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Fiscal Responsibility

What does it mean to be fiscally responsible?

The most important governance role of a nonprofit’s board of directors is a fiduciary duty to ensure that the money the organization raises is spent wisely on programs directly related to the agency’s mission.  When people donate money to a charity they want to be assured that it is being spent responsibly.

BE TRANSPARENT – until it hurts!

Transparency is critical as it builds confidence in your members and donors.  Here are a few ways to be transparent:

  • Adopt procedures to ensure your annual reports and financial statements are complete and accurate
  • Make full and accurate statements about your mission, activities, and finances, publicly available on your website.  This can include your annual report, audited financials, Form 990, information on your corporate and foundation supporters, and the codes of conduct your organization has for sponsors.
  • Ensure your annual operating budget is approved and overseen by your Board of Directors
  • Show the outcomes and impact of your financials on the programs/services your organization provided

Remember: charities should not compensate members of the board of directors for their service, except to reimburse direct expenses associated with their services

BUILD IN OVERSIGHT – have financial guardians

All nonprofit organizations should have a sub-committee of their board for Finance, chaired by the treasurer.  This committee monitors weekly or monthly financial activities.  Large organizations are required to also establish an audit committee that will select and oversee an independent auditor, interpret the auditor’s annual report for the governing board, and make recommendations if any problems are found.  This committee is independent of the finance committee, and their work is performed yearly during tax season.

  • Ensure that an independent Certified Public Accountant (CPA), who is knowledgeable about nonprofit accounting requirements, conducts your annual audit
  • Change your auditor periodically to guarantee a fresh perspective on your financial statements
  • Independent volunteers are sometimes available to review financial information and practices

BE ETHICAL – avoid conflicts of interest

A patient organization’s members and the general public expect a charity to abide by ethical standards that promote the public good. The board of directors bears the ultimate responsibility for setting ethical standards and establishing organizational practices. Governing boards should consider adopting a code of ethics that describes the kind of behavior they want to encourage and the sort of behavior they want to discourage. Such a statement will communicate a strong culture of legal compliance and ethical integrity to members, donors and the community.

  • Your board of directors should adopt a “conflict of interest” policy that requires the directors and your organization’s staff to act solely in the interests of the charity without regard for personal interests
  • The policy should mandate timely disclosure if a conflict exists, and prescribe a course of action when identified
  • Directors should be required to disclose any known financial interest that the individual, their immediate family, or their affiliated organization/company has that conducts business with your organization
  • Board members should act in good faith and exercise due diligence