Board Financial Oversight

Posted on Wednesday, February 15, 2023

As a board member, one of your responsibilities is to provide proper financial oversight.  Not everyone is an accountant or has a financial background, so what does this mean and how can you provide the necessary oversight?

Assist in developing the annual budget.

To make sure the organization is going down the right path for the year, there needs to be a budget in place.  The budget should list where funds are coming from and what they will be used for.  When creating a budget, it’s easiest to start with the prior year’s actual amounts.  Where did our funding come from last year?  Can we expect to get the same amount?  Where did we spend our money last year?  Will we spend the same this year?  Often times the budget is initially created by management and the staff and then the board approves it.  When looking at your organization’s budget, does it make sense? Is it realistic?  Are there significant variances from prior year? Ask why.

Ensure proper financial controls.

Internal controls are policies and procedures that protect the organization’s assets, create reliable financial reporting, and promote compliance with laws and regulations.  In order to work effectively, controls must be reviewed and revised if necessary.  Does your organization have controls in place that properly segregate duties?  Or is one person doing all of the accounting related activity?  Does your organization have written policies in place?

Review monthly financials.

As a board member, you should review the monthly financial statements.  As part of your review, you should compare the current activity to both budget and prior year.  Are there differences?  Why?   Does the activity reported on the financials reflect what you know happened?  For example, if you purchased a large amount of equipment during the month, there should be a significant increase in fixed assets. Or maybe you received a large grant. Was there an increase in contributions? If the numbers are not comparable to the budget, ask why.  What happened or didn’t happen that is causing the organization to stray from its budget?

Review/approve the audit.

If your organization has an audit performed, the board should at least review and approve the audited financial statements. Many times, the auditor will present the results of the audit to the board (or audit/finance committee) as well. This is a great opportunity to ask questions of the auditor.  What did they find during their testing?  Do they have any recommendations for improvements?   Audits are normally required by funders and then provided to them for review.  It is important to make sure that the audited statement properly reflects your organization’s activities.

Review/ approve Form 990.

Most nonprofit organizations are required to annually file Form 990 with the IRS.  This is a public document that is available for anyone to access which is why it is so important that the information reported is correct.  There are also many nonfinancial questions on the 990 that ask about governance and policies.  As a board member, it is your responsibility to review the form to make sure all of the questions are answered appropriately.  There is also a question on the 990 that asks whether a copy of the 990 has been provided to the board prior to filing.  Also, all board members’ names are listed on the 990 so if anything happens, everyone knows who was serving on the board during the year.

As you perform your duty of financial oversight, make sure you ask questions.  If you have question, it’s likely that someone else does as well.  If you feel that you may need more training on understanding the organization’s financials, ask to meet with the treasurer or CFO to go over your organization’s specific reports so that you can better understand what you are looking at each month.  There are also many opportunities for board training available to help you be a better board member.

Contributed by: Carrie Minnich, MAcct, CPA | Partner | DWD CPAs & Advisors 

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.