For Nonprofit Boards, Numbers Are a Necessity
As a Board member for a nonprofit organization, you’re expected to attend Board meetings, monitor fundraising and management, digest reports, and help the organization determine its strategic direction. You’re also expected—and, indeed, compelled by law—to oversee the organization’s finances as part of the fiduciary responsibility of a Board.
So where is the obligation to oversee finances? It is part of the duty of care, which requires you to stay informed about all aspects of the organization. That most certainly includes reading and understanding financial reports, tracking spending, and participating in strategic planning sessions using the financial report data.
The Numbers Board Members Need
It is not enough for Board members to look at the previous year’s financial reports once a year as part of the budget planning process. That’s far too little, too late. Instead, Board members should become familiar with the organization’s IRS Form 990, the annual tax return that provides information about the organization’s mission, programs, revenue sources, and more.
Board members should also receive quarterly or, better yet, monthly updates on the organization’s financial information, typically provided in the form of the Statement of Financial Position (Balance Sheet) and Statement of Activities (Income Statement). It’s also helpful to regularly review actual versus budget performance data, a cash flow projection that extends 12 to 18 months, and other relevant operational data.
Providing much of this information to Board members in a clear format should be accomplished efficiently using your accounting software. If this is not possible, an organization should investigate the setup of its accounting software or upgrade to accounting software with greater functionality. The latest software makes it possible to view project profitability and other real-time metrics, as well as flag trends, key comparisons, targets hit or missed, outliers, and other information that can give Board members more helpful insights into the organization’s financial well-being.
Who Needs to Know?
Even if you don’t serve on the Board’s finance or executive committees, as a Board member you have a legal fiduciary responsibility to oversee the organization’s finances. That said, the Board Treasurer and finance-oriented committees should review financials at least monthly and, in more depth, than may be necessary for the rest of the Board.
It is imperative that at least one Board member be experienced and adept at not only reading and comprehending, but also evaluating financial statements with a critical eye. That’s essential for the Board to provide adequate oversight and reduce the risk of errors, malfeasance, or unexpected financial challenges.
What if one or more Board members identify a problem or concern in the financial statements? The Board must then be ready to take action to protect the organization however necessary. But to get there—to be ready to make the tough decisions that enable organizations to grow and thrive—it all begins with financial oversight. That oversight is every Board member’s responsibility.
Do You Have the Right Numbers?
At Chazin & Company, nonprofits are our passion and accounting is our business. Contact us to discuss your accounting and finance challenges, and to see how we can help you get clear, informative financial statements and reports efficiently and on time.