Presenting financial reports.

Like many association board members, most of the 20 members of the board of directors of the National Spa and Pool Institute (NSPI), Alexandria, Virginia, perceive financial information about our organization as necessary but certainly not exciting. Most of our board members - pool and spa retailers, builders, and service companies - don't have financial backgrounds. As NSPI's director of finance and administration, my goal is to inform and educate our board members in an easy-to-understand format about the association's current and projected finances.

Many associations, including NS use treasurer's reports to relay financial information to their board of directors An association's finance director, chief executive officer, and elected treasure typically choose the type, amount, an format of information to be presented. At NSPI, for example, I prepare a page treasurer's report-which include an executive summary report, a projected year-end financial statement, a current balance sheet, a reserve analysis, and narrative explaining significant budget variances - prior to each quarterly meeting. Next, we walk through the report and I try to give our chief executive officer and treasurer as much information as possible so that they are prepared t answer questions raised at the meeting.

About a month before the board o directors meeting, we send the treasurer's report to board members so that the can review the information and not questions and concerns. NSPI'S treasurer's report is successful because it is carefully tailored to the board's characteristic and needs. Likewise, your report will be most useful if you carefully match it to the needs of your board.

Type of information

The financial sophistication of your board determines the kind of information to include in your treasurer's report. For example, the type of financial information presented to NSPI'S board members varies greatly from that given to board members at the American Institute of Certified Public Accountants, New York City. Although NSPI provides detailed information, AICPA's board is more financially sophisticated than NSPI's board and requires a more-in-depth approach to presenting financial data. Here are the three types of financial information you can present to your board.

Current-year information shows the revenue and expenses of an association for a specific fiscal period - monthly, quarterly, or yearly - and may include a statement of revenue and expenses and a balance sheet. The purpose of the report is to show an organization whether it is making or losing money.

Associations experiencing rapid growth or those that don't have a traditional itemized budget use current-year reports. Small associations often use current-year financial reports because board members work closely with staff and have a good understanding of the organization's financial condition. They understand such financial indicators as revenue from previous years, expected annual income, upcoming expenses, and so forth.

Generally, an association's finances are directly linked to its annual budget - a detailed plan for recognizing revenue and expenditures. An association usually compares its current financial statements to a preapproved plan to make sure it is meeting the revenue and expense goals set in its budget. That is known as presenting current-year-versus-budget information.

NSPI uses current-year-versus-budget information - a barometer of whether the association is staying on its plan. NSPI board members receive quarterly reports of budgeted funds available, budgeted funds spent, and the rate at which the funds were consumed. Our board sees how successful a particular program was by comparing its current revenue and expenses against what NSPI budgeted.

Although current-year-versus-budget information proves useful for associations that strictly adhere to a budgeting process, it doesn't address the effectiveness of spending. This method only shows that your organization stayed within budget - not how effectively it spent money or its spending trends.

Current-year-to-prior-year information enables an association to see increases or decreases in expenses and revenue compared to previous years. The multiyear report is beneficial for organizations experiencing rapid growth or implementing the same programs or services annually. If you have the same programs each year, you can develop a financial history of the program - expected profit or loss - by comparing the information to its previous financial history.

NSPI doesn't use this reporting format, in part because the association continually adds, changes, and drops various programs and services.

Level of information

Once you have determined the type of information to give to your board of directors, you need to determine how much information to give to them. Do you want to provide them with details about every financial transaction your organization made or would a summary suffice? NSPI uses different levels of information for different purposes. For example, NSPI often uses executive summaries to explain the finances of a program or service that doesn't generate much revenue. Likewise, NSPI uses complete accounting, program/project accounting, or ratio analysis - more detailed levels of information - for major income generators, such as its annual convention.

Executive summary. The executive summary typically only discusses major highlights or significant variances - changes in reserves or large changes in income and expenses - that have occurred within an organization. Summary reports often address changes in major income sources - such as membership and convention revenue - and how they relate to various programs or projects. The report doesn't detail specific expenses but groups them into the program or project area they fall within. Generally, NSPI doesn't share every line item for overhead expenses - telephone, delivery, and so forth - with its board. Instead, all of the expenses are grouped under one individual line - overhead expenses.

NSPI also uses executive summary reports when it reviews year-end audit reports. The summary enables board members to compare current-year ending figures to prior-year ending figures.

NSPI also uses executive summaries to explain the expenses and revenue generated from its annual convention. Our board members don't want to see a detailed account of our expenses - that we spent X on signs, X on photography, and so forth. Thus, the executive summary doesn't list every line item of expenses and revenue but shows the bottom line.

Associations with large boards often use executive summaries, because the financial information is presented in a concise format and doesn't bog down board members with minute details.

Complete accounting. Complete accounting enables board members to review all of the organization's financial statements. This open level of information, presented properly, gives board members greater confidence in your reporting system.

NSPI uses a complete accounting report when it does its budget, because we want every board member to know where we plan to spend every penny. And by giving them a complete accounting, it conveys the fact that NSPI has nothing to hide. Small associations, which lack the staff and internal controls necessary to provide comprehensive and accurate financial statements, often use this method. I don't recommend this financial openness for large boards or boards that are not focused on common goals.

Program/project accounting. You can use project accounting - compiling information based on specific projects or programs - in combination with an executive summary to highlight specific results. NSPI, for example, accounts for its transactions in seven primary program areas, each managed by a staff director. Within each of these seven areas, there are three to five subprograms or projects that have separate budgets. NSPI'S exposition, which constitutes a majority of the funding within the convention department, is only one project within its convention program area. Each year following the national convention, NSPI provides its board with a financial income statement on the profitability of the national exposition.

Associations having one primary project and several other smaller projects will find this form of reporting useless because a majority of the activity would only be attributed to one source.

Ratio analysis. A ratio analysis - a comparison of an organization's operations with prior-year or industry-average ratios - may highlight income earned from nondues sources, expenses attributable to salaries, or total assets held as reserves. NSPI, for example, compares its sources of income and the percentage of budget spent on salaries - in ratios - to other associations of similar size.

Though ratios may appear difficult to understand, they are the best method of understanding the financial health of an organization. By comparing one association to other associations, your board sees the strengths and weaknesses of your organization. A ratio analysis also allows board members to clearly see trends over several years without being deluged by volumes of reports.

Presentation of information

Here are the most common methods of presenting financial information from your treasurer's report.

Slides. Keep one rule in mind when preparing slides for your presentation: Keep them simple. Viewers understand financial graphs or charts when they are limited to one topic or issue and contain few words. Using impact words such as profit, loss, and breakeven will get your point across immediately. Small changes - varying colors, type styles, format - will also hold the attention of your board members.

Slide presentations are most effective when explaining your executive summary to large boards of directors, because they enable you to show specific highlights. NSPI doesn't use slide presentations, because its board generally requires more detail than can be presented on slides. And NSPI board members often ask numerous questions that may interrupt and sidetrack a slide presentation.

Overhead projectors. NSPI uses overhead presentations at every board meeting. The association has found that an overhead projector enables the presenter to highlight specific financial areas without feeling forced to move on to the next slide. Overhead presentations are best suited for small to medium-size boards, whose members often ask a presenter several questions during a presentation. Graphics software and a copy machine can produce outstanding overhead charts and graphs, making it an inexpensive but effective presentation method for associations.

NSPI, for example, prepared a graph that illustrated the effect of long-term deficit spending. The graph - presented to NSPI's board - showed that the association would not have reserves or equity by 1998 if it continued to spend money at its current rate. The presentation convinced NSPI board members to implement and achieve a balanced budget each year.

Paper reports. Preparing reports on paper is still the standard method of presenting financial information. The information - usually provided up to a month before the board meeting - gives board members time to review the data and formulate questions.

The means of conveying financial data is up to the association's finance director, chief executive officer, and elected treasurer. Ultimately, the type, amount, and format they choose will assist board members in making faster, better informed decisions about the association's finances.

Ratio Reference

Association Operating Report, Eighth Edition, contains income and expense information from associations of all types, sizes, and scopes. You may use the data to determine where you stand among similar organizations. Priced at $65 for members and $100 for nonmembers, it is available from ASAE Publications, 1575 Eye St., N.W., Washington, DC 20005. Or fax your order to [phone]. Add $5.25 for shipping and handling. Washington, D.C., residents add 6 percent sales tax.

Robert J. Glaser is director of finance and administration for the National Spa and Pool Institute, Alexandria, Virginia. He is a member of ASAE's Finance and Administration Section Council. For more information on related topics or ASAE's Finance and Administration Section, call Wayne Miller, [phone].