Thursday, September 30, 2010

Dollars and Sense

One of the most fundamental legal responsibilities of all board members is prudent fiscal management.
This has become even more important due to a climate of increased scrutiny precipitated by numerous public scandals revolving around fiscal mismanagement by nonprofit Executive Directors, hand in hand with lack of board oversight. Yet more often than not, nonprofit boards fail to pay attention to their organizational dollars.

So: here are some guidelines about what you need to know:
  • Do your board members receive, read, and understand the organization's fiscal reports? Boards should be looking at financial statements on a quarterly basis at minimum. If you find these statements confusing, know that you are not alone - accounting is a foreign language to most people. Your job is to make sure the information is presented such that everyone fully understands the numbers and their implications.
  • Are your program costs aligned with your stated mission? It is the board's responsibility to ensure that your money is being spent on programs that directly further your mission.
  • Does your nonprofit have cash-management policies in place? Every organization should have basic financial controls in place to maintain the integrity of its bookkeeping process. The bottom line here is to have checks and balances, with more than one person handling fiscal responsibilities, plus secure storage of cash/checks.
  • Does your agency have a diversity of funding sources? Reliance on one single source of funds, whether an individual donor or a foundation, is dangerous. Ideally, you want a healthy mix of earned income, donor contributions, and grants.
  • Does your agency have a program reserve? A designated reserve fund that covers 3-6 months of operating expenses in case of a dire emergency is an essential.
  • Are you required to do audits? If your budget is $2 million or more, you are required by the IRS to have annual audits. If not, whether you do an audit is dependent on many factors including grant requirements, significant organizational change, and the size of your nonprofit.
  • Does the board maintain proper oversight of wages and benefits? Be sure your board reviews all employee compensation and benefits annually in conjunction with performance reviews. The Northern California Wage and Benefit Survey, available at, is a great resource for comparative data. Note that all nonprofits are now required by the IRS to have a written policy on Executive Director compensation.
  • Do you have the appropriate kind and amount of insurance? Every nonprofit should review insurance policies on a regular basis to ascertain whether the organization is properly covered.
The ongoing economic downturn has placed added stress on all nonprofits, and along with it, the need to truly understand your organization's financial situation as you make difficult decisions in regard to program and operating expenses. Don't be afraid to ask questions about your organization's budget and fiscal policies; in fact, it is your responsibility to do so.