The Role of the Board Treasurer
In the attached pages, the role of the Treasurer is outlined as follows:
Report on Year's Budget (Y.T.D. minus B.T.D. = Variance)
In the case of smaller associations, the duties of Treasurer may be combined with those of the Secretary. If this is the case, the individual holds the title of Secretary/Treasurer. However, in the following pages, only the Treasurer's specific responsibilities will be discussed.
In addition to being a critical role for the association and the Board, the Treasurer's role can be difficult because of its technical nature. Often, non-financially trained Board members leave all responsibility for finances to the Treasurer, preferring not to try to figure out what all the numbers mean. This means that the Treasurer not only has to take primary responsibility for finances, but also has to educate sometimes unwilling Board members about what the finances mean. Leading the Board is an important task the Treasurer must perform.
Since the Treasurer is ultimately responsible for the finances of the corporation, the Treasurer should keep neat and accurate records and pay attention to detail. She should be available so as to handle transactions on a timely basis and should not be afraid to ask questions.
Further information on the Treasurer's responsibilities is contained in the following job description.
1. Carries out the responsibilities of a member of the Board of Directors.
2. Assists in the preparation of the budget.
3. Monitors the budget.
4. Ensures the Board's financial policies are being followed.
5. Reports to the Board of Directors and general membership on finances.
6. Prepares any required financial reporting forms.
7. Maintains all bank accounts.
8. Oversees all financial transactions.
9. Treasurer's signature should appear on all cheques of the organization with the second signature from any of the board's other directors or staff with signing authority.
9. Chairs the finance
As is stated in the job description, the Treasurer is first and foremost a member of the Board. This means that the Treasurer is responsible to the members (as with every Board member) and to the funders for the funds received and spent by the association.
The assumption in this job description is that the Treasurer takes a "hands-on" role with respect to the association. A hands-on Treasurer should go through a monthly routine which would vary depending on the level of involvement. At the very least, a Treasurer should meet with the staff person on a regular basis to go over invoices and cheques, to review the bank statements, and to monitor the preparation of monthly statements for the Board.
If the association has a Treasurer, a bookkeeper and an auditor, the functions of each can become quite confusing. The following chart outlines the roles of each of these individuals.
One of the most important responsibilities of the Treasurer is to monitor the budget. Keeping track of income and expenditures is one thing; keeping track of the budget is another. The Treasurer needs to inform the Board on a regular basis as to whether income and expense projections are turning out as predicted. If not, the Board needs to make the appropriate adjustments.
The Treasurer also takes a lead role in the preparation of the budget for the upcoming year. By developing a balance sheet to assess the financial health of the association, and by analyzing the current budget and comparing it to the last budget, the Treasurer, along with the staff person, should be able to develop a budget that can satisfy the needs of the association while being fiscally responsible.
One of the keys to understanding the financial position of the association is to gauge the association's financial condition at a specific point in time. The following chart is a balance sheet which reflects the association's overall financial condition. It shows how much the association has (assets), how much it is owed (assets) and how much the association owes to others (liabilities) at a given point in time. Assets minus liabilities indicate your equity. A balance sheet, then, is a snapshot of your financial condition at any one time. The Treasurer needs to prepare a balance sheet like this before developing a budget for the next fiscal year.
Preparing a balance sheet
The Balance Sheet provides a "snapshot" of the organizations financial standing at a specific point in time. All of the assets, liabilities and the fund balance or net worth are listed. The Assets section is listed first followed by the Liabilities and Net Assets section. Assets should equal the Liabilities and Net Assets.
Included under the Assets section are Current Assets and Fixed Assets. Current Assets are cash-related items such as the ending balances of all checking and/or savings accounts as of the date the Balance Sheet is prepared. Amounts owed to the organization or accounts receivable (dues owed but not yet paid if accounting is done by the accrual method) should be included in the Current Assets section as well. Fixed assets such as equipment that is owned by the local, buildings, etc. should be listed in the Assets section under the heading Fixed Assets. The Current Assets along with any Fixed Assets make up Total Assets.
The other major section of the Balance Sheet is the Liabilities and Net Assets section. Liabilities are the debts that are owed by the organization. They include amounts owed for items purchased on credit (accounts payable), salaries owed to employees but not yet paid, per capita owed to affiliates and taxes or loans that are also payable.
The Net Assets section refers to the combination of Unrestricted, Temporarily Restricted and Permanently Restricted Assets. The difference between the balance(s) at the beginning of the period in the checking and/or the savings accounts and the balance(s) stated above in the Assets section is calculated and listed as the Unrestricted amount. Assets that are being held for a specific purpose or are under the control of outside donors are considered either permanently or temporarily restricted. If the balance(s) at the end of the period is more than the beginning balance(s), the result is a surplus. If the opposite is true, then the Balance Sheet will reflect a deficit. The Total Liabilities along with the Total Net Assets should equal the Total Assets amount. This figure would be depicted at the bottom as the Total Liabilities and Net Assets.
Tip: Balance sheets are prepared at regular intervals such as the end of the month, quarter or year. The balance sheet reflects a specific date rather than a specific time period.
Definitions (For Your Info)
Accounts Receivable: dollars due from customers as a result of selling services or inventory on terms which allow for delivery prior to the payment of cash. The transaction exists as a receivable on the balance sheet until cash is collected from the customer (A/R).
Inventory: the goods and materials a company sells to make a profit. Inventory exists in three forms: raw materials, work in progress, and finished goods. In the process of selling inventory, either cash is received or an account receivable is created (INV).
Prepaid Expenses: when cash is used to purchase a good or service, the benefits of which will be realized or received within the current year (12 months).
Net Fixed Assets: Also known as the book value, the net fixed asset is calculated as the purchase price of the asset (gross fixed asset) less the accumulated depreciation (the sum of the annual amounts charged for the "wearing out" of the asset) (NFA).
Notes Receivable: a loan made by the company which is evidenced by a promissory note (N/R).
Intangibles: assets which have no physical properties or "set" values. Examples of intangibles include patents, research and development, and goodwill (INT).
Current Liabilities: what the company "owes" which must be paid within one year (CL).
Note Payable Bank: obligations evidenced by a promissory note from the bank which have maturity dates of less than one year (N/P).
Accounts Payable: amounts due to suppliers who have provided inventory to the company (A/P).
Accruals: obligations owed but not yet billed (ACCR).
Current Portion of Long-Term Debt: the portion of a long-term loan (principal only) which is due within the next 12 months (CDTD).
Long Term Debt: the portion of a term loan which does not have to be paid within the next year.
Staff person: refers to an individual within the organization/corporation employed by the board.
Subordinated Officer Debt: Cash the officers have invested in the company which is subordinated to any bank financing the company has received.
Net Worth: The owner's investment or "equity" in the company which may be either "purchased" or "earned." Purchased equity consists of preferred stock, common stock, and capital surplus. Simply put, the net worth is the difference between the assets and liabilities of a company (NW).
Once the balance sheet indicates the overall financial health of the association at a specific point in time, the Treasurer can begin thinking about the development of the operating budget for the next fiscal year. Once developed, this budget is taken to the board for approval.
As Treasurer, where do you start when trying to develop a realistic budget? Begin by taking a look at the previous year's budget. What did the association actually spend? What do you know about inflation and other factors that will affect the coming year's budget? Does the budget make sense?
It is important to develop a budget with which you can live. The budget you develop will determine for example, the salaries you pay. If you overestimate your income and/or underestimate your expenses, you could be saddling the association and the Board members with debt.
The following chart
provides you with a sample budget. Because it is last year's budget, both
the original amounts budgeted and the actual amounts spent are included.
With this sample, you can get a sense of what needs to be taken into consideration
when you develop a budget.
Not available -- data in tables needs to be converted
Below is an example of how the Treasurer would report on the current year's budget. As Treasurer, you should produce regular statements which show the annual budget, the budget-to-date, the year-to-date actual, and the variance. This will tell you and the Board how you are doing so far this year.
The following points may help you. The variance is achieved by the following formula:
Y.T.D. - B.T.D. = Variance
The Surplus (Deficit)
is calculated by taking the total income and subtracting the total
June 30, 2003
If in the previous example, half way through the year, the association had a deficit, the Treasurer would need to ask whether there is an expectation that this will be reduced over the remainder of the year (and why) or, if not, what can be done to keep it from increasing. At the same time, she should be asking whether the proposed budget for the next year is realistic when compared to how this year is going.
The Treasurer compares these budgets with the proposed budget for the following year and poses key questions for the board and staff to consider.
Salary & Benefits
The Board should receive detailed financial statements on a regular basis, usually quarterly. At the monthly Board meeting, however, the Board usually wants a quick overview of how the association is doing financially. A written version of the Treasurer's monthly oral report to the Board should be included as a section of the minutes and should be circulated to all Board members prior to the meeting.
Monthly financial statements should be presented showing the current cash position and the performance of the association as compared to the approved budget. To simplify matters, many Treasurers use a standard form for their reports which include the appropriate numbers each month. The chart on the next page is an example of this type of form.
On a standard form for the Treasurer's report, two different areas are taken into account.
First, the overall financial picture must be considered. Most associations begin the year with some money in the bank. A picture that just shows the current year's financial activities, therefore, without indicating overall resources, can be misleading.
The first four boxes on the following chart show where the association should be according to the budget, where it actually is, and the difference between the two. Also, any known financial commitments (e.g. insurance premiums paid once a year) should be itemized since they affect the budget. Even though these financial commitments are for the future, the Board cannot accurately gauge the financial situation of the association unless upcoming debts are acknowledged. Appropriate provision for these commitments needs to be made.
The lower boxes, together with the upper boxes, give the Board a good picture of the finances of the association and make for good planning.
Consequently, this form makes the Treasurer's reporting easier.
Assets: Monetary or non-monetary items that represent probable future economic benefits controlled by the association.
Balance Sheet: A statement of financial position showing the assets, liabilities, and equity of an association at a point in time.
Budget: A detailed estimate of an association's fiscal plan of action for the next year.
Capital Assets: This term refers to buildings, equipment, etc. which are not consumed or used up in the normal operating process.
Capital Budget: A fiscal plan for the proposed additions to capital assets and their financing.
Cash Accounting: A method of accounting for transactions whereby the transaction is recorded when cash is received or spent.
Chart of Accounts: A list of all accounts in the General ledger with their assigned account number.
Depreciation: An accounting concept which allocates the cost of a fixed asset as an expense over the expected useful life of the asset.
Donations-in-Kind: Gifts in the form of donated goods or services to a non-profit association.
Endowment Fund: Restricted funds from which only the income (e.g. interest) from investing the principal may be spent.
Expenses: Outflows of resources arising from the operation of the association during a period.
Financial Statements: Normally comprising a balance sheet, a statement of revenue and expenses, a statement of changes in financial position, and accompanying notes.
Costs which do not fluctuate with volume.
Non-Current Assets: Assets which are held for a term greater than a year. Examples include land, buildings, and equipment.
Operating Fund: Consists of unrestricted contributions and day-to-day operating revenues and expenses of the association.
Pledges: Promises to donate funds at a future date(s) to a non-profit association.
Reconcile: To reconcile is to account for the difference between two related records (e.g. account for the difference between the month-end balance on the bank statement and the month-end balance in the accounting records or books of account.
include: income from the sale of goods and services (after deduction of
returns, allowances and discounts); gains from sale or exchange of assets;
interest and dividends earned on investments; and donations and grants.