The concept of fiduciary liability, or keeper of the good, dates back to ancient times, and like so many things has become more complicated with the passage of time. The financial aspects of governing a nonprofit organization are at the forefront of a director’s responsibility. All directors.
What does it mean to be Fiscally on Board?
While every board member need not be a financial expert, all members should possess at least a basic understanding of nonprofit accounting and reporting requirements.
Many times we are asked to join a board because of personal relationships, our ability to provide financial resources. Board members often frame their responsibility to the organization in terms of how much money they will contribute, but sometimes lose sight of their responsibility for not just the programmatic viability of the organization, but the financial stability as well. Each board member has a fiduciary responsibility that encompasses a number of aspects.
Let’s take a look at the main financial functions a board member should be aware of: collecting income, paying debts and protecting the assets of the organization. For the most part, these items come quickly to mind and are easy to understand. There is, after all, a strong correlation to what we encounter in our personal finances. Aspects less often thought of are the recording of these transactions and the related timely and accurate financial reporting. All of these activities are part and parcel of the financial function within the organization.
How can a board work to ensure that the all of these factors are being addressed?
An important step is to engage a financial professional as a board member. This individual will be able to share knowledge and help guide the board to understand all matters financial, including determining the right types of internal resources necessary to support adequate financial reporting outcomes.
In a financial reporting nutshell, board members must ensure that an organization maintains sufficient resources to carry out the stated mission and fulfill contractual arrangements. Liquidity and cash reserves are a function of financial and strategic planning. Adequate planning and communication provide the basis for developing budgets, operating plans and the ability to respond to environmental changes.
The planning process should look like a thoughtful assessment of resources and how best to use them. The budget process includes review of costs and effectiveness of programs as well as funding course pressures and budget-to-actual results should be reviewed on an ongoing basis.
What are the alternatives to internal finance capabilities?
Most organizations rely heavily on paid staff to develop budgets, control expenditures and ensure that filings and such are up to date. When these resources are not available within the organization, the board is responsible for ensuring that alternate plans are in place. Perhaps an outsourced accounting function makes sense, or a consulting arrangement whereby a qualified professional assists in reconciling and closing books periodically. In today’s world of electronic communication and web-based resources, either option is likely available in the form of a simple process at a reasonable price point. If your organization has been struggling with financial reporting, perhaps now is the time to consider such an arrangement. Once the basic functions are in place, you can spend time focusing on some of the particular nuances of nonprofit accounting, including grants, revenue recognition and reporting package lay out.
Be sure you are taking all the steps necessary to address your fiduciary liability and establish good financial oversight protocols, call a CPA expert today.