BoardBuilder October 2003

FINANCIAL/FIDUCIARY/AUDIT RESPONSIBILITIES
OF THE NONPROFIT BOARD

The “fiduciary responsibility” of board members refers to them being entrusted by the public to use the finances of the organization wisely and for what they were intended. There are many things a board member must learn and do, to be worthy of this trust. This responsibility is played out in many ways, some simple and some more complicated. The first simple action is for boards to insist that a current statement of income and expenses in comparison with the board-approved budget be presented at each meeting. A second, more complicated action is to learn to read and interpret those financials.

High functioning boards orient new board members and re-orient all board members periodically in the reading and interpretation of the financials. You should not assume that even a board member with much prior experience can read your financial statement. It may be an entirely different format than what they have seen in the past.

The finance committee or audit committee of the board should periodically conduct what is called an “internal audit.” This is a review of policies and procedures that affect how you do business and manage your financial affairs. The purpose for the audit is to ensure that you use generally accepted accounting methods; that you comply with laws and regulations (timely filings of state and federally required documents; payroll taxes being paid, etc.); that you are providing reliable financial information; and that generally your organization is operating efficiently (overhead costs kept to a reasonable percentage of revenue).

This oversight assures that policies are in place to segregate financial duties, protect cash receipts, require second signatures on large checks, keep track of inventory, ensure an efficient periodic bidding process for vendors (including the auditors), produce timely reports and maintain accurate records. These controls create a firm base for the outside financial audit of the organization.

The finance or audit committee of the board requests bids from auditors and then may recommend an auditor for the board to hire. The executive director and finance director of the organization can offer opinions, but remember that the auditor works for the board of directors, not for the organization’s management. Reports regarding the findings of the audit should be addressed directly to the board by the auditor. This process is in itself a safeguard.

Having an investment policy will help guide the group in investing its assets – both long- and short-term. Developing the policy will assist the board in thinking about and defining the organization’s goals and understanding its fiduciary responsibilities. This kind of work, spending time considering the long view, is a feature of high-functioning boards.

Good boards put these processes in place so that they can consistently attend to their work over the long haul. No matter how much change the board has had in its composition of members, these policies exist to guide their actions.

For additional information visit the Nonprofit Resource & Training Center and take a look at The Policy Sampler: A Resource for Nonprofit Boards, National Center for Nonprofit Boards, 2000, or log on to: www.boardsource.org/QnA.asp?Category=16.

To find a nonprofit accountant, go to: The American Institute of Certified Public Accountants’ website: www.aicpa.org/index.htm  Or in Connecticut contact Community Accounting Aid and Services, Inc. (CAAS): caas@sba.uconn.edu.  If your organization is new, CAAS may be able to provide an accountant pro bono to help set up your bookkeeping or to teach your board to read the financials.