Best Practices for Boards in Nonprofit Financial Oversight

ARTICLE | July 31, 2024

Every nonprofit must have a board of directors that helps the organization achieve its mission through sound governance and financial management. But even though boards have a fiduciary responsibility, that responsibility is not always shouldered equally and can easily overwhelm or confuse members of the board who lack a relevant financial background. 

Understanding financial oversight

Every board member for your nonprofit must grasp the fundamentals of financial oversight. While not all members need to be financial experts, a basic understanding of nonprofit finance is essential, which includes familiarity with financial statements, budgeting processes, and key performance indicators (KPIs) relevant to your organization’s mission and goals. 

Common board responsibilities include establishing and monitoring financial policies, including KPIs and investments, and operational policies such as whistleblower policies. To ensure financial sustainability, all members should also be involved in reviewing and approving your organization’s annual operating budget and closely reviewing financial statements at every board meeting.  

Delegate appropriately

Some board members will be more fluent than others in fiduciary matters, but a nonprofit’s financial oversight should not be delegated entirely to a finance committee or one or two individuals. All board members have a fiduciary responsibility and should educate themselves on at least the basics of that responsibility, including learning how to properly review tax returns, audits, and financial statements. 

The organization can be proactive in helping board members with limited financial background learn the basics, as well as organization-specific matters such as compliance matters. Education through training, professional development workshops, and external resources can help members and promote sustainable financial stewardship.

Establish clear financial policies and procedures

Clear financial policies and procedures provide a framework to help ensure boards continue to provide consistent and transparent financial management, even as new members arrive. 

The policies should clearly articulate guidelines for budgeting, financial reporting, expense approval, and internal controls. By establishing clear expectations and protocols, boards can ensure accountability, mitigate financial risks, and maintain compliance with regulatory requirements.

Monitor financial reports and performance

Regular financial reporting and performance monitoring can help boards stay informed about the organization’s financial health and performance. Boards should receive and discuss timely and comprehensive financial reports, including income statements, balance sheets, and cash flow statements. 

Additionally, boards should establish KPIs and benchmarks to track progress toward the organization’s financial goals. By monitoring financial performance regularly, boards can identify trends, address issues promptly, and make strategic decisions to support the organization’s mission.

Get professional support

Insero & Co.’s experienced nonprofit consultants offer strategic support to organizations, as well as recurring accounting, bookkeeping, and process-driven services. Contact us to talk about the range of relationship-based services we provide and how we can help you and your teams strengthen financial oversight and decision-making, and spend more time devoted to your mission.