Since part of the board’s responsibility is to ensure that the organization is well-managed and financially secure, the board should be aware of and participate in the following three financial areas:
Financial policies: Organizations should have easily-understandable, written policies on how financial situations will be managed including policies on cash disbursements, check writing, bookkeeping, financial reports, audits, etc. These should be reviewed and updated as needed to respond to organization growth, new legislation or staff changes.
Annual Budget: Nonprofit boards should review and approve the annual budget. This provides a blueprint for the next year, and should reflect the organization’s mission and financial reality. It is also a good idea to revisit the budget at mid-year to make sure fundraising and spending are in line with expectations and, if not, to discuss necessary changes.
Financial Reports: Although some board members are likely to be more familiar with reading and interpreting financial statements than others, all board members should understand the basics and regularly review the organization’s overall financial situation (balance sheet), the major categories in which money is being raised and spent (income statement), and the timing of income and expenses (cash flow). It is often helpful to compare this information to previous years’ data to provide context for this data.