Controllership and the Layer Cake of Finance
Accurate financial reporting takes more than just entering the transactions into the general ledger software. Often, nonprofit leaders rely on monthly financial reports during the year, only to find out later that the books need adjustments that significantly change the reported financial position and results of operations. Those adjustments happen when someone in the finance function compares the accumulated balance of the transactions that have been recorded on the organization’s books to some outside expectation of what the correct book balance should be, discovering additional activity that needs to be added to the organization’s books or discovering that recorded transactions need to be revised. This process is called controllership.
The finance function requires more than one set of processes and skills, it requires three sets of processes and skills, like a three-layer cake. The first layer is recording the organization’s basic financial processes. After the basic financial transactions have been recorded according to the organization’s routine procedures, someone must perform account reconciliations to ensure that the account balances are correct, that accrual items have been accounted for and that generally accepted accounting principles have been applied. That is the second layer of the cake; controllership. Without controllership, the organization’s books can be inaccurate and the financial reports presented to management and the board may be misleading. The third layer of the cake is strategic financial management such as budgeting and decision analysis.
Management is responsible for establishing a system for producing accurate financial reports, yet the nonprofit executive is not an accountant. How can nonprofit execs establish a realistic plan for controllership? In this session, participants will gain an understanding of the importance of controllership, and will learn strategies to support accurate financial reporting.
Field of study: Accounting.