Financial Responsibilities of a Nonprofit Board
Ultimately, a board of directors is responsible to provide oversight and accountability within its governance function. In shouldering this responsibility, the board must monitor its financial affairs to ensure compliance with its financial policies. Policies are important because they guide people’s actions.
Board members should regularly review financial documents to help prevent financial losses. Any risk toward organizational assets or reputation could be catastrophic. Therefore, to reduce risk, board members must exercise due diligence and interpret what the numbers in the financial statements signify. For example, there are four typical financial statements shared with the board: statement of operations, statement of financial position, statement of change in net assets, and annual audit.
Aside from deciphering the numbers, a board member will ensure their regular attendance at meetings, read and adopt minutes, authorize the budget, avoid a deficit, diversify income with various forms of revenue, oversee fundraising, approve capital and operational expenditures, uphold internal financial controls, plus enforce bylaws and policies to hinder fraud and detect errors.
The financial aspect of governance requires board members to understand the legal responsibilities related to their board service. A board member could be found guilty of non-management if they are negligent in their fiscal oversight. In addition to analyzing financial documents, a board that employs an Executive Director must comply with federal and provincial tax and payroll deductions.
It is quite evident how important it is for board members to be fiscally aware, monitor financial records, request monthly financial reports, scrutinize expenses and the bottom line, plus heed professional advice. The non-profit’s life expectancy depends on it! Board members are answerable to auditors and lawsuits. All decisions of the board are viewed as one voice whether you attended a decisive board meeting or not. Be vigilant in knowing the non-profit’s financial status and stick to the policies because they are intended to be a safety net for the organization.