Most organizations strive to recruit members for their Boards that have a variety of skills that can be put to use for the benefit of the organization. No matter the skill set of the individual members of your Board, they all have one thing in common – they bear a fiduciary responsibility to your organization. To fulfill this responsibility, they must act in good faith and with the care that an ordinarily prudent person in a like position would exercise under similar circumstances.
Regarding the oversight of your organization's finances, this can be a difficult area for your Board members who do not have a financial background to wrap their arms around. However, Board members do not have to be financial experts in order to effectively exercise this responsibility. In exercising their fiduciary responsibility, they are entitled to rely on opinions and information presented by others who have this expertise. Thus, they simply need a combination of common sense, some basic training and a willingness to ask questions of those who do have financial backgrounds.
Even the most non-financially oriented of your Board members have a basic understanding of finance simply from managing their personal finances. All of us understand the basic idea of whether we have sufficient cash to pay our upcoming bills. While the finances of any business are going to be more complicated than those of most individuals, the concepts we each use in managing our personal finances are easily applied to the organizations' Boards of which we are members.
However, for those members who do not have experience with business finances, a little training, as early as possible in their Board service, will certainly be helpful. A review of your organization's most recent financial statements and 990 is often a good place to start. While this review does not have to get into the fine detail of every line item, understanding what is included in receivables, payables and various accruals can give your Board member an idea of what, if any, concerns the organization faces and what some possible solutions to those issues may be. The financial statements will also include information about the types of programs the organization runs, the significant sources of revenue and the major categories of expenses and the overall financial health of the organization.
The 990 contains much of the same information and also includes information about the governance of the organization, some of the fiscal and other policies the organization has in place, and the accomplishments of the organization. It may also contain explanations of other aspects of the organization that you want to highlight for the public.
No matter the subject at hand, your Board members should always be comfortable asking questions of others who have expertise in the topic. This certainly holds true when the topic is finance. Those members who do not have expertise should never hesitate to ask questions of those on the Board who do, as well as asking other advisors to your organization, such as attorneys, outside CPA's, or investment advisors.
Everyone on your Board does not have to be a financial expert for the Board to fulfill the financial aspect of exercising its' fiduciary responsibility. Using common sense, asking questions, and receiving some basic financial training will give your Board the tools they need to prudently help manage your organization's finances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
