Non-Profit Financial Oversight: A Balancing Act
How does a Non-Profit Board make sure that they are providing the financial oversight that an organization needs? Where does good governance stop and micro-management or an operational Board begin?
These are questions that a lot of my colleagues in the non-profit sector struggle with and which can cause a great deal of discord within an organization. Particularly if an organization has been through a crisis situation which required the Board to become a working board and be actively involved in operations for a period of time. Once those lines are blurred, it can be very challenging to restore the Board to a governance Board. And lack of clarity like this can lead to resentment, confusion and can even prevent key individuals from growing into a leadership position because the Board is filling the space.
There are a few necessary tools and processes that every Board member can rely upon to give them the assurance they need as financial overseers. They are: 1) Good financial reporting packages presented on a regular basis; 2) A thorough budget which the Board approves before each new fiscal year; and 3) An external audit (or at least an external financial review) done annually.
Board financial reporting packages typically include an Income Statement and a Balance Sheet. These two documents enable Board members to see how the organization is doing compared to the approved Budget for the fiscal year and to watch for certain indicators of success or concern.
In an ideal world, the Budget draft is prepared by the leadership team - with input from staff members involved in projects and operations - and is only approved by the Board. Occasionally, an organization needs to involve the Board in budget creation (for example: in the case of a start-up organization or in response to an emergency adaptation such as a sudden change in funders). In cases such as these, it may be wise to create a 'budget subcommittee' with a few financially savvy Board members to support staff in budget creation or adaptation for a definied period of time. As soon as possible, the organization should aim to return to budget approval by the Board with budget creation by the Executive Director and staff team.
Does your organization have these three key elements as part of their financial management structure? Are you content with the information you are receiving in your Board financial package?