Board Member Perspective – Signs that the organization may be toxic

Have you ever sat at a board meeting with a feeling that the Executive Director may be exhibiting unstable behavior or may be running the organization into operational or financial instability? I’ve learned to trust those feelings and to follow them up with requests for information. You may be surprised at how many times your suspicion leads to significant findings. But how do you follow up?

From my perspective, I have seen many times how the Executive Director’s management decisions creates instability which inevitably translates to financial problems. The auditors may not include these areas in their audit and may not address practices that can lead to financial instability.

However, there are two teams within the organization that are aware of many of the unwise decisions and activities and who have a wealth of unbiased information that you can request to start gaining a more comprehensive understanding. The finance team and the HR team come in close contact with management’s thought process and decisions and to what extent they stretch the legality or ethical comfort levels. Contact both of these teams to gather information directly from them. My favorite schedule is the following:

  1. Request a detailed list of personnel changes during the year: salary increases, bonuses, hirings, and terminations (including cause). Absent a logical reason, a very active list is likely to be a sign of problems. Were these salary increases approved by the board? Is the same person receiving more than one increase in the year? Who receives a bonus and why? Repeated bonuses for one person? Why are so many staff leaving at-will or being fired? Issues with the management style of the Executive Director will first show up with constant staff turnover. If management is creating a toxic environment, people will get sick, projects will fail, the best employees will quit and the organization will suffer tremendously.
  2. Ask for the Executive Director’s timesheets or ask about his/her absenteeism, whether recorded or not. We were recently working at an organization that had a Director who would be absent without letting anyone know, call in sick for weeks at a time, leave in the middle of the day without any notice and unable to attend scheduled meetings. Not even his closest assistants knew how or where to find him. He was creating an environment of uncertainty among his team.
  3. Ask about the rotation of financial service providers or HR service providers. If these two functions are outsourced, there may be reason for concern if the Executive Director switches companies regularly or out of the blue decides that the outsourced provider needs to be changed. These are positions that deal with a lot of legal and ethical requirements. Is the Director changing these providers because he does not want to hear “that cannot be done, its not legal (or ethical)”? If there was a recent change, reach out to the provider as part of your fiduciary duty and ask what prompted this change. You may be surprised with what you hear.
  4. Visit employee review websites like Glassdoor or Indeed to check out the reviews on this employer. I was very skeptical about this review process and how it may attract only disgruntled employees. But after seeing with my own eyes the situations that were described in the commentaries, I think they need to at least be considered.

Being on the outside of an organization, providing financial services and advice, I have been in the position at times of wishing a Board member would reach out to me to ask a few questions. My concerns may not rise to level of alerting the Board of potential fraud, but if I was a Board member, I would definitely like to hear about the reckless decisions and attitude of constantly pushing the legal and ethical limits that may lead the organization to a crisis.

Case Study on a Federal Award Recipient

Recently, we were engaged by a nonprofit organization to help them during a significant finance team staffing shift. In addition to replacing their CFO to complete their 4-person finance team, they were also in the middle of a very rigorous Single Audit and needed an outsourced CFO to step in and help get them through the transition.

What we found – The most urgent matters were overseeing the Single Audit, continuing to make timely federal draws, and submitting required reports based on accurate information. This is where we hit several roadblocks. The audit was delayed because the auditors found issues including expenses that should not have been directly charged, timesheets that were corrected on paper but not in the system, and grants that were overspent on budget line items. These same problems were clouding the organization’s ability to support their federal draws and as a consequence, they had cash flow problems. The uniting thread with these issues was the lack of clear and efficient systems.

First changes – Once we got through the audit, with several findings and material weaknesses, we improved the organization’s core accounting system. We switched them to an online accounting platform that gave necessary access to the program directors to detailed reports on their grant spending as compared to their most recently approved budgets. Before the switch to the online bill payment system, vendor bills were regularly changed to grants without the director’s approval and they would only find out about these changes if they asked for a detailed excel spreadsheet. After the transition, directors could drill down to expense line items to understand the individual transactions that made up the totals, and could use the reports to monitor spending as they reviewed and approved vendor bills. The initial result was that a lot of vendor bills were denied because they had not been approved in the budget. Finally, we migrated the organization’s excel spreadsheet timesheets to an online timekeeping system that tracked the hours each person had budgeted under each grant and how much time they had left after charging their time to the grant. This helped the directors monitor who charged the grant so they could plan to end the grant within their approved budget. These initial changes organized and clarified the flow of financial information. It gave access to the directors so they could properly manage the financial side of their government grants.

Organizing the flow of programmatic compliance – As we navigated the financial system transition, we noticed inefficiencies and roadblocks in programmatic compliance as well. The program directors and the executive director had a sense of this, but there was a lot of finger-pointing and critical project tasks were not being completed on time or at all. Our second step was to create programmatic systems and processes and expand policies and procedures to make sure everyone knew what needed to be done, the date by which it needed to be done, and who was responsible for doing it. With basic adjustments and comprehensive training, the organization was better able to meet project deadlines and complete project deliverables.

Training – The program directors play a very important role in ensuring that the organization is complying with the programmatic and financial requirements of each award. Once updated systems, policies, and procedures were developed, we crafted simple yet comprehensive training for program directors.They responded well to established order, a clearer sense of their responsibility, and consistent accountability. Once we set clear expectations, gave program directors the tools and support needed to meet those expectations, not only did the program directors deliver, they appreciated having more control over the entire process of the grants they were managing.

Running smoothly – These changes take time, particularly when you are dealing with initial fires to put out. After a year and a half, the systems were producing consistent results, budgets that were being met, not exceeded, reports sent in timely and accurately, and Single Audits that listed no findings or weaknesses. The program directors were better equipped to manage their grants and apply for new grants.

How we saved them money and gave them peace of mind – Initially, the financial team consisted of four staff, including the CFO. Within a few months of our engagement, the two finance team members left their positions. The staff accountant had been eager to get back to his real estate roots. The accounts payable and payroll clerk was much more interested in the community work that organization was engaged in and was moved to another position where she flourished. The accounting junior was ready to take on more responsibilities so she was trained in the more efficient online bill payment system, with time remaining to learn payroll and continue working with receipts and deposits. Our firm took over the comptroller and CFO work saving the organization 30% of the total finance department cost and adding the unforeseen benefit – their operations would no longer be disrupted by sudden changes in personnel. For any executive director who has had the unfortunate situation of finding qualified personnel to replace their finance team, that confidence can provide much needed peace of mind.

Board Member Perspective – Questions to Ask When Reviewing an Audit

Question of an Audit

You are presented with the financial statements prepared by auditors.  Do you know what questions to ask? What will the auditors tell you only if you ask?  The process of auditing the financial statements of an organization is quite invasive not only on the transactions and balances that make up the financial statements, but also on the processes and controls of the organization. Asking a few questions can give you valuable insight on the audit report, and on how the audit was conducted. Of course, we begin with reviewing if there is an unqualified or “clean” opinion.  Otherwise, most of your discussion with the auditors will revolve around the reason for the qualification.

On the Statement of Financial Position – Is there a liability amount that the auditors believe the board should discuss further or about which they should ask for more information?  Are there suggestions for containing or reducing some of the liabilities that management and the board should consider? Is the make up of net assets a healthy mix?  Should the organization increase the net assets without donor restrictions? Does the organization have sufficient reserves?

On the Statement of Activities – Explain the results of each column and what it tells about the operations of the organization.  Does the organization have sufficient restricted net assets for future funding based on the type of funding that the organization is reliant on?

On the Statement of Cash Flows – What does this statement tell us about the organization’s cash flow situation?  Does it appear to be generating sufficient cash flow for its operations or are there issues with collecting receivables?

On the Statement of Functional Expenses – What method is used for allocating expenses and is this a reasonable method used by other organizations?  Is the organization recovering its indirect expenses? Is the management and fundraising expense reasonable for an organization this size?  What are the programs that have the highest expenses and are these in line with the board-set priorities? If the statement does not break out the individual programs, ask why.

On the Footnotes – Are there any footnotes that are most worrisome to a reader?  Explain the footnotes that may have financial implications that are not reflected in the financial statements themselves (such as pending litigation).

On the Management Letter (even if none is presented) – Was there an item discussed with management that could have made it to the management letter, but did not?  If there is no management letter, are there areas of improvement that the auditors can suggest?

On the overall audit process – What audit adjustments did you make and did their nature and amount concern you in any way? Were there any management practices that you found unusual, but not worthy of noting in the reports?   Were there any delays in the audit caused by management?

Use these questions to guide you through the review of the audit report and you will walk away with a better understanding of the organization on which you serve.  

Board Member Perspective – Financial Information to Review

Financial Information

If you belong to more than one nonprofit board you may have noticed that each one may present a somewhat different set of financial information at board meetings.  Do you know what is the appropriate information to present and examine? In order to comply with your fiduciary duty, you should be presented with complete, accurate, and timely financial information.  But how do you know that is what you are receiving?

Timeliness – Propose to the board secretary that meetings are set after the closing of each fiscal quarter. This allows sufficient time for management to prepare a set of financial statements that reflect the activity and position through that fiscal quarter.  The board should be reviewing financial statements at least quarterly and it makes most sense to review three months at a time.

Accuracy – Are the financial statements prepared on the accrual basis of accounting?  You should request that they are since that is the most accurate representation of the organization’s activities and financial position.  Are there closings and reconciliations done for each major account in the financial statements?

Completeness – Accounting has two sides and each side needs to be presented for a complete picture.  The Statement of Financial Position (equivalent to the Balance Sheet) presents the position of assets, liabilities and net assets (equivalent to equity) of the organization.  The Statement of Activities with columns for each net assets with donor restrictions and net assets without donor restrictions should present the results of activities for the year-to-date.  Beware of Profit & Loss reports without columns for each class of net assets since it does not present a full picture. For organizations that do not have donor restrictions, the statement can contain only one column but make sure it states that it only represents net assets without donor restrictions.  If you are presented with only one of these statements, you may not have important information to discern problems present on the other side. If you are presented a Profit & Loss without these columns, you may be given a skewed view of the results of operations. For example, if the organization just booked a multi-year grant this year, the statement shows a healthy profit as a result, hiding an operational deficit.

Accountability – Insist on reviewing a budget to actual report and on having explanations for the line items with variances of over 10%.  The budget approved by the Board is the roadmap for the organization’s management and you want to monitor that this is properly followed.  

Dashboards – Dashboards can be presented, but should not be considered as replacements for the basic financial reports listed above.  They can enhance the presentation, but do not replace the breadth of information provided by a full set of financial reports.

Even if you do not fully understand the financial statements, receiving a complete set at each meeting promotes accountability and if necessary, allows you to consult with a professional for an opinion on potential issues or the general financial health of the organization for which you have a fiduciary duty.

News Release: Accomplished Local CPA Will Instruct Class at Prestigious National Conference

Maribel Torres will instruct Dissecting the Non-Profit Vertical for Client Accounting Services at the AICPA and CPA.com’s 2014 Digital CPA Conference

Chevy Chase, MD—December 2, 2014—The CEO/Director of Client Accounting Services of Lumix CPAs and Advisors, Maribel Torres, will be teaching a class on client accounting services at the Digital CPA Conference, December 8-10, 2014. The event is hosted by CPA.com and the American Institute of CPAs, the world’s largest member organization representing the accounting profession. Ms. Torres is a member of the Advisory Board for CPA.com and the AICPA’s Digital CPA Conference.

Ms. Torres, the founder of Lumix CPAs and Advisors, is an expert in nonprofit accounting. When asked about instructing a class at the Digital CPA Conference, she replied, “I’m eager to empower CPAs and nonprofits for the digital age. One of Lumix’s core values is to be on the cutting edge of technology—this is part of our brand. We want to help other accounting professionals move forward, and this class will help us achieve that.”

The class is focused on how a firm can achieve a sustainable profit margin within the nonprofit vertical market. In addition, Ms. Torres will be a panelist on the final plenary session of the conference, “Bringing it all Together.” Panelists will “share their strategies and ideas for continuing the evolution of their career and their organization…” Tom Hood, CEO of the Maryland Association of CPAs, will be joining her on the panel.

The Digital CPA Conference will feature the best and brightest minds in the digital accounting industry. With three information-packed education tracks, attendees can learn the technical, business and leadership strategies needed to operate a digital firm, achieve higher engagement with staff and clients and develop a sound, structured plan to ensure success.

About Lumix CPAs and Advisors

Lumix CPAs and Advisors focuses on accounting digitalization, client accounting services, financial statement preparation, taxes and CFO advisory services. The firm has been recognized by the American Institute of Certified Public Accountants (AICPA) as being a leader in the CPA field. The firm predicates its success on award-winning client services.

In Search for Balance & Purpose, Part II

So your books are balanced.  In fact, you have supported the major balances in your balance sheet and have traced the activity in your statement of revenues and expenses.  The reports are ready to be published.  Now what?  What is the purpose of these historical reports?

In my first article, I presented my opinion on balance and argued that it is simply a part of a larger process that leads to well-presented reports and financial statements.  In this article, I discuss the purpose and objective of these financial statements.

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In Search for Balance & Purpose, Part I

We are constantly looking for balance in our lives.  Balancing work and family is a popular concern, as is balancing our investments or even balancing our diets.  Can anyone ever claim to have successfully achieved balance in these areas of their lives?  Once we achieve it, can we maintain it? And then, how do we use it?

What about purpose?  Is there a purpose to everything we do, and can we successfully argue that our true purpose is ever-changing?  In this first article of a two-part series, I will give you my opinion on the value of balance in accounting, and in the second article, I will explore the higher purpose of accounting.

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Board Responsibilities and Liabilities

I recently attended the BoardSource Leadership Forum called Governance by Design as an exhibitor.  The classes were created to provide information to CEOs and Board members. I attended with two objectives in mind: My objective as an exhibitor was to meet potential clients. My objective as the treasurer for a non-profit organization was to learn from the classes.

I have attended many other non-profit leadership classes and found that there are a few central themes in regards to becoming or serving as a board member—understanding the responsibilities and risksof being a board member.  Many individuals are asked to join a non-profit board as a favor to a friend, while others look for organizations to lend a hand for a cause they want to support or possibly as a requirement of their job. In this blog, I’ll discuss why board members of non-profit organizations should know their responsibilities and risks before they accept a position. This will allow them to swiftly adjust to their board position and serve the organization accordingly.

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Learn It Here, Apply It Anywhere

When I accepted the job offer from Lumix coming out of college, I was a bit nervous to change industries—my internships were related to politics, media, and outreach. Simply put, none of the outlets I worked at were CPA firms. I quickly realized the skills I would learn here are transferable and that a successful CPA firm has more than just accounting knowledge to offer. To any readers wondering if an industry change could benefit your career and make you a better professional: It absolutely can. If you are willing to adapt and your employer is willing to cultivate talent, dividends will show. I promise.

In a previous blog post, I discussed my development of professional skills while at Lumix. I will use these sharpened skills to improve every endeavor I embark upon. These aren’t skills to put on a resume; rather, they are skills you use togrow and facilitate goal achievement, both personal and professional.

This blog post is about my transferable skills, or skills I could seamlessly apply to another industry. Specifically, what are the most significant and tangible skills I’ve learned here so far?

Needless to say, a growing CPA firm like Lumix would give any young professional the opportunity to learn a collection of applicable skills. As long as you’re willing to learn, the environment and people will make you a better individual, holistically and on paper. These three vital skills I’m developing at Lumix will be applicable to any career:

Taking Care of Clients: Any company can mention on its homepage that clients come first, but in my short time here, I’ve noticed that Lumix’s treatment of clients is based on service, not just support. The client is the director, top-billed actor, and the supporting cast—they run the show, and Lumix helps them succeed every step of the way. I’ve learned how our firm supports clients by providing innovative solutions, adjusting to their deadlines, and staying two steps ahead of problems. Our team moves one way and one way only—toward the clients’ goals.

Being a part of Lumix’s client service is akin to a rookie quarterback learning from Peyton Manning. I know how the best take care of business, so when it’s my turn to step up and take charge, I’ll know exactly what to do.

Learning New Technology: The running joke between our company president and me is that I, a millennial, am fully cognizant of emerging fashion trends, and new cultural shifts. While my youthfulness keeps me connected to pop culture, I still have much to learn about new technology in the workplace. Lumix thrives off the cloud accounting model, which makes client work secure and efficient. When I began my work at Lumix, I had no idea that major accounting work could be performed on the cloud.

Six months later, I am learning how to use Intacct, Expensify, and Bill.com. These apps have expanded my palate for new technology. These apps also help me realize (and appreciate) the fact that even a millennial needs to learn and keep up with new technology in 2014.

Developing a Program: When I started at Lumix, the team did not have a new media program. During my first three months on the job, I quickly learned how to set up the program within a chain of command. We formed detailed workflows, visuals, calendars, and checklists to make sure our social media, blogging, and newsletter tasks are completed and the loop is closed. More importantly, a clear and stratified new media program allows team members to quickly identify where things go wrong; organization makes sure mistakes aren’t made twice.

Now, we are forming a vlogging operation and hope to be among the first CPA firms to further embrace the digital landscape. Vlogging will add another layer to our operation without complicating things. After setting up the new media program at Lumix, adding layers to different facets of my life is no longer challenging. Managing student loans, jiu-jitsu practice, and leisurely writing are no longer time restraints; they’re simply layers I add to my daily ventures.

To observers, a digital CPA firm may be an unlikely outlet to teach its team members transferable skills. From the inside, I’ve learned that many of my tasks cultivate holistic and transferable skills. This had made me a better professional, and just as important, a better student of life.


Jason Patel is the digital media and administrative assistant at Lumix CPAs and Advisors. He is a graduate of the George Washington University and currently studies political management. He is a Brazilian jiu-jitsu player, outdoorsman, and aspiring entrepreneur. You can add him on Facebook, follow him on Twitter, or view his profile on LinkedIn.    

Little Fish in a Big Pond: Controlling Your Nerves at a Networking Event

Networking at a big event can be a daunting task, depending on who you ask. For the new guy, it can be quite the obstacle.

Imagine my surprise when my supervisor told me that I, the new digital media assistant, would be attending the CEO Updates/Leading Authorities Association Leadership Awards with our firm’s senior management. Not only was the event’s guest list replete with accomplished professionals, but our firm was also taking its heavy hitters to the venue. I was a little fish in a big pond in a big ocean.

Continue reading “Little Fish in a Big Pond: Controlling Your Nerves at a Networking Event” »