The Role of the Nonprofit Board in Financial Oversight
As a nonprofit and resource provider to nonprofits, we understand the need for dependable and affordable services to help us power our mission. That’s why we’re proud to partner with Jitasa, longtime Mission Capital business member and the largest national accounting and bookkeeping services provider focused exclusively on nonprofits. Below, Jitasa shares their take on board financial oversight and how it can be a game-changer for your organization.
For many nonprofits, the idea of having a nonprofit board only goes as far as a qualification to check off the list. Board engagement ranges on a broad spectrum from some being so intimidated by the prospect of maintaining a board that they never even file for nonprofit status, having a board but failing to utilize board members, resulting in a variety of inefficiencies, or having an engaged board, but still experiencing some challenges. A nonprofit board can be a major asset if engaged properly, particularly in financial matters. But, what exactly is the role of the board in nonprofit financial oversight?
Broadly defining financial oversight
The daily affairs of a nonprofit organization do not fall to board members and should be handled by appropriate staff or outside nonprofit accountants. A board simply oversees finances, which includes tasks like annual budget approval, CEO salary, financial health evaluations, and ensuring an organization follows financial rules. Ultimately, a nonprofit board acts as a check on nonprofit leadership, which keeps both organization and individuals in leadership safe and healthy.
The board as a financial control
The nonprofit board plays a big role in preventing fraud and simple accounting error. To make this happen, they should ensure that different people are responsible for different financial oversights, preventing potential theft by diversification. The board should also provide authorization for large checks, which reduces the risk of embezzlement. They’ll also approve a budget created by management.
The board as an enforcer
A good nonprofit board will help enforce the rules, ensuring that your organization is following procedure. Are employees and leadership following the rules that were established? Through reviews and reports, the nonprofit board can help enforce order. Similarly, the board will also review regular (monthly or quarterly) reports making sure that the budget meets reality.
The board as a visionary
Another responsibility of the board is to provide guidance for the future. How do the finances compare to the past? Where can they make changes to ensure a more stable future? The board should also help maintain financial reserves for an organization, should they encounter unforeseen financial difficulties. They’ll also be responsible for deciding how and when the reserve should be spent.
The board as a fundraiser
Because fundraising is such a vital part of a nonprofit, it is crucial that the board play an active role. Their role can vary, but typically involves coming up with a sustainable fundraising strategy. Again, the board should help establish policies related to fundraising, including privacy policies and gift acceptance (which may also be dictated by law). Board members should be active in fundraising, attending events, providing publicity, etc.
The bottom line
Essentially, nonprofit boards exist to mitigate risk for an organization. They protect the leadership, staff, and nonprofit organization itself, ensuring that more money and energy can be put into the greater mission. The board acts in an advisory capacity in every sense of the word and shouldn’t be viewed as a negative. A good board can help grow your nonprofit into a business that flourishes.
If you’re questioning the effectiveness of your nonprofit board or want to know more about getting the most out of your board, check out Mission Capital’s Board Essentials!