purchasing.
- Clear financial reporting
The ED and the board always ask, “How are we doing?” The CFO develops and maintains reporting systems that provide high quality information to enable decision-making. This may include cash flow projections and year-end forecasts in addition to budget-to-actual reporting and special purpose reports.
- Clean audits
The ED’s performance evaluation and compensation are often tied to the results of the annual audit. The audit is essentially a report card. The ED will always be grateful for an unqualified opinion, no internal control comments, and no complaints about the condition of the records or the competence of the finance department. By educating the ED on the more obtuse features of GAAP, the CFO can help the ED in communications with the auditors.
As CFO, you earn your ED’s trust by demonstrating your commitment to these critical priorities. I know that you have many competing demands on your time, which often include overseeing other functions. I recommend, however, that you always keep on top of mind that the core functions you were hired to perform happen to be among the ones that keep the ED up at night.
WHAT DOES THE CFO NEED?
In a perfect partnership the ED will appreciate the CFO’s efforts and attempt to understand and meet his needs. The CFO can help the relationship along by identifying those needs and communicating them clearly.
- Priority access to the ED for regular meetings and emergencies
The CFO needs to know that the ED will respond quickly to emergency calls. But, if I were to boil this article down to two words they would be: Meet regularly!! Frequent one-on-one meetings lead to strong relationships and mutual support. The ED and the CFO share the sense of the gravity of their financial responsibilities. It is worth the time and effort to develop a mutually supportive partnership, and, while email is great for solving problems quickly, it does not substitute for regular one-on-one contact.
If your offices are next to each other and you talk every day, great. But if not, try to insist on weekly meetings; accept bi-weekly if you must, and keep a running list of agenda items so you can make the most of the meetings. It may take time for the ED to realize that just about everything has a financial component that you can help with. Examples of conversation topics include:
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- Tax Law Relating to Donations—Say donations are received to help a family who has lost everything in a fire. The ED might not be aware that these are not tax deductible to the donor.
- Employee Incentives—Say the ED plans to give out gift cards to recognize milestone anniversaries. He may not be aware that this violates IRS law.
- Funding Decisions—Say one of the programs is looking at a new grant funding opportunity. You may have information about the program’s funding structure that can help with the deliberations.
- Communication between Development and Finance—Say the ED and development director are planning a fundraiser. You can ask: How will cash be handled? Is the wording in the marketing materials clear as to whether the proceeds are restricted or unrestricted?
- Programming Decisions—Say management is considering closing a program that has been experiencing deficits. The ED may not realize that management and general costs will have to be spread to other programs. This may also be true for occupancy and program administration costs.
- New Initiatives—Say the Ed is planning a new project that may require formation of an LLC. There is a whole host of discussions that the CFO needs to participate in from day one including EIN number, general ledger architecture, management and general allocations, program administration allocations. I could go on. The CFO should be given the opportunity to consult on these issues.
- Interest in learning the essentials of the finance function
Every time the CFO, an auditor, or a board member talks about current ratios, third party liabilities, or capitalization of assets, many EDs think, “Why didn’t I take an accounting class before I took this job!?” EDs often find themselves in the uncomfortable position of being unqualified to supervise the CFO on a technical level. Some EDs will live with the discomfort and zone out when you get technical. Others will diligently try to broaden their financial horizons.
Regardless of the ED’s comfort level with the language of finance, you will have to use it on occasion. When things are going wrong, the ED needs to know, whether he is able to understand your explanations or not. Over time, you can help a less experienced ED learn the basics. Chances are he has a talent for administration and might even be grateful for the help. Your partnership will flourish if you can converse in the same language.
- Adequate resources
The activities that the ED expects the CFO to carry out are no easy matter. Smooth operations, timely and useful reporting, and clean audits require people and technology. The ED who works collaboratively with the CFO is sensitive to this.
TO CONCLUDE
The public, the staff, and the board all count on the ED and CFO to lead in a manner that is ethically and fiscally responsible while maximizing the value of available resources. In the best case scenario, the chemistry will be there to achieve the perfect partnership. No matter what, the efforts you make to meet the ED’s needs and assert your own will pay off for both of you as well as the community you serve.