This document discusses the importance of financial literacy for nonprofit leadership and boards. It outlines that boards must balance fiduciary, strategic, and generative modes of governance. Basic financial literacy requires understanding nonprofit boards, financial tools beyond just budgets, and how different tools fit different board roles and decisions. The document then describes common financial tools like audits, statements of financial position, activities, functional expenses, operating budgets, cash flows, and tax forms. It provides examples of how these tools help answer questions in the strategic, fiduciary and generative modes of governance and leadership.

1. State Street on Board
Leadership and Financial Literacy
Prepared by Lauricella and Associates
February 2013

2. Two Key Points
 Basic financial literacy is a critical tool for
nonprofit leadership
 Financial literacy requires understanding:
1. Nonprofit boards
• Modes of operation/Types of decisions
2. A variety of financial tools-more than budgets!
3. How different financial tools fit the different board roles

3. EFFECTIVE BOARD LEADERSHIP
Balances three modes of governance STRATEGIC
•Establish organizational priorities
•Develop approaches and tactics
FIDUCIARY
•Deploy resources
•Faithful to mission •Review performance
•Accountable for performance FROM OrgA to OrgA+
•Compliant with relevant laws and
regulations
GENERATIVE
STEWARDSHIP of OrgA
•Focus on purpose
•Discern problems
•Rethink and reframe work of the organization
Governance as Leadership by Richard Chait,
William P. Ryan and Barbara E. Taylor CREATING a new Org z

4. Questions and
Governance Modes
STRATEGIC
•Does our spending reflect our
FIDUCIARY goals?
•Are we spending money efficiently?
•How did we do this year? •Did the organization do what it
planned?
•Did we fulfill our obligations?
•Are we compliant with relevant laws
GENERATIVE
•Are we sustainable
•Do we have the money we need?
“Other questions that you
have encountered?” •Could we retool if we need to?

5. FINANCIAL TOOLS
Audit or Review
Statement of Position
Statement of Activities
Operating Budget
YTD Budget
Cash Flow
Tax Form- ‘the 990s”

6. FINANCIAL
Sample Audit table of contents
TOOLS
CONTENTS
INDEPENDENT AUDITORS’ REPORT 1 Annual Audit or Review
FINANCIAL STATEMENTS
Statement of Financial Position 2 1. Reviews and verifies the financial
books of organization
Statement of Activities 3
2. Demonstrates that funds were used
Statement of Functional Expense 4 appropriately
Statement of Cash Flows 5 3. Transparency
4. Over $500,000 audit (U.S)
NOTES TO FINANCIAL STATEMENTS 6 -10

7. FINANCIAL
TOOLS
Statement of Financial Position
Balance Sheet
1. Snap shot
2. Assets=Liabilities + Net
Assets
3. Status of your
accumulated profits at a “How well has the
fixed point in time organization done?”

9. 1- “Is there cash?”

10. 2- “Can I use it? Is it
unrestricted and
available?”

11. 3- “What is my debt
position?”

12. FINANCIAL
TOOLS
Statement of Activities
Profit & Loss
1. Income-Expense =
Profit (Loss)
2. Income earned over a period of time
3. The costs (expenses) of earning the
revenue during that period
“How well is the
organization
performing?”

14. 1- “Did I make money?”

15. 2- “Where did it come
from?”

16. 3- “How did I do compared
with last year?”

17. FINANCIAL
TOOLS
Operating Budget
1. Planning tool
2. Forecast revenue and expense
3. Reflect mission and priorities
“What is organization’s plan
for the year?”

19. Is this magical thinking?

20. FINANCIAL
TOOLS
YTD to Budget
1. Project or Organization
2. Developed before and
during a project/period
3. Measure performance
4. Management tool
“How is it working out?”

22. FINANCIAL
TOOLS
Cash Flow
1. Developed after budget
2. Forecast activity
3. Various timeframes
4. Adjusted depending on
need
“When is our money
coming?” or “When do
I have to pay this bill?

24. Wrap up and Questions
 Different roles, decisions, and questions
 Require different tools

25. FIDUCIARY
 Financial
STEWARDS
HIP tools
Faithful to mission
1. Yearly audit (or review)
Accountable for 1. Notes
performance 2. Management letter
2. Statement of Functional expense
Compliant with relevant 3. P&L
laws and regulations 4. Operating budget

26. STRATEGIC
 Financial
Tactics
tools
Establish organizational
1. Operating budget
priorities
2. Budget to actual
Develop approaches and
3. Profit and Loss
tactics
4. Sources and Uses
Deploy resources
Review performance

27. GENERATIVE
Out of the box  Financial
tools
Focus on purpose
Discern problems 1. Balance sheet
2. Cash flow
Rethink and reframe work of
the organization

28. Thank you