What is the Board’s Role in an Organization’s Budget?February 22, 2016
Without strong financial controls and a detailed budget your organization will certainly struggle.
It is the duty of the Board of your organization to ensure that all assets are used according to donors’ intentions, grant and contract requirements, compliance with federal and state laws and regulations in support of the overarching charitable mission of your organization. The Board has many fiduciary responsibilities to ensure these objectives are achieved in the most effective way possible. The Board acts as Trustee of the organization’s assets and has ultimate accountability for all matters of the organization.
Financial duties of your board
An essential task of the Board is to tailor the financial and governance policies around the risks, operations, and structure of your organization. A budget’s final destination is the Board, and from there it is either adopted or rejected. There are a number of financial policies and practices that your board can implement that will serve your organization’s financial needs and create an effective budget. This includes (but is not limited to):
- Maintaining accurate financial records. You need to gauge how funds are allocated in your organization—and the only way to do this is to look at your history, which is hopefully both detailed and accurate.
- Compiling a detailed list on authorities in the organization cleared to spend funds, sign checks, and administer and approve payroll. Make sure that no one besides your cleared authorities are deciding on how your organization is spending funds. It is also prudent that all decision makers have access to the budget and year-to-date activity for each budget line item they are responsible for. Keep in mind that if too many people decide on spending, your organization will inevitably run into issues regarding your budget. More importantly, restricted funds could end up being spent which will cause further issues.
- Summarizing executive compensation. Salary discussions are sensitive and need to be objectively decided on. It is crucial that there are no conflicts of interest regarding who is deciding on compensation. Read our recent blog on executive salaries and appropriate conduct in this area for more information on this topic.
- Creating a gift acceptance policy. Gift acceptance policies provide guidance on when your organization should refuse gifts that could potentially cost money, time, and maybe even your reputation.
- Creating a conflict of interest statement. Conflict of interest statements are a crucial part of nonprofit governance and outline how your organization will handle situations where employees or executives are getting unfair advantages.
- Considering large expenses and new projects that fit within your budget. How are your plans for your organization fitting into the budget this year? It’s great to have goals on improving your organization, but how are you going to financially make this possible?
- Create a capital expenditures budget. In many cases a budget only factors in the profit and loss activities and often times other cash requirements such as purchases of equipment, vehicles, major repairs and related loan payments, etc., are not factored in.
- Consider restricted funds in the budget. It is vitally important that you consider what money is actually available to you vs. money that is restricted for a donor-designated purpose.
- Whistleblower protection policy. This policy will protect your employees from retaliation in the event that they witness financial malpractice or other questionable activities and alert you or other executives about it.
When looking at the budget, the Board will be able to decide how the guidelines are being met, if the organization’s priorities are in line with its vision and how effectively donor funds are being used to support the nonprofit’s mission. If you have a CPA on your Board, use his/her knowledge to your advantage, but be mindful of this member’s time and energy on the financial function for your board. Many times they also have valuable insight and problem solving skills that can be used to benefit other functions of the Board.
Wondering how your organization’s financial management system measures up? Read our recent blog, “Is Your Nonprofit’s Financial Management System Up to Par?”
Questions? Contact any member of our Not-for-Profit Services Team.