1. Financial Stewardship For Organizations: An Overview

2. What is “financial stewardship”? Financial Stewardship is the act of taking responsibility for the management of and accountability for the financial and physical resources of an organization. An organization (or individual) should have a carefully defined mission. To fulfill that mission, the organization will rely on a variety of resources and processes. Good financial stewardship is guided by overarching principles of sound fiscal management as well as analytical tools, and decision rules that an organization or individual can use to accumulate, manage, invest and spend its resources in support of its mission. Most issues of financial stewardship fall into three broad categories: 1. Mission Fulfillment 2. Financial Health 3. Financial Accountability

3. I. Mission Fulfillment Key Question: Are financial resources accumulated, managed, invested and spent consistent with the mission and values of the organization? To answer this question, one may want to consider: • Mission: What is the purpose of the organization? What problem(s) or challenge(s) need to be addressed? • Public Value: Is the organization producing outcomes that further its mission? • Resource Management: Are resources being spent consistent with the mission? Consistent with donors’ restrictions or intent? • Distributional justice: Who (or what) should be the beneficiary(ies) of the organization’s activities? Who (or what) should bear the costs? • Effectiveness: Is the organization performing the right activities to achieve its mission? • Efficiency: Is the organization making the best use of its resources? Are the expenditures cost-effective?

4. 2. Financial Health Key Question: Is the organization financially viable? To answer this question, one may want to consider: Short Term Balance: o Liquidity: Does the organization have sufficient cash resources to deliver its services and pay its obligations on a timely basis? o Profitability: Has the organization earned new economic revenues that are adequate to cover current expenses with a margin for error? o Intergenerational Equity: Is the current generation of resource providers covering the full cost of current services? Or are services being provided out of the surpluses of the past or by relying on resources in the future? o Asset Maintenance: Is the organization bearing the full cost of this period’s usage of assets by either maintaining them or saving to replace them? o Funded Commitments: Is the organization setting aside sufficient financial resources to pay for future obligations that are a consequence of past or current activities?

5. Financial Health Long Term Sustainability: o Solvency: Does the organization have enough of its own resources to continue operations into the future? Is it a “going concern”? o Risk Management: Has the organization identified the key operational, financial and investment-related risks and developed a plan to address them? o Unused Capacity: Does the organization have adequate redundancy or unused capacity to respond to volatility or dramatic environmental changes? o Financial Support: Does the organization have sufficient support from its key stakeholders to rely upon them for ongoing support as well as assistance under extreme conditions? o Investment Decisions: Has the organization prudently selected, purchased/ constructed, and managed its physical, human and financial assets? o Debt Management: Has the organization used debt judiciously to pay for appropriate investments or meet long-term obligations? Has it structured its debt repayment to be consistent with financial means and intergenerational equity?

6. 3. Financial Accountability Key questions: Does the organization measure progress toward the achievement of its mission appropriately? Are stakeholders of the organization informed about its financial condition and performance transparently and at appropriate intervals? To answer this question, one may want to consider: • Accounting: o Reliability: Do the organization’s records accurately reflect the underlying economic activity? o Relevance: Is the financial data prepared in a timely fashion using the same accounting choices over time? o Internal Controls: Does the organization have adequate policies and procedures to safeguard its assets?

7. Financial Accountability • External Reporting o Compliance: Does the organization comply with applicable accounting standards when reporting to external audiences? Does it make timely disclosures that comply with the relevant laws, contracts and customs? o Consistency: Are accounting principles being consistently applied? o Transparency: Are the financial disclosures comprehensive and stated clearly enough to inform stakeholders about the organization’s financial stewardship. • Oversight: o Board: Does the governing body directly or indirectly monitor the financial stewardship of the organization? o Auditing: Are the external and internal audit activities adequate for the Board to rely the information generated from the normal financial reporting processes? o Enforcement: Do the external stakeholders have sufficient mechanisms to compel an organization to improve its financial stewardship?