5 Nonprofit Finance Committee Responsibilities

As you can imagine, in my work consulting to a wide variety of nonprofits worldwide, I have attended more than my share of board meetings. Recently, I observed the treasurer of a client organization make the monthly financial report.  As the finance committee chair presented his well-illustrated PowerPoint, I watched as most board members’ eyes glazed over.  Clearly, these people had no understanding of the cash flow analysis, the report of actuals against budget or the fully-allocated, program-by-program statement of projected revenues and expenses for the balance of the year. Or why it was essential to understand these reports.

These reports should provide the members of the board with visibility into the financial management of the agency and the knowledge that is needed to make strategic decisions for the future of the organization’s programs and the people who benefit from them.

How do you prevent the surge of discomfort? Educate every board member in basic financial literacy. This will assure that all board members can function effectively in their fiduciary role to ensure the fiscal health of the enterprise. And, if board members understand what they are seeing, they are less likely to allow their attention, and eyes, to drift during these essential reports..

What are the five responsibilities of the finance committee:

1. 1. Assure the maintenance of accurate, complete timely and meaningful financial records and statements
      • Monitor income and expenditures against projections
      • Review and recommend financial policies to the board, including ensuring adequate internal controls and maintaining financial records in accordance with standard accounting practices
   2. Direct budget preparation and financial planning
      • Propose for board approval a budget that reflects the organization’s goals and board policies
      • Ensure that the budget accurately reflects the needs, expenses, and revenue of the organization
   3. Safeguard the organization’s assets
      • Review proposed new funding for ongoing financial implications, recommending approval or disapproval to the board
      • Ensure that the organization has the proper risk-management provisions in place
   4. Ensure compliance with federal, state, and other requirements related to the organization’s finances
      • Ensure that organization maintains adequate insurance coverage
      • Ensure that the IRS Form 990, other forms, and employment and other taxes required by government are filed completely, correctly, and on time
   5. And, above all, help the full board understand the organization’s financial affairs
      • Ensure that board members are well informed about the organization’s finances
      • Educate the board to enhance each members financial literacy

That last point, “educate the board members,” is the key to it all.  Not everyone who serves on a board has the same financial acumen.  For the board to function well, serve the organization it leads and provide the financial oversight required, the finance committee must be sure that all members of the board see clearly and understand the finances of the agency.  Providing brief educational segments to develop board members skills at every board meeting about key aspects—including financial management—of the organization’s operation should be standard operating procedure for the well-run, well-funded nonprofit.