 Welcome everybody to another episode of the nonprofit show. We are thrilled you're here. Ooh, we have a big Jackie. I almost want to say messy topic today. Non-profit board treasures. Who you need to get on the board? Before we go too much further, I want to make sure that we extend our gratitude to our sponsors. They include Bloomerang, American Non-profit Academy, non-profit thought leader, Staffing Boutique, your part-time controller, 180 management group, fundraising academy at National University, JMT Consulting, non-profit nerd, and non-profit tech talk. These folks are with us day in and day out. Now, Jackie McLaughlin, I have loved my time with you. You and I have worked on a series called Counting Unchasen. I've interviewed you many times on different topics. It's an amazing series. You can find it at chasenandcompany.com or counting on chasen. You talk about nonprofit issues in regards to accounting and finance. And you have really been my go-to girl when it comes to the wackadoo world of cryptocurrency and different types of gifts. And so it's really a pleasure to have you back on the nonprofit show. Thank you so much. Well, thank you for having me. I love being here. Well, you are great. I always love your energy. You always make things very achievable. And one of the things that is a real tough thing for so many nonprofit boards is finding a treasure and not just getting like the only person in the room that kind of said they would do it, right? Right, mm-hmm. And so we're gonna learn from you today about what this looks like and how we can navigate this. So let's start out. And if you could explain what fiduciary responsibility means, because I think we hear this word, but we don't really know what it means. Yeah, I love this topic, but let me go backwards just a little bit before we talk about this to MythBust. And I think one of the reasons that nonprofits have such a difficult time finding treasurers is because there's this perception out there that you've got to find an accountant, a CPA, a finance person to be your treasurer. And certainly that would be ideal. Somebody who's familiar with the generally accepted counting principles and a little bit money savvy, that would be the ideal. However, if you can't, it's not a crisis. Okay. You need common sense to be a good treasurer. That's it. So if you can run your own personal finances, you have enough common sense to be a treasurer on a not-for-profit organizations board. That said, let's talk about fiduciary responsibility speaking of running your own house. So fiduciary responsibility has three legal definitions, a duty of care, duty of obedience and a duty of loyalty. Those are the three main duties that are required of a fiduciary. And that's such a big kind of complicated word and nobody really understands it. Here's what it is. It's being a parent. So when you're a parent, the children, every decision you make is in the best interest of your child. You might be offered a promotion at work that might make you have to move. Well, if that's not in the best interest of your child, you won't move. You'll turn down the promotion and stay where you're at. You might, well, I don't know, that's probably the big one with having a child is moving or not to move. With your children, you're constantly telling them the importance of following the law. And aside from probably a little bit of speeding that we all do, we seek to set that example that we obey the laws and we demonstrate that to our children. Any decision we make, any decision, I might want a Rolex watch, but if buying a Rolex watch is going to mean not feeding my child for a week or two, I'm not buying that Rolex watch. I'm gonna make the decision in the best interest of my child, which is to feed him or her. That's what fiduciary responsibility is all about. Every decision, any board member, not just a treasurer, all board members and executives hold fiduciary responsibility in a not-for-profit. And it really means setting aside your own agenda and acting in the best interest of the organization, just like being a parent. You know, I absolutely love that framework because whether you've had children or not, you can understand the issue of stewardship in terms of helping somebody along, bringing them along, doing the right thing, working outside of your own ego. And I think that's a great, it's simplistic, but it's a profound way to look at this. I wanna follow up with a question for you because a lot of times, I think people are, they think that the treasurer has to do all the accounting work and that they are the ones that have to do the paperwork and file and do all these things as opposed to being the intermediary between the accounting and finance company. And I'm wondering if you could talk a little bit about that because I feel that that, unless you're a tiny startup kind of thing, that the treasurer should not be doing that work, that it should be an outside professional that has that arms length, you know, situation. Could you address that a little bit? That's an excellent point. So you're 100% correct. There should be, yeah, there should be accountants on staff or outsourced accountants who are doing the transactional work, booking all the inflows and outflows of money and producing a financial statement at the end of preferably each month. You should be looking at financials. And then the treasurer's job is really that review. I mean, as we all know from writing papers in high school or college or wherever we wrote papers, we often are looking at our own stuff so many times that we're not seeing our own mistakes. And that's very true with accountants. They're in the weeds of the material. So the treasurer's job is really to look at those financial statements produced at the end of the month and ask themselves if they make sense. And ask the common sense questions. For example, boy, last year at this time, payroll was $50,000. This year, it's $80,000. What happened? Right, right. You know, if the treasurer sees that payroll pop up, maybe 5%, a treasurer's probably going, people got raises. But if it's going from 50 to 80, what happened? Right. So those are the common sense-type questions that need to be asked. And as you know, I love to give this story too because I love stories. So with the big Enron bankruptcy, which at the time was the largest bankruptcy in history. And again, I could talk to you for months about all the accounting problems and things that went wrong, but I won't. I'll spare your audience that. At the very foundation of everything that went wrong with Enron was the fact that you had a lot of accounting shenanigans going on. They were being talked about around a conference table. No one understood why or what. And everyone was too embarrassed, including partners from the largest CPA firm at the time. Everybody was too embarrassed to say, this doesn't make sense. I don't understand. So the big takeaway from that story is we should never be embarrassed to ask questions ever. And particularly those treasurers who may not have an accounting or finance background, they may feel like, I'm probably wrong with what I'm thinking. No, you're probably not. Ask the question. And if any response makes you feel dumb for asking it, then you need to get new people that you can ask those questions to. Anybody should be able to ask anything anytime and not made to feel like it's a dumb question. No question is dumb. Back to Aaron. Yeah. No, I think you're right. And I think that when the picture that you just painted goes back to the very first thing is that you don't have to be a CPA to take on this role, but you need to be a strategic thinker and you need to be able to ask questions and to be able to try and link things together, right? As opposed to doing that, filling out the forms, right? I mean, it's a little bit more of a strategic position than an actual doing position. Is that a good way to wrap that up? Your point is so well taken because back to my salary jump example, if that treasurer sees that jump in salary, but they're also seeing a large jump in revenue, it's pretty fair to connect the dots and go, oh, the organization's making more money, they've got more going on, they needed more people to deal with this increased activity. So those are the types of relationships I believe you're talking about in financial statements that if you have somebody with a lot of common sense who can look at these statements, we're gonna look at some later and not be afraid of them, they can ask those very common sense questions. If revenue's staying flat and you see a big jump in salaries, hey, what's going on? This doesn't make sense. I love it. Okay, we have a really interesting question that came in before we jump on to transparency and accountability. One of our viewers has kind of challenged us and this is really interesting. Don't you risk, Jackie, perpetuating the ongoing problem of the board trying to manage the executive director and the executive director trying to manage the board if board members think of the organization as a child? Is there another analogy that brings in stewardship and partnership instead of a monitoring parent? Isn't that, that's a really interesting comment. That is a great comment. And I guess for me, there's a line to be drawn. I mean, in a parental relationship, I've got a young minor child, I'm making decisions for that child, et cetera. That is not the point of a board member or a fiduciary. My example in using the parent child is to help people understand that you have to do what's best for the organization. That's what a fiduciary responsibility means. But your viewers absolutely right. The board needs to stay out of, you know what? It's a mom and dad thing, you know? Mom stays out of dad's lane, dad stays out of mom's lane. They each kind of have their own lane in the household. Oh my God, that's hilarious. That was a great comment. I really really appreciate it. And I always think it's fun when we do have, you know, viewers that kind of write in and talk about this. Well, let's jump over to transparency and accountability. We talk about this a lot in the nonprofit sector. And again, I don't even, I bet most people would describe it in a different, with different language, you know? What does it look like to you? Well, transparency and accountability is really understanding that as a nonprofit, again, the IRS gave you 501C3 designation or one of the 501C designations if you're a nonprofit, you have a responsibility generally speaking to the public. So oftentimes your audited financials, if they are audited, need to be made available to the public. Organizations will do that in a couple of ways. They'll either put them on their website or they'll have something that says available upon request. More importantly, nonprofits do have to file income tax returns. No, they don't pay income tax, but they have to file a tax return, which is for 990. UNI filed 1040s, that's 1040 season right now, by the way, the nonprofit files 990s. And that's largely informational in nature. But within that tax return, there are a lot of questions that disclose, who's on the board, who are the major donors, those types of questions, and the financials are disclosed as well. Those 990s are uploaded to public websites like GuideStar, so I can go on GuideStar right now and look up any nonprofit without paying a dime. I don't have to have a GuideStar membership. And I can look at the most recent 990 that's been uploaded to GuideStar. So it's critically important that nonprofits be very transparent with their financial situation because this data is going out to the public anyway, sooner or later. Right, well, and I appreciate you kind of helping draw that line through what that process looks like. Again, when we're talking about a board treasurer, talk to us about their role when it comes to financial decisions and leadership. And I'm wondering this in terms of like who we hire, who we bring in, and we talked about this straight up about that the treasurer's not doing all these pieces themselves, but they are working with maybe an internal department or outsourced providers. Are they the ones making that decision, or how does that get managed through the whole organization? So I love this question as well or this topic as well. And really what the financial decision-making and leadership is all about for a board treasurer is being that first line of review for a budget. And then there are some subsequent consequences that come out of that, but and for example, and this dovetails into what your viewer just talked to us about in the comment. For example, a typical budget process is the staff, the employees of the nonprofit will start the budget process and they will come up with a budget. And the executive director then or the president, whatever that title happens to be will review that budget and they'll tweak it and make changes to it. At some point that budget will be finalized at least in the mind of the staff and the executive director. Then it's typically taken to the finance committee of which the treasurer usually leads that. And the finance committee reviews it strategically as you've pointed out, looks at it from a does this make sense point? Hey, we spent 100,000 on salaries last year. How are we gonna spend 40,000 on this year? That doesn't make sense. So the treasurer and along with the finance committee if there is one reviews the budget with the executive director, this is a partnership situation. They'll review it together, they'll discuss it, they'll work through it. Once they all get comfortable, then the treasurer with the finance committee's support can recommend the whole board approve and adopt the budget. Gotcha. And then once the whole board approves and adopts the budget, again, dove tailing back in with that comment, the board stays out of the day-to-day decision making. That's the executive director's job. That person, he or she is running the organization and is being held accountable to that approved budget. The board shouldn't care if the executive director spends $2,000 on airfare instead of $500 on airfare. Doesn't matter. Overall is the budget coming in on target. That's what matters. Additionally, if something comes up, and it always does where the executive director realizes he or she needs to spend more money than was originally budgeted, if it's over a certain threshold, the board needs to, well, treasurer slash finance committee slash board needs to be involved in approving that extra expense that was never in the budget. And again, I'm not talking about they should get involved in $500 expenses. No, but if the executive director suddenly needs to spend $50,000 or whatever number is material to that organization and it wasn't budgeted for, that's when the board gets back involved to oversee the financial health of the organization. But the executive director is responsible every day. So I love that you drilled down on that for us because I think that's one of those things that a lot of times board members don't understand including let's lump in the treasurer to that too. How front-facing are they gonna be to these issues? But one of the things I also wanna ask you about because I feel like it's a part of this is how we're doing our financial reporting and how we're communicating so that, I mean problems happen and surprises occur, but to go to a board meeting and find out that you're a million plus in arrears on things and this has been going on for eight months or whatever. Am I telling a personal story here? I mean, hello, these things happen and they are incredibly horrific. So talk to us about that financial reporting and communication so that our board members are following along and not just waiting for that year-end, yay or nay kind of approach, which I feel like most organizations, that's what they do. Yeah, waiting for year-end is never a good idea. So internally the organization should be producing financials monthly and the executive director should absolutely be reviewing those financials monthly. Most boards that I'm aware of, it's gross generalization, but they meet quarterly and at every quarter or however often your board meets, I guess some can meet every other month, whatever the interval is, the board should be presented with financial statements every time they meet. And the executive director, part of that person's job to your example, Julia, is if that executive director is way off target on the budget, his or her job is one of two things. To figure out how they're going to make up that revenue, because generally that means, if they're off target, it generally means in a bad way. So their expenses are too high or their revenue is too low. If they're off target in a good way, everybody's celebrating, but that's not generally the case. So the executive director should come to the board with this is how we're gonna make up the revenue decline or this is how we're gonna save expenses to get us back on track or sometimes both. Sometimes that person has to do both. So the board should never get cold water poured over their head. If they're getting the financial updates quarterly, they're seeing the progress and that things aren't going the way everybody thought they would go and the executive director, I promise you this, from day one that things started to not go well, that person is planning on how they're going to right the wrong or make a correction, of course correction. Yes. Jackie, this is why I'm such a proponent of board portals because a digital interface where these reports, whether you're meeting quarterly, monthly, every other week, whatever the heck, that these reports can be posted on a timely scheduled manner so that everybody has access to them because in my mind, and I know you've served on boards, the board meeting is not the time to be getting that information. You need to, I mean, at least I'm speaking on my own behalf, I need time. I need time to look at this and be thoughtful and think about the questions that I have or can they be addressed later or do they need to come up front? I mean, this is not just a hurry up, go through this, we got other things to do, which I think a lot of boards do this. So you talk about the statement of financial position and the statement of activities. We don't have a lot of time left, but those two documents seem like really key pieces of information that everybody should be looking at, right? Absolutely, along with a budget versus actual report. So here's where the budget predicted we should be by now, here's where we at, we're at, here's the differences. And that's when certainly the treasurer can really engage and say, oh, here's a bad difference, bad variance, what are we doing about this? What caused this bad variance? What's going on? So yes, those three and to put it in words that more people understand that statement of financial position is analogous to a balance sheet in a for-profit. And this statement of activities is analogous to a P&L also known as an income statement in a for-profit. And then again, the budget versus actual is budget versus actual regardless profit or not for profit. Well, and I love that because I think you're absolutely right. It's about tracking those trends and trying to head them off and determining what the opportunities are and what the challenges are, right? Because you can't cut yourself, you can't cut your expenses to profit, right? You can't just cut everything back so that you're profitable or you're whole. Obviously you have to do that at times, but it seems to me that that treasurer is gonna be the one that's saying, look, we're seeing these problems in our fundraising or these expenses have gotten way out of whack. It just seems like there's a lot more, as we said earlier, thought leadership. Maybe that's the word thought leadership involved. Thought leadership and I'll also say accountability and let me give everybody a cautionary tale from my previous life. In one of my previous lives, that particular organization got in the mode of not really wanting to talk about the financials. And at first the organization was doing well, so it was just a matter of nobody wants to talk about financials. People don't love talking about revenue and expenses and all that kind of stuff. So the board got out of the habit of talking about it and they put it at the end of the agenda and it was gone through very, very quickly. Well, as time went on and this country was going through some economic hard times, the organization's financial performance started to dip and in fact it did end up getting in a very, very dark place. But the board was so much in the habit of quickly looking this over at the end of the meeting that it got to a darker place than it needed to get. And so when the board moved the financial review to the first thing on the agenda, suddenly that ED now was a little bit more focused on the financials and this particular ED was a brilliant person, very, very, very talented. But until the board moved the financials to the top of the agenda, even though that person had been doing a lot of work behind the scenes to write the ship, it happened at an accelerated pace once it was moved to the top of the agenda and the board was actively looking at it every quarter. You know, that's a fascinating way to end up because I think there's something to be said for what is the capacity of a board member who's working for free, they're trying to do the best they can with the resources that they have. It's at the end of their day, they're exhausted, they gotta get home, you know, all these things. And I always think, you know, the capacity of a board member is three. Like what are the three top things that you're gonna want them to drill down in a meeting? And because past that, things get a little muddy or engagement drop. So that's another conversation, but this has really been a powerful, powerful thing because I know so many of our viewers and listeners out there struggle with filling this position. And it's a tough thing because at the end of the day, and I'm not just saying this because you're a CPA and my friend, this is one of the critical rules, you know? We gotta focus in on getting this talent invested with our nonprofits. It's been fascinating. It is, and it's just like your own personal finances. Most of us out there, we have three buckets of money personally that we're always looking at. We're looking at our day-to-day money, we're looking at our emergency savings, and we're looking at our retirement money. It's the same thing in a nonprofit. You're just watching that money to make sure that the nonprofit can sustain itself and to make sure it's being used appropriately. And I would use the example, if you're in the business to feed homeless people and executive directors are very passionate about what they do, and it would be not uncommon for an executive director to say, oh my gosh, they need shelter. We've gotta shelter them. Yes, they need to be sheltered, but that's not in your mission statement. Your mission is to feed them. So stay on feeding them and hopefully there's other organizations in the area whose mission is to shelter homeless people. Right. Well, Jackie Mulau, McLaughlin, I just always love spending time with you. I feel like you make things very achievable. You boil them down. You don't dumb them down, but you give us a framework for being more successful. And to me, that's a magical, magical ability. Quality control and learning manager at Chasen & Company. Check out countingonchasen.com as well. You will find more than a dozen free video learning and training modules that we've worked on with the American Nonprofit Academy and the Chasen team. They're very interesting and at least I think they're very interesting. I mean, I got to interview everybody and learned a lot of new things, had some hair and fire moments, but it was, it's really great. So we are thrilled that you would be with us today, Jackie. We also are thrilled with our supporters that come to us from all sectors and places within the nonprofit space. And they include Bloomerang, American Nonprofit Academy, Nonprofit Thought Leader, Staffing Boutique, Your Part-Time Controller, 180 Management Group, Fundraising Academy at National University, JMT Consulting, Nonprofit Nerd and Nonprofit Tech Talk. These are the folks that stay with us day in and day out as we have produced now more than 1,000 episodes and we are now in year five of our broadcasting. So thank you ever so much to all these folks. Okay, Jackie, go pack that suitcase because you're heading out to Machu Picchu, my friend. I am, thank you so much for having me. It's always very fun to talk with you. Well, it's been a great, great episode. As we like to end every episode of the nonprofit show, we have this mantra and today I'm thinking about financial health when I say this. And it goes like this, to stay well so you can do well. Thank you.