The objective of monthly financial reporting is to provide information about the financial position of an organization, including performance and changes. Financial reporting provides useful information to a wide range of users such as:
- Program Managers who require monthly financial reporting to manage the expenses of the program and to ensure there is enough funding to carry out the purpose of the program
- Board Members who use financial information while managing the overall operation of the organization as well as planning for future programs. Board Members are required to receive monthly financial reporting to ensure the organization properly reports expenses and revenue and programs are meeting performance standards
- Grantors use financial information to decide whether to fund a grant application. They asses the financial health of an organization, looking to ensure their investment is a good use of funds
What is included?
Generally, the Financial Accounting Standards Board (FASB) recommends that nonprofits establish procedures to prepare and review the following reports on a monthly basis:
- Statement of Financial Position (Balance Sheet)
- Statement of Activities
- Statement of Revenue and Expenses with a budget comparison
- Statement of Cash Flows
Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP).
There are a few steps to follow when creating monthly financial reports. First, make sure your accounting system is set up properly. Part of the discovery process when NFP Partners starts an engagement is to review each client’s monthly financial statements. This review gives insight into the current financial health of the organization and provides input to the organization’s procedures for month-end. We review the Chart of Accounts to understand the general ledger and the ability to track and report programs and funding sources.
Second, a month-end procedure should be followed so all expenses and revenue are recorded to reflect an accurate picture of the activities of that month. This should include a review of the monthly general ledger to ensure proper coding of expenses and revenue to GL accounts, reconciliation of the bank statement, and review of aging reports (AP and AR). FASB made some significant changes to the way Net Assets are recorded starting December 15, 2017. See here for more information.
Third, review the Balance Sheet and Statement of Activities as a whole. This review gives insight into the organization’s financial position for that month. Compare the reports to last month to see which balances went up and which ones went down. You’ll also want to compare the budget to actuals year to date. Use this information to analyze if the organization is following the budget or over-spending or under-spending. Don’t just report or analyze the data, DO SOMETHING with the information you gained.
Financial monthly reporting provides information for organizational leaders to make economic decisions about how to distribute scarce resources. Organizations do not plan to generate a profit, but rather, intend to generate revenue to invest back into their organization to continue serving the mission so every dollar counts!
Director of Business Development,