Estimated Reading Time: 4 minutes
Executive Director
(This article is excerpted from the book, Financial Risk Management: A Guide for Nonprofit Executives.
While it is rare in a mature nonprofit for a board member to perform day-to-day bookkeeping or financial management duties (such as making journal entries or signing checks), board members exercise overall responsibility for the fiscal affairs of the nonprofits they serve. To discharge this responsibility board members must:
Keep in mind that a board that fails on any of the above issues is incapable of meeting its legal duty of care. A CEO who fails to empower the board to discharge its duty of care is arguably derelict as a leader. In many cases the board roster will include several people who are comfortable reviewing nonprofit financial statements. These individuals may volunteer to serve on the finance committee. Other board members may defer to these individuals and refrain from getting involved in the nonprofit’s fiscal affairs. While a talented finance committee is a valuable asset, the remaining board members cannot abdicate their responsibility for providing thoughtful fiscal oversight. Any evidence that one or more board members do not understand the financial presentations should be addressed with prompt training and assistance.
Training and resource materials combine to offer a powerful antidote to ignorance and lack of confidence in providing fiscal oversight.
Consider:
*An example of a guide that may be suitable for nonprofit boards is Andrew Lang’s booklet titled, How to Read Nonprofit Financial Statements. The booklet is available from www.asaecenter.org or www.amazon.com.
Scheduling a briefing on the nonprofit’s finances and the broader topic of understanding nonprofit financial statements is an important step in empowering the board to provide effective oversight of financial matters. Consider the following suggested elements of a 90-minute orientation; customize the topics, resource materials and timeframe to suit the culture and circumstances of your nonprofit.
Part 1 — Understanding Nonprofit Financial Statements (30 minutes)
Consider starting off with an introduction to nonprofit financial statements. Be aware that the degree of familiarity and comfort with this topic is likely to vary. The goal is to get the entire board in sync with the manner in which financial information will be transmitted to the board, and enable individual board members to feel comfortable asking questions about the nonprofit’s results. To make this segment more productive, consider:
Part 2 — Overview of [Name of Nonprofit]’s Finances and Budget (30 minutes)
During this segment, the session leader should present a brief overview and analysis of the nonprofit’s Statement of Financial Position, Statement of Activities, and Statement of Cash Flows for the most recently available accounting period. Copies of these documents should be provided as part of the orientation materials.
Part 3 — Additional Finance Resources (30 minutes)
During this segment of the briefing, the presenter should call the board’s attention to the resources below, all of which provide a picture of the nonprofit’s fiscal health and financial management strategies. Suggested background materials to support this presentation include:
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