Seven Red Flags in the Business Office — and How to Avoid Them

Over the last decade, I have noticed the increasing use of an “interim CFO” at independent schools. It appears there are three reasons why: 
A.  There is not enough time to conduct a proper search. 
B.  A search has not turned up the right candidate, and the school wishes to try again later.
C.  The business office is not working properly, and there is a need for a change.
Most of my experience has been in Category C. I call this the “ER physician” scenario. Over the last five years, I have been the interim CFO or have acted as such in a consulting role at four independent schools. My role has been to stabilize the patient and keep the business operation moving forward. The length of these stints has varied from two to nine months.
Typically, I get a phone call from a head of school in early October. On the call, I learn that the business manager is “not working out.” Either the person has recently vacated the position, or is about to leave.
Why do these events happen in October? It’s because there is a bit of breathing space — just before the school’s new budget planning cycle begins. In many cases, the school became aware of a problem during the previous winter, but the head had other issues to handle at the time, a school year to finish, and then a new school year to open. By early October, the audit has been put to bed.
Soon after I arrive on the scene, I typically find seven problems:
1.  The Finance Committee is not receiving timely and accurate information on budgets, balance sheet, and cash flow.
2.  Financial data does not flow freely from the general ledger to monthly internal financial reports.
3.  There is poor organization of documents in computer folders and paper files.
4.  The operating budget is maintained in a massive (and confusing) spreadsheet with a score of tabs, links to external spreadsheets, and unsupported frozen or plug entries.
5.  There is little (if any) communication with department heads about their program needs.
6.  There has been an attempt to impose strict accounting rules — usually based on GAAP — on the school’s internal operations.
7.  There is no clearly defined annual capital budget.
Read more about these problems and the italicized terms in the attached PDF.
The situations described above were not present at all the schools for which I worked. Unfortunately, they were present at more than one of them.
The seven issues are not unrelated. The general picture is that of a CFO who does not understand the school’s operation, and perhaps does not understand independent schools in general. This person is likely overwhelmed and confused. He or she does not grasp the problems, much less how to correct them.
However, I do not see the list of deficiencies as a trend in independent schools. It’s that the pool of CFO candidates with independent school experience is limited, and schools often hire a person from a different industry. Although many of the technical skills can be learned, the flexibility and ability to deal with the role’s complexity lie within the individual.

Five Suggestions to Prevent Problems

One of the head’s key roles is to assist the members of the administration to develop as professionals and effective team members. A person joining the administration without independent school experience may require extra guidance and assistance during the first year. Most of these suggestions apply to any new administrator, not just the CFO.
1.  This new person should not silo within the school. Encourage the individual to get to know colleagues in other schools in the region.
2.  There are ample professional development opportunities to consider. The NBOA Business Officer Institute is an excellent gathering of experienced hands and newbies. A person should attend at the beginning or the end of the first year on the job. The NAIS Annual Conference is an ideal venue to learn about the trends and language of all the administrative offices within a school.
3.  The new administrator may benefit from having a mentor. This can be a retired veteran from another school who has a teaching bent. The pair can have lunch together each month for six months. A mentor is especially important when the head does not know enough about the actual work of a given office to provide guidance and perspective.
4.  Encourage the new administrator to get to know the department heads around the school who are affected by the office’s work. For the CFO, this is every department head who supervises a budget.
5.  Encourage the new administrator to meet with the chairs of board committees between meetings. For the CFO, these may be the Finance, Audit, Facilities, and Investment Committee chairs. These relationships are vital.
In summary, get the new administrator out of the office to learn about the school!

My Approach as Interim CFO

First and foremost, a school is a “people” organization. The business operation should support this, and not try to dominate it. My approach is: Listen, go back to the basics, keep it simple, and communicate.
As an interim, the first question I ask the head is: “Is my job to change things, or to leave them the way they are?” This helps to set my compass.
It generally takes me three months to get a handle on a school’s financial structure and its human community. For a CFO who comes in from a different industry, it may take 12 months of experiencing the whole annual cycle to understand the operation.
One of my responsibilities is to educate the controller, assuming there is one, about all the financial and operational aspects of the school. This allows the torch to be passed adequately to the incoming CFO without too much of a break in service.
I get out of the way as soon as I can. It is vastly preferable for a school to have its permanent CFO in place and growing in the job. 

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James R. Pugh

Jim Pugh taught history at three independent schools, and served as CFO of three independent schools.  He is the author of three other articles available on the NAIS website: “The Trustee Dashboard,” “Dealing with Institutional Financial Stress” (case studies from 2008-09), and “A Trustee’s Guide to the Annual Operating Budget Process.” His email address is [email protected].