When serving as a board member for a nonprofit organization, we do not always think of the magnitude of this responsibility. According to BoardSource, a highly acclaimed organization that strengthens the effectiveness of nonprofit boards, the board is the legal and moral guardian of the organization. This includes careful oversight of financial matters that affect the current and future well-being of the organization.
One of the most challenging areas of board service is to ensure that the organization has the resources needed to fulfill its mission. Boards are responsible for establishing policies related to income generation. Will the organization charge for services? Will it seek government grants? Will it engage in fundraising activities and if so what will be the responsibilities of the board and its members?
For many organizations, the board’s most significant contribution is fundraising with board members contributing their time, skills, influence and their own annual financial contribution. A board that has 100 percent of its directors contributing to the organization models to funders, constituents and the community that it understands and values the importance of broad support in order to carry out its mission.
Fiduciary responsibilities of board members includes ensuring corporate survival, financial viability and program success of the organization. While one doesn’t have to be a financial expert to serve on a board, it is important to understand basic financial terminology and interpret financial statements in determining the nonprofit’s financial health. Standard financial reports required include a statement of financial position, an income/expense statement and a cash flow report.
Here are eight specific questions board members should ask, as recommended by BoardSource:
1. Is our financial plan consistent with our strategic plan?
2. Is our cash flow projected to be adequate?
3. Do we have sufficient reserves?
4. Are any specific expense areas rising faster than their sources of income?
5. Are we regularly comparing our financial activity with what we have budgeted?
6. Are our expenses appropriate?
7. Do we have the appropriate checks and balances to prevent errors, fraud, and abuse?
8. Are we meeting guidelines and requirements set by our funders?
Besides being able to understand financial basics, it is important to monitor key financial indicators. Financial indicators can be identified by the board through establishing guidelines and standards to measure the effectiveness of the organization. In addition, the board should define finance and accounting procedures with clear job descriptions for check signing, expense approvals, and cash handling.
The board should also be aware of any IRS changes and understand its implications for the organization as well as how they personally may be held responsible for decisions. The IRS’s website includes topics and resources for the nonprofit sector within its “Charities & Nonprofits” tab: http://www.irs.gov/charities/index.html.
Serving on a board of directors is both a challenging and rewarding experience. The more information board members have allows for more solid decisions they can make as stewards for the organization.
Fiduciary responsibilities of board members includes ensuring corporate survival, financial viability and program success of the organization. While one doesn’t have to be a financial expert to serve on a board, it is important to understand basic financial terminology and interpret financial statements in determining the nonprofit’s financial health. Standard financial reports required include a statement of financial position, an income/expense statement and a cash flow report.
Here are eight specific questions board members should ask, as recommended by BoardSource:
1. Is our financial plan consistent with our strategic plan?
2. Is our cash flow projected to be adequate?
3. Do we have sufficient reserves?
4. Are any specific expense areas rising faster than their sources of income?
5. Are we regularly comparing our financial activity with what we have budgeted?
6. Are our expenses appropriate?
7. Do we have the appropriate checks and balances to prevent errors, fraud, and abuse?
8. Are we meeting guidelines and requirements set by our funders?
Besides being able to understand financial basics, it is important to monitor key financial indicators. Financial indicators can be identified by the board through establishing guidelines and standards to measure the effectiveness of the organization. In addition, the board should define finance and accounting procedures with clear job descriptions for check signing, expense approvals, and cash handling.
The board should also be aware of any IRS changes and understand its implications for the organization as well as how they personally may be held responsible for decisions. The IRS’s website includes topics and resources for the nonprofit sector within its “Charities & Nonprofits” tab: http://www.irs.gov/charities/index.html.
Serving on a board of directors is both a challenging and rewarding experience. The more information board members have allows for more solid decisions they can make as stewards for the organization.
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