When Financial Signals Don’t Match the Story, Boards Must Ask Tough Questions

# Overview

# Red flags that merit a board question

• Recurring operating deficits across multiple years.
• Declining unrestricted assets or depletion of reserves servicing routine operations.
• Rising expenses without matching revenue growth or reliable earned income assumptions.
• Big one-time gifts that temporarily restore balance while overspending continues.

A single deficit or an intended strategic draw on reserves can be defensible. The problem is when a pattern normalizes a structural gap between revenue and expenses.

# Use Form 990 as a starting diagnostic Every voting board member should receive and read the complete Form 990 before filing. Look at several years together. What do revenue, expenses, assets, cash and debt trends show? Does the narrative leadership presents match what the numbers reveal? The Form 990 won't replace current financial statements, audits or cash projections, but it exposes longer-term patterns a single-month dashboard can miss.

# Questions the board must ask Require specific answers rather than general reassurances. Useful questions include:

• How long can reserves cover operating shortfalls, and how were reserves used (one-time investment versus ongoing support)?
• What assumptions must hold true for next year's budget to work, and how likely are they? What happens if revenue falls 5% or 10% below plan?
• If a one-time gift occurred, what would financial position have been without it, and how will the gift be used to change underlying dynamics?
• Are unrestricted resources being strengthened or steadily depleted?

# How boards should exercise independent judgment

# Practical next steps for boards

• Insist on multi-year trend reports that include Form 990, audited financials, monthly statements, and cash projections.
• Require scenario testing: baseline, modest downside (5%–10%), and worst-case. Ask how each affects cash and program delivery.
• Treat one-time revenue as temporary: approve a deployment plan that either builds sustainable revenue or pays for a finite transition.
• Document board deliberations and decisions about deficits, reserve draws and corrective plans.