“Overall, the board’s failure to fulfill its fiduciary duty resulted in a significant overpayment to [the Executive Director] and a misuse of taxpayer funds.” This is from a recent Boston Globe article about mismanagement at a charter school. It pains me to see these articles. I’m taking one piece of this: the role of Fiduciary Oversight on the Board, and specifically the roles that are necessary to ensure the full board knows how to be responsible fiduciary agents.
TREASURER: This person doesn’t have to be a CPA but she should be very comfortable reading and understanding the organization’s financial statements. Below I lay out some of that person’s key tasks.
AUDITORS: The treasurer should create a relationship with the auditors of the organization, who are hired BY THE BOARD, not Management. If the treasurer is new to the sector or the organization, meeting with the auditor is crucial. Auditors don’t necessarily commit to regular meetings through the year, but they should be seen as a critical resource.
BANK STATEMENTS: I would suggest that the treasurer should be reviewing the bank reconciliations every few months: ensure they are being completed monthly, review the general bank balances and scan the copies of the checks returned. Why? If they aren’t being done, it’s an immediate red flag which should be discussed with the Executive Director. Reviewing statements is a great way to get a real feel of cash flow: how much do the balances vary through the month? How many checks are written? How often does cash come in? Reviewing checks ensures they are legit (I worked at one very small nonprofit where the office manager stole some checks and forged my signature L). If your nonprofit is more automated, using something like Bill.Com, does the treasurer understand the approval process? It’s a great way to ensure separation of duties and accountability.
FINANCIAL STATEMENTS: The treasurer should review financial statements with the ED before every board meeting and be the one to present them to the full board: this ensures that at least one board member is reviewing them in detail. The treasurer should review drafts of audit and tax returns and ensure the auditor meets with the full board to review them annually. Ideally, the treasurer designs and in some cases creates a dashboard summary that serves to help the Board digest key information.
PLANNING/FINANCE COMMITTEE: The treasurer is usually chair of the finance committee. This should be the group that is focused on long term planning as well as initial problem solving for financial issues beyond the day to day, such as annual budgets, borrowing, cash flow planning, endowment development and organization expansion. This often falls to the Executive Director, who may have more experience than any board member. So what’s the problem? The nonprofit structure requires that the Board holds the fiduciary responsibility for the “greater community”. Is the ED being fiscally responsible with budgeting? Is she thinking through the implications of new or changes to programs on cash flow and/or profitability? What should the Board expect to see in the first couple years of expansion or contraction of programs? Will extra funds need to be raised? There are a myriad of questions that should be considered, particularly during the budget process. The recent story about the charter school described how the Board approved a compensation package that was over 11% of the TOTAL BUDGET for the school. It’s a hard but necessary conversation that the Finance Committee must have with the leadership of the organization.
I am happy to a short term review and evaluation of your financial systems including the role and function of your treasurer and finance committee. I can help translate your financial statements for your board and to work with you to create a dashboard that has easily understood and relevant data. Your organization will be the stronger for it.
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