How Board Members Can See the 'Big Picture' of Financial Oversight
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It's a challenge sometimes for board members to find the sweet spot in ensuring proper financial oversight. Some might think they need to see every financial data point in order to make an informed judgement, but that's not necessarily the case. Fortunately, nonprofit board members are allowed to consult experts and rely on staff to provide context, help interpret and demystify their finances. This gives board members the opportunity to not get super deep into the details but focus more on the big picture.
So, what is the big picture when it comes to understanding nonprofit finances? It will vary depending on the nonprofit's business model, but board members will naturally find themselves focused on the "big picture" when they consider and discuss how the nonprofit's finances tie in with the organization's mission, values and strategic objectives. Unfortunately, not all boards know where to begin when having these discussions.
One might think the solution here is simply to provide more education about the board's role in financial oversight and perhaps do some training in reading and interpreting financial statements. I am never one to say board education isn't a good thing - but it can't be the only thing boards do to pull their members out of the weeds (or out of the clouds) and focused on the nonprofit's finances at an appropriate depth.
Rather, board members should learn to ask each other substantive questions that resonate on a strategic level. For example, what kind of rich discussions could surface if the board asked any of the following questions when engaging in routine financial oversight activities?
- Approving the budget - Where should we focus our resources to best support our mission and goals?
- Reviewing monthly financial statements - Do we have the resources to fund our current programs and reach our long-term goals?
- Overseeing the annual audit - What do the audit outcomes tell us about the health and functionality of our organizational systems?
- Form-990 Review - How does this year's 990 statement demonstrate our organization's commitment to transparency and protecting the public trust?
Questions like these illustrate how conversations about finances need not be passive nor merely confined to the headings of "oversight" or "fundraising." Yes, boards need to make sure the organization is well resourced, solvent and free of waste, fraud and abuse. But the process of determining the organization's financial health allows boards to view financial oversight as a strategic duty as well as fiduciary. Taking such a view can only enhance the ways in which board members engage in the nonprofit's activities and set themselves up to be more effective in their service.
What questions would you ask to frame a board's strategic discussion about finances? How can boards learn to have these conversations more consistently and effectively? More importantly, what differences have you seen it make in your organization?