What Are The Financial Responsibilities Of Nonprofit Board Members?

|
  • Contributors:
Group of nonprofit board members sitting in conference room and discussing their financial responsibilities

Engaged board members, who have a firm grasp on the financial workings of their organization, can improve the effectiveness and long-term viability of the nonprofit they serve. It’s important that they know what their financial responsibilities are and how they support the organization.

There’s no magic formula or blend of members that creates the perfect board of directors.

But, all nonprofit organizations – from health and human services to arts and culture, private foundations, and religious organizations – can benefit from the leadership of an effective board.

 

What’s the ideal board of directors?

Most boards are comprised of people with a variety of education, competencies, and backgrounds. Boards could include financial professionals as well as individuals with expertise in marketing, IT, entrepreneurship, social services, or the legal profession.

Nonprofit boards also benefit from including one or two individuals who are linked to the organization personally. These individuals could be the parent of a child receiving services or a committed volunteer.

All board members must share a commitment to the mission of the nonprofit organization. And, have a clear understanding of how it operates.

Financial literacy is essential for every board member to have, but not everyone needs to have a financial background.

 

What are board members’ financial responsibilities?

Each board member has a fiduciary duty for the administration, investment, monitoring, and distribution of the assets of the institutions they serve.

They must work to ensure long-term financial stability, monitor the use of funds, and ensure that controls are in place to protect the organization against error or fraud.

They should discuss the organization’s financial information to ensure financial accountability. And, the board should provide guidance for the overall direction of the nonprofit.

Their level of financial involvement depends partially on the size of the nonprofit.

Why?

Large organizations may appoint a finance committee to take the lead on financial matters. This committee will gather information and make recommendations to the board.

The board may simply need an update. Or, it might need to approve how to use the funds.

Board members need to understand the big picture, but they don’t necessarily need to dig into details about financial matters. The finance committee serves that purpose.

In smaller organizations, the executive director or staff will provide financial reports to the board. Each board member will have the opportunity to review the details on a deeper level and contribute to the organization’s decision-making.

 

At the end of the day, the board of directors should take a strategic, big-picture approach to financial information. They don’t need to concern themselves with day-to-day operations. The nonprofit’s professional staff should handle that.

 

Have questions about the financial responsibilities of your board of directors? We can help with board consultations and education! Let’s talk!