Policy Issues

Financial Policy Primer

By Judith Lindenau

In my experience, I’ve found that no single policy area in association management is more important to an association’s long-term success than the development of a sound financial policy and its acceptance by the organization’s leadership and staff.

The best financial policies address not only the governance issues associated with an association’s assets and liabilities, but also identify strategic goals and objectives and translate these into daily actions. A financial policy assures that over time, an association will put its money where its mouth is.

It’s important to make sure that leadership and staff are informed about the financial policy, so they know under what parameters they’re working, and that the association policy manual is reviewed and readopted annually by the new elected leadership. In addition, an association may wish to consider establishing some committees (such as budget and finance, investment, and policy review) with multi-year terms of service in order to ensure consistency of financial philosophy and create a system of checks and balances. In addition, an organization should periodically revise its overall financial policy to stay in sync with its changing strategies and assure its membership that the financial management is thoughtful, reasoned, and consistent.

Contents of a financial policy
Policy documents in general are distinctly functional documents, as opposed to an association’s bylaws or charter. Policies set forth specific actions about how to carry out and enforce the general statements contained in the bylaws. For example, if the bylaws state that the association will collect annual dues, the policies will describe amounts, deadlines, and penalties. Policies are more easily modified than bylaws. But no less than bylaws, policies represent a written understanding between members, leaders, and staff regarding practices of the association.

Make sure your association’s financial policy covers:

General organizational operations. What is the corporate structure of your organization (for example, not-for-profit tax-exempt, not-for-profit but pays taxes on income, or for-profit)? What is your fiscal year (July to June or Jan. to Dec.)? What are the general financial responsibilities of the treasurer, staff, and other key players in the association?

Dues. What are your dues amounts, collection procedures, and penalties for late payment?

Cash receipt and disbursement. Who pays the bills and when? Who signs checks and what are your credit policies and late charges?

Checking, savings, and investment accounts. Where are your funds maintained? Who can add or withdraw funds or make changes to investments?

Budget. Who develops the budget, who reviews it, who approves it, and along what timeframe? What types of budgets does the association expect (zero-based, pr-ogrammatic, capital budgets)?

Reserves. What is the association’s policy regarding amounts and types of reserves? Is depreciation of the office building or leasehold improvements funded? Is there a percentage of the budget allocated to general reserves—for instance, an amount equal to 50 percent of the annual operating budget? Some common re-serve funds: rainy day, legal liability, research and development, equipment and software acquisition, building maintenance and ac-quisition. How should the association fund these reserves? (Direct contribution as a budgeted line item? Percent of dues? Alloca-tion of a certain type of income?) What limitations are there in approving expenditures from reserve funds?

Employees. What is the association’s fi-nan-cial commitment to its employee benefits program? Does it provide insurance? Pension plans? You can include specifics about em-ployee programs in the personnel manual, but general financial obligations to the personnel program should be detailed in the financial policy.

Association operational expenses. These policies relate to expense reimbursements for leadership and staff, financial commitments to ongoing programs such as scholarship funds or charitable programs, association in-surance coverage, honoraria for association staff or leadership, board or other leadership position reimbursements, and other special paid positions. What procedure should committees follow to gain approval to fund programs?

Non-dues income. What target percentage of the association’s income doesn’t come from annual dues? Particularly now, associations are looking at developing alternative income and need to develop specific goals.

Financial audit procedures. How often is a full audit performed as op-posed to a review? What are the accountability expectations and reporting procedures to which staff and leadership are held?

A comprehensive financial policy serves as a written agreement between leadership and staff that holds them accountable to the asso-ciation. An organization that commits to preparing a thorough financial policy will operate with a greater level of consistency and open communication than one that’s constantly re-inventing itself in reaction to each new event or budget crisis.

Where to find finance policy resources

Samples: Follow these links for samples of -association financial statements:

Articles: Visit the online archives of _REALTOR® Association Executive at _www.REALTOR. org/RAE to read these articles:
• How to Budget in Uncertain Times
• Better Budgets: 10 Steps to Initiating a Zero-based Program Budget

Visit NAR’s online library for access to the Field Guide to Association Budgets and Reserves at to read articles from various association management and financial journals.

Guides: The following guides are available for loan from NAR’s library in Chicago; call 800/874-6500.

• Management Guide for Real Estate Associations, by Judith Lindenau, International Real Property Foundation, 2002

• The Answer Book, NAR, 2003

• Financial and Strategic Management for Nonprofit Organizations, 3rd ed., by Herrington J. Bryce, (San Francisco: Jossey-Bass, 2000)

• The Policy Sampler: A Resource for Nonprofit Boards, (Washington, D.C.: National Center for Nonprofit Boards, 2000). HF 294 B84

Judith Lindenau, rce, cae, is the EVP of the Traverse Area Association of Realtors®, Mich., and consults with the International Real Property Foundation.

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