Management and Leadership in Nonprofits

 

Why having updated financial policies and procedures matters

May 19, 2020
By: Katherine Eilers
Why having updated financial policies and procedures matters

This is quite the operating environment for grant-funded organizations, with many looking back trying to determine how they made it to this moment.

As organizations swiftly shifted to virtual-based operations due to COVID-19, questions arose regarding how staff should be paid, how approvals would be obtained, the type of costs that could be paid to support a virtual operating environment, and more. As we were contacted with these questions, our initial response was to ask what was stated in the organization’s policies and procedures manual. Although the lack of a policy or procedure does not always mean a cost cannot be incurred or a procedure cannot be changed, it does mean there is a lack of guidance for decision-making, a risk of possible questioned costs, and possible processing inefficiencies, to name a few.

The financial policies and procedures – and other policies and procedures – of the organization should be designed to clearly state what the organization does (policy) for important functions and how it will be done (procedures). In a time of crisis, the clarity of these manuals allows for efficient transitions to accommodate change and immediately address employee and operating needs. The board of directors and management do not wish to invest precious time and effort in writing a new policy or updating a procedure to ensure staff can be paid for working remotely or to communicate how services will continue to be delivered to the community if staff is no longer onsite.

How does an organization ensure its policies or procedures provide enough information without being too vague and risk asset loss as a result of wasteful or abusive practices? It is not administratively practical to have documented policies and procedures for every potential situation or circumstance. The cost to write, review, update, and implement an all-inclusive manual will far outweigh the benefit. Alternatively, it is not best practice to write policies and procedures that cover only the minimum requirements.

When updating the manuals, we recommend starting with the biggest policy and procedure hurdle the organization faced during the COVID-19 crisis. Consider how the organization ensured continued service, while staff were transitioned to another work location. How were purchases made and approvals obtained? How was the disbursement of funds completed if checks are typically printed and manually signed? If the organization faced a slow down when responding to operational changes because it did not have a clear policy in place, write the policy now.

What else should be included or updated in the financial manual? If the organization receives federal grant funding, review those regulations (Uniform Guidance). There are specific regulations that identify when written procedures are required, such as procurement procedures and maintaining written procedures to minimize the time between receiving and disbursing funds for cash advances.

Next consider the type of costs typically incurred by the organization. There are specific costs identified in the federal grant regulations that are allowable to the federal grants if the organization has a documented policy, such as fringe benefits and travel costs. In a previous article on documentation, it was addressed that one of the key factors of allowability is that the cost be adequately documented and an essential piece of this documentation is the organization’s policies and procedures.

And do not forget about internal controls. One of the main components of internal controls is information and communication, which includes the policies and procedures manuals that inform and communicate how the organization safeguards its assets, even during a crisis.

As the organization updates its manual, consider the manual from the user’s perspective. The organization staff will use it to understand and implement adopted policies and procedures and auditors and monitors will use it to guide testing. The manual update is an ongoing process, with best practices, improved efficiencies, and modernized procedures. Understand that the Board’s approval of the freshly updated manual is not the completion of the process, but the beginning of the next update.

Author(s)

Katherine Eilers, CPA
Manager
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