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Building A Nonprofit Board That Understands Financial Stewardship

Not every nonprofit board member needs to be a financial whiz to effectively serve on a board. But some general knowledge about financial literacy will bode well.

Why? Because no one wants board members approving budgets that they don’t fully understand or making decisions to expand staff when they aren’t clear if the budget can withstand additional salaries and benefits or voting on fundraising approaches when they don’t understand cost/benefit analysis.

You want board members who are able to successfully function in the role of financial stewardship of your nonprofit.

Here’s how you can build that board.

  • Beware the true cost of ignorance

  • Make sure members understand Duty of Care

  • Start at the recruitment stage

  • Onboard and educate new board members

  • Hold monthly meetings

  • Take advantage of National Literacy Month

  • Teach them about fundraising

  • Prepare for year-end giving and Giving Tuesday

Beware the true cost of ignorance

First, understand what’s at stake.

You may be surprised by the countless decisions being made by board members who are clueless about the true cost of ignorance in this area.

Have you heard the one about the nonprofit board with a $19 million dollar budget squabbling about $1,000 spent on new iPad covers for staff? This is time wasted on so many levels and a clear signal that this board lacks a clear understanding of their role in financial stewardship.

Their role isn’t to get bogged down in the day-to-day minutia about the cost of tablecloths or small equipment if the budget can support it. Their roles and responsibilities have greater weight.

Make sure members understand Duty of Care

When searching for potential board members, make sure they understand Duty of Care. Duty of Care, one of the three tenets of the fiduciary accountability of boards, states that boards are responsible for everything required to keep the organization functioning, in business, and out of any legal trouble.

This means board members need to ensure accurate record keeping and monitor financial transactions. To overlook this important responsibility is to put the nonprofit and its stakeholders at risk.

This may be the one area of oversight that board members are less excited about. We get it. It’s not sexy. Reading financial statements, analyzing data, reviewing the Form 990 before it’s filed, approving policies related to conflicts of interest, tapping into reserves, and conducting internal audits might not light your fire. Fortunately, members of your Finance Committee should have expertise that will allow them to take a deep dive into the numbers.

Start at the recruitment stage

The Governance Committee, responsible for ensuring the board can fulfill its fiduciary responsibilities, should work with the Finance and Fundraising Committees to create an Education and Training Plan with consistent opportunities for board members to learn about finances and fundraising.

The huge responsibility of financial stewardship should be discussed with interested persons wanting to serve on boards at the recruitment stage.

Why? Because with the perks and benefits of board service like meeting great people who are also passionate about the mission, honing your leadership skills, and making a difference for others comes the task of maintaining strong financial oversight.

Onboard and educate new board members

Your orientation for new board members should include training on financial competence. One way to do this is to distribute a financial glossary to explain terms like audits, liquidity, unrestricted net assets, internal controls, operating reserve, and risk assessment and liability. You should also discuss policies and allow ample time for questions and answers.

Simply getting new members to understand how to read a finance statement is another first step to financial literacy for board members. Early in their tenure, board members should also be clear about the roles and responsibilities of the Treasurer and Finance Committee.

Hold monthly meetings

The three basic financial statements most nonprofits use should be reviewed monthly. These include:

  • Statement of Financial Position or the balance sheet

  • Statement of Activities or the revenue and expenses

  • Statement of Cash Flow or the inflow and outflow of cash

You may find it helpful to use a financial dashboard to make the data easily digestible. Some dashboards use colors to orient towards actions the board should consider and show trends to reveal setbacks and progress. This might be helpful for members who are better visual processors.

In addition to reviewing those reports, understanding the significance of the Form 990 is a must for boards. This document is the outward face to the world. Funders will review your organization’s Form 990 to learn about your story. It’s a snapshot of mission, organizational structure, new programs, revenue and expenses by program, overall financial status, and the health of any nonprofit. Making sure the form is filled out correctly is a clear responsibility of the board.

Take advantage of National Literacy Month

April is National Literacy Month and the end of the first quarter of the calendar year. This is a great opportunity to spend a little extra time on financial literacy for board members. Use videos, assessments, group exercises, and role plays to educate and train them. A simple search on Google will net lots of ideas and options.

Teach them about fundraising

In the 2021 Nonprofit Leadership Impact Study conducted by NonprofitPro, 41% of organizations surveyed cited understanding fundraising as a top challenge for their boards.

Boards that understand financial stewardship do a bang-up job of providing their members with fundraising training and toolkits to help them actively participate in fund development for their nonprofits. This training should be provided by the Chief Development Officer or an outside consultant.

The toolkit can include a fundraising glossary, an understanding of what donors want, trends in donor behavior, how to make an ask, peer-to-peer fundraising tips, and information on use of digital tools and methods to reach more people more efficiently. Board members should also grasp the role they play in fundraising by becoming major or monthly donors.

Prepare for year-end giving and Giving Tuesday

Since 35% of all annual charitable giving happens between September and December, it would be smart for the board to engage in an internal audit in early summer to check how well the organization is poised to reach its projected targets for the heavy giving season based on cultivation of donors and fundraising to date.

Boards that get financial stewardship exercise diligence in the oversight of the financial interests of their organizations. They establish an environment of transparency and accountability. They ask hard questions, and they’re not intimidated by financial statements and budgets. They know that for their organizations to be positioned well for future growth, they must be intentional about being chief stewards who inspire confidence among key supporters and others willing to advocate for their causes.

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