What’s Going On With The Financials?

A friend of mine is a member of a not-for-profit board; and another friend is an investor in a private equity funded business. Both recently expressed concerns to me that they are no longer being sent monthly financial statements and asked my help.

Here is some of what I told them.

• It is always a good practice to be sent monthly financial statements when you are a board member or an investor in a private business. It indicates transparency, provides accountability and is a mechanism to share performance data. It also assures that the accounting work is current.
• The reports need to be relevant and informative, yet easy to review.
• Changes in patterns should always be a concern, especially when they are not accompanied by explanations.
• Danger signs exist when the reports stop coming, the format changes, supporting schedules do not tie in, spending budgets are being exceeded, revenue budgets have shortfalls or when there are monthly jumps in any line items.
• A bigger danger sign is when management is not responsive to questions or explanations.
• Board members have a responsibility that their organizations are managed properly and, in my opinion, become culpable when they do not act responsibly as stewards for those entrusting them with the positions they assumed.
• Non-managing owners or members act irresponsibly when they do not hold management to minimum standards of care and they likely deserve any losses that could have been avoided by “daring” to speak up.

In my friends’ specific situations, the financial statements stopped, budgeted projects were greatly exceeded, and it appears that in one case a relative’s contracting company was hired to perform the overspent work; and repeated requests for explanations and the continued sending of monthly statements have been ignored. Unless the amounts are sufficiently large, it never pays to seek a legal remedy. An easier way is to notify every board member that they will be held accountable for any misdeeds and if you are a board member, I suggest resigning at that time. If there is a bonding or liability policy, notification should also be sent to the agent. You might also write to the independent auditing firm if there is one.

In many instances people are afraid to cause trouble, do not want to get people mad at them, do not want to upset a “functioning” organization, do not want to bring “dirty laundry” outside the house or expose themselves and others to liability. These are all-natural feelings, but I feel the real instigators are those that are ignoring the reasonable requests.

I also know from experience that the sooner these issues are dealt with and perpetrators confronted, the better it is for everyone. Do something!

A suggestion of a way to proceed is to print this blog and send it to those in charge along with your request and provide a deadline, perhaps two weeks, before you tell them you will proceed further, and then move forward. It is they who shot the first bullet, not you, and you need to protect yourself as much as possible if the situation is still salvageable.

Do not hesitate to contact me with any business or financial questions at [email protected] or fill out the form below.