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Financial oversight is probably one of the most important board responsibilities. It’s important because an organization’s nonprofit status can come with some really nice benefits that may include:
- no income taxes
- no sales taxes
- no property taxes
- donations to the organization are tax-deductible
Through effective financial oversight, the board assures the public-at-large that all resources and benefits received are used to support the nonprofit’s mission. Organizations run the risk of making headlines when boards fall asleep at the financial switch.
The reality, though, is many board members become deer in the headlights when facing financial oversight. Below are some strategies that any board can use to either jumpstart their financial oversight capacity or strengthen an existing one.
- Recruit Financial Expertise. A board that lacks financial expertise is financially illiterate. Every board must have at least one superstar member who, at a minimum, knows how to read financials, develop and monitor budgets, and manage cash flow.
- Active Finance Committee. This committee should do most of the heavy lifting in terms of budget development, creating financial policies, and day-to-day financial monitoring and oversight.
- Financial Policies. Another important oversight tool is a financial policies document. These policies are developed jointly by staff and the finance committee.
- Audit. Whether to audit or not to audit…that is the question! For many smaller organizations, the cost of obtaining an audit may far outweigh the benefits.
- Financial Statements. Usually a review of financial statements is part of every board meeting.
- Board Financial Training. Most likely not all board members will feel comfortable or competent interpreting financial statements or conducting a budget review.
Read the full article about improving board financial oversight by Bob Wittig at BoardSource.