What to include in income statement presented to an NPO Board.

Posted on 06 September, 2021 at 12:50

The board  of a Non-profit organisation play a pivotal role in the organisation’s sustainability. This is achieved by careful planning, both short and long-term, as well as ensuring that resources are being administered and used effectively. Clearly, this is indicative of the importance of the decision-making role Non-profit boards hold. 
In order to make informed decisions the Boards rely on financial reports and in many cases usually they are presented  with the same reports that are used by management and the finance office. Being able to interpret financial reports is dependent on the expertise of the board members.

A board with limited financial or accounting experience may face challenges to make informed decisions if they are given a set of financial statements comprising; income statement, balance sheet and cash flow statement without any guidance. 
When reporting to Boards it is key to make sure that you provide information that is of use to them. If we look at the income statement for example, the normal income statement that makes up the annual financial statements might not contain the details that the Board might need. It is thus important to ensure that the income statement provided includes: 
•    A comparison of consolidated actual vs the consolidated budget. 
•    A breakdown of the income to show the source . 
•    The income statement can even be further shown per donor, per department, per programme, per month and year to date.
•    A variance analysis with clear explanation for any significant adverse variances.
•    Trend analysis- comparing current year to prior year and giving explanation for any significant movements.
•    A breakdown to show whether income is restricted or unrestricted 
•    Different ratios that analyse the income further for example, donor dependence ratio. 
•    A narrative report explaining all the different components and highlighting key areas the Boar should look out for. \

This is just an example of how an income statement can be presented to the Board to aid their understanding and equip them to make informed decision around the management of   income  received by the Non-profit.

By  Cheryl Musumha
Financial Management Consultant Trainee
KFM Consultants
www.kfmconsultants.com