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Board Fiduciary Responsibility

All nonprofit board members have a fiduciary responsibility to diligently oversee the financial operations of the nonprofits they govern.  Failure to receive timely, accurate information from the organization’s finance team can prevent the board and the finance committee from successfully executing on this responsibility, possibly creating disastrous consequences for the board when there is financial mismanagement that might otherwise been detected.

As is expertly described here, there are key questions that nonprofit board members should ask and that nonprofit finance teams should be able to answer on demand from their financial management and reporting systems that directly align with these board responsibilities.

  • Is our cash flow projected to be adequate? (Cash flow report)
  • Do we have sufficient reserves? (Statement of Financial Position)
  • Are any specific expense areas rising faster than their sources of income? (Budgeted R&E by Funder)
  • Are we regularly comparing our financial activity with what we have budgeted? (Budgeted R&E )
  • Are our expenses appropriate? (Proper categorization at point of data entry)
  • Are we meeting guidelines and requirements set by our funders? (Cost Allocations, Allowable Expenses)

Having the right financial management tools can help your organization in two ways:

  1. The ledgers you use to capture your financial activity must be sufficiently robust to allow for transactions to be recorded with enough granularity to meet all of your internal management and external compliance reporting responsibilities. Maintaining offline schedules and shadow repositories of financial information harms your finance team’s ability to be both timely and accurate in reporting
  2. The financial reporting tools not only need to provide a mechanism for retrieving the data from your ledgers, but they should also be sufficiently flexible and robust to allow you to present the information in a manner that useful for key audiences. In this post, that is the board. Can you interrogate your data and produce meaningful, timely reports that answer all of the above questions without taking the data out to excel for further massaging?

In summary, the finance team and the board have shared responsibility to make sure the organization operates in a financially sound manner and that well-informed decisions are made based on clear, accurate, timely data available on-demand from the financial management systems.

Interested in reviewing your systems? Want to know if you have the right tools in place? Take this FREE Self Audit

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