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Not everything that can be counted counts, and not everything that counts can be counted. – Einstein.

Just because numbers seem factual, in the sense that one plus one equals two and so two must be true, that doesn’t mean that they tell the whole story or that they tell the real story. There has been a push these last few years for accountability and transparency in all business sectors, in most cases the transparency is about what can be counted. Sometimes this push makes financial statements even harder to understand as nonprofits work to find ways to tell an honest story with numbers alone.

The assumption by the government seems to be that ‘everything that can be counted counts’. I’m with Einstein on this one because numbers can be misleading and definitely don’t tell the whole story, not everything that can be counted (chart of accounts) ‘counts’. One cannot assume that an organization is healthy and thriving because it has money in the bank or spends a little (or a lot) on any particular line item. As a matter of fact, just because the amounts are listed on the chart of accounts, it doesn’t mean that it tells the whole story, or even part of the story, of an organization. The chart of accounts includes everything that can be counted, that doesn’t mean that’s all that is relevant.

“Everything that counts can be counted.” Often the board (well, and the public) take this new transparency of numbers to mean that the numbers reported are important. Not just important, but they could possibly tell the whole story…that the numbers are everything. Although I can learn a lot from the balance sheet and budget of a non profit, I can’t learn everything there, as too many things that ‘count’ that are not listed on a balance sheet or budget.

No one person or company can be understood exclusively from looking at their numbers. If you were to look at my bank statement and make decisions about who I am based on those numbers they would tell you a lot. About where I shop. What they wouldn’t necessarily tell you is what I value, how I spend my time when I’m not spending money, who I love, what my goals and dreams are. They would only tell you what I value that is for sale, like clothes and organic produce. It wouldn’t tell you that I don’t have a television, that I’m wicked good at Bananagrams, that I stay up until all hours of the night some nights making art. So, my bills would give you a window into me, but not a very big one. The only way to learn about me is to get to know me. Same for an organization.

What counts in an organization, especially a non profit, is its impact. Exploring an organization’s impact can be challenging. Don’t rely upon numbers alone. First, most people don’t really read them, and second, they don’t tell you everything you need to know. Some things are only learned by attending board meetings and seeing the programs in action. Decide what counts to you and give to that cause. Complaining never got anyone any closer to a solution, action does. Giving money can be a noble action, especially when you’ve done your research and your heart is in it. Give because it will make YOU feel better about the community you live in.

The nonprofit sector is under more scrutiny today than at any time in our history, and yet detailed 990s and audits don’t guarantee that oversight is happening. Why is that? There are as many answers to this question as there are charities, but there are some things that seem to crop up again and again when problems arise. Here are some key reasons why oversight is overlooked:

1. No one wants to admit that oversight didn’t happen in the past so there is never a good time to ‘start’. In other words, things keep getting done the way they have always been done. Pieces of paper get signed and filed, but there isn’t willingness to revolutionize the way the organization does business.

2. Even when there are losses it is usually looked at as an ‘event’. Rarely are governance practices put in place that would prevent it from happening again because the root of the ‘event’ isn’t researched. Everyone points the finger at the ‘event’ and then moves on with only cursory changes, if any.

3. Often everyone will agree at a committee or board meeting that something is wrong with how they are working, but then the topic is never brought up again.

Why do these things happen?  From an outsider’s point of view, the changes seem easy and painless enough, so why aren’t they made? Why don’t companies, and especially non profits who are given so much trust by the community, jump at the opportunity to run more efficiently and effectively?

Because change hurts. It’s difficult; it is an ongoing process – not a one time solution; sometimes it makes things worse; and it can make you wish you’d never had any issues in the first place. We are wistful about how life used to be (before we changed) and yet change is a given. Sweeping things under the carpet is always easier. Changing in crisis when there’s no other choice in some ways is easier because we don’t have to ‘decide’ to change, it is thrust upon us.

If change is so hard, what are the other options? Frankly, there aren’t any. Either companies get with the program and start moving with the times or they will in a few years find themselves quite suddenly out of business. It’s a tough economy out there and nonprofits that don’t change may find that if they wait too long, it’s too late.

Often the board’s first reaction to change is that they do need to do some change, but not too much. The idea of changing puts everyone ill at ease and there is fear that things could get worse; that change in and of itself could threaten the organization. Most boards realize that they need to embrace new ways of doing business, both to be compliant with laws and also to draw in new members.

I understand that no one wants to be Chicken Little. It’s human nature to want to be accepted and to be a part of the group — and nothing sets you apart like questioning leadership. But in today’s economy change is critical to the success of your organization. The bravery of being willing to stand out by asking questions and demanding changes ensures that you won’t fall into the dangerous habit of overlooking oversight.

Very interesting from the Wall St. Journal. (No I don’t pay for a subscription.)

Sounds like Wine critics are no better than the equity analysts touting stocks, according to the author.

That brings to mind a question: Is Gary Vaynerchuck a talented wine critic or just entertaining? I think he’s both. What say ye?

With Google Apps Connector for BES version 1.5, large businesses can now support 500 BlackBerry devices per server, double the previous number. This lets them serve more users with fewer servers.

No matter how many people I speak with or stories of success I hear, the true health of an organization can only be assessed through their financials. Like reading a mystery novel, the story comes to light slowly, and sometimes surprisingly, as things aren’t always as they seem. Some people look at budgets like diets, something to strive for as opposed to a practical plan to follow. So are budgets myths developed to tell donors and board members what they want to hear? While that is surely overstating the situation in most cases, enough for-profit and public companies have had trouble due to the myths of their budgeting processes that it is a worthwhile question to ask in the non profit sector as well.

When assessing an organization, there are multiple financials to read: Audits, Quickbooks files, Budgets, etc.. Each of them will tell a slightly different story because each is looking at the organization from a different point of view. Usually budgets are very accurate and I have developed great faith in them as compasses that can inform me about the direction an organization is heading. They are like a strategy document in numbers.

There are telltale signs that proper due diligence was done in the budget preparation and that it honestly states the outlook for the coming year. I worked with someone years ago who wouldn’t approve a budget with any round numbers in it. Perhaps that sounds a bit strict, but he believed that round numbers meant we hadn’t done the math because bills don’t come in nice round numbers. Real bills usually end in one and three and six but rarely zero. So now if I’m looking at a budget with all round numbers I too worry that there’s way too much guesswork on the page and not enough reality.

Also, when I’m looking at the projected budget for the coming year, I like to see the Variance to Budget statement from the year before. This will tell me how budgets and fundraising have been done in the past. Have they always budgeted in round numbers? Were they accurate? Looking at the previous year’s budget will give an accurate frame of reference for their fundraising goals. For example, a new budget may say that they anticipate raising two hundred thousand dollars online. But if they only raised two thousand dollars last year online, then it’s a red flag. Numbers that jump without good cause may mean that the budget is more fantasy than reality.

It’s easy to make a fantasy budget that says everything will cost less this year and donors will give more. Reality budgets however will always have something in them that will give you pause. Reality is like that. I expect explanations for how they arrived at these numbers in the form of a detailed spreadsheet which includes a brief sentence for each line item that varies from the year before.

Budgets rarely vary wildly, and if the one you are looking at does, it needs to accompany a written document that spells out why. To be sure, staff is not alone in shifting budgets around. Often a board will demand that numbers ‘match’. I won’t speculate on why, except to say we all like to think that money in and money out should be the same. But lying on a budget is like lying on a diet. You can say what you want on paper but if you’re eating cupcakes for breakfast every day and not exercising, you’re going to get fat. Try to be realistic. If you aren’t, then you’re doing a disservice to yourself and to the organization.

Budgets are a great place to begin a conversation, but they are not the entirety of what needs to be said. Budgets can accurately point to where too much money is being spent and where not enough is being raised. A true assessment can lead to changes in governance and fundraising and ultimately strengthen the organization, allowing more funds to flow through to the mission, which is the ultimate goal. In my opinion, budgets are myths that encode the heart of the organization within their numbers.

Sitting on a board of directors is like building any new relationship. Even if your friends and business partners admire the organization, you must ask questions and dig in to learn about it for yourself. Remember, the more you know, reallyknow, about an organization, the more confidence and respect you will have for the way it is operating. That respect and confidence will lead to more funds and the ability to fundraise because you will not just be depending upon hearsay, you will fall in love with it on its own merit.

In order to govern responsibly you must understand all facets of the organization. The fastest and most accurate vision of a charity is through their finances.  Never assume that everything must be ‘right’ with the organization just because of who else is sitting in the boardroom. Fiscal excellence is the responsibility of the entire board and cannot be assumed. You must bring the same diligence and care to the fiscal oversight in your charity work that you bring to your corporate work.

Here are three rules of thumb to build confidence and trust in your organization.

1. Get copies of the tax returns and financial audits from previous years. These should be downloadable from the internet and if they’re not, suggest that they should be.

2. Study the budgets for the current and previous year.

3. Read the bylaws and their accounting manual.

Fiscal responsibility and transparency are a key component to good governance. With these three basic steps you will learn where the organization has come from and where it stands today. Since you’ve asked for these documents and have reviewed them, you will be able to discuss any questions or irregularities with the ED/CEO and that person will think of you as someone who is not only financially literate, but interested. You will be in the small circle of people that they will seek out if and when trouble starts to brew and that’s exactly where you want to be. Through this conversation  you are building trust, first with the organization and then in turn with the community.