For many organizations, the topic of financial oversight can be a struggle. While many executive directors watch the finances closely, far too many boards simply rubber stamp the financial reports submitted to them for review.
The board does not need to know every single expenditure (and honestly, this can become quite tedious), but they do need to know how expenses are tracking against the budget. They should always be aware of financial concerns. It is also a good idea for the board treasurer to have access to review both incoming revenue and outgoing expenses via QuickBooks and/or the bank statements. Implementing this internal control can also ensure there are no misappropriations of funds.
While many nonprofit leaders do not relish the idea of developing financial statements, they are a must! Complete financial statements are required to meet legal mandates. To provide financial oversight and make strategic decisions, the board of directors also rely on complete and accurate financial statements.
It is recommended by accountants that all organizations use Generally Accepted Accounting Principles (GAAP) in the management of their finances. It is important to note, even if the board does not meet on a monthly basis, the finances should be reviewed monthly.
Ultimately, the board is held responsible for the organization’s finances by the IRS, as well as by the public. Therefore, it is important that board members understand the finances and how to read financial reports. Unfortunately, reading the financials is an area where many board members feel inadequate. Take some time each year to provide an overview of the financials – what to look for, etc.
Nonprofits should also plan to have an external auditor (i.e., accountant) audit the organizational finances on an annual basis. Smaller organizations may not need a full audit, but instead may have a financial review. The purpose of both an audit and financial review is to ensure the financial resources of the organization are being used appropriately. It should also be noted that many foundations require either an audit or review to be considered for grant funding.
The board of directors is also responsible for the development of the organization’s fiscal policies and procedures. Such policies may include who has permission to make spending decisions and at what threshold as well as how funds will be invested. Written policies should dictate the day-to-day management of receiving money and spending it.
Occasionally, a board member may come to the organization seeking a loan for personal reasons. This is never a good practice and should be avoided. While not illegal in all states, many states do have laws against this practice.
Every organization should have a board-approved annual budget. It is important to have the Executive Director be included in the development of the budget as they will be responsible for implementation of programs and services; however, it is ultimately the responsibility of the board to ensure the organization has the resources it needs to fulfill its mission and to approve the budget.
Does your organization have written financial policies? Now may be the time to develop them. We can help you get started. Feel free to contact us.
