As a Not For Profit (NFP) board member, you might be under the impression that your responsibilities are met by attending meetings, or fulfilling the duties related to your specific committee assignments. While actively participating in these activities is certainly part of your role, serving on the board of a non-profit comes with certain legal, fiduciary requirements as well. This is one of the reasons why it is so important for every board member to become familiar with their NFP finances including the budget and other financial documents.

Understanding Your Fiduciary Duties

While the treasurer is responsible for overseeing the preparation of financial documents for the NFP, as well as safeguarding and accounting for cash, and other funds and assets, each board member is also responsible for the non-profit’s actions as a whole. This means that board members have a duty to ensure that funds are properly used and accounted for, that reasonable steps are taken to ensure that the NFP operates in an ethical and sustainable manner, and that all guidelines, restrictions, regulations and reporting requirements issued by various governing bodies are followed.

Key Financial Statements NFP Board Members Should Track and Understand

To fulfill your fiduciary requirements, there are some key financial documents you should familiarise yourself with and be comfortable tracking. By keeping up with your finances, you not only protect yourself and other board members from potential legal liabilities, but you ensure that you have the information that you need to make more informed decisions as well as to be able to take decisive actions when financial challenges loom, or new opportunities arise.

Review your Annual Budget and Related Components

An annual budget is simply a forecast of cash outlays, including fees and other expenses, as well as the cash that flows into your NFP, including amounts received from fundraising activities, grants, and the proceeds from sales of services or assets. It is important that the information that is used to compile the budget is reliable and accurate, and that any deviations from prior budgets in the past be backed up by solid financial information.

As you review your annual budget, keep an eye out for changes from prior years, and look for an explanation for any deviation. When looking to see if their budget is realistic, many boards find it helpful to compare their annual budget to those of other NFPs of a similar size and purpose. It is also important to determine if your NFP is operating at a net gain or loss, and how many months of cash it has on hand. While short-term losses are unavoidable at times, they can quickly add up and become unsustainable. One of the objectives of your board should be to manage your finances so that service levels, funding and growth are sustainable in the long term.

Don’t Forget Those Monthly Reports and Annual Statements

The annual budget isn’t the only financial document that you will want to be track. Monthly and interim reports are also important, as are annual statements. Make a point to keep up with your monthly and annual statement of position, as well as keep up with any changes to the donations that you receive, and track how they are allocated and spent. This is especially important when you receive funds that are earmarked and must be allocated and spent on specific items.

By keeping up with your monthly reports and interim statements, you can keep an eye on how much your actual receipts and expenditures deviate from your planned budget, and be in a better position to take fast action should your NFP experience an unexpected drop in donations or incur a sudden increase in various expenses.

Review Your Audited Statements

At some point, it’s likely that your NFP will have an unbiased professional to audit its books and finances. When this happens, the auditor will issue an opinion on the state of your finances and the relative financial health of your organisation. Looking over the information in the professional audit report can also provide valuable clues to any potential financial difficulties or even internal conflicts that might have escaped detection in the past.

Other Financial Concerns

Of course, there are other financial concerns that can impact the operation of your NFP and for which you should keep a watchful eye. Examples include making certain to periodically review your insurance coverage as well as taking steps to keep up with and track large donations received from individual entities as well as taking steps to avoid conflicts of interest between vested interests of individual board members and the best interest of the NFP.