Duties of a Nonprofit Finance Committee

A Finance Committee plays a crucial oversight role in a nonprofit organization, ensuring its financial health and stability. It acts as a vital link between the board of directors, the organization’s financial staff, and external stakeholders.

Key Responsibilities

The primary duties of a nonprofit Finance Committee are multifaceted:

Financial Oversight

This is the committee’s cornerstone. It involves reviewing and understanding the organization’s financial statements (balance sheet, income statement, cash flow statement) to monitor financial performance. They assess budget variances, identify potential risks, and recommend corrective actions to the board. Regular audits are also essential, and the committee oversees the selection of auditors, reviews audit results, and ensures compliance with accounting standards.

Budget Development and Monitoring

The committee actively participates in the annual budget process. This includes reviewing revenue projections, expense allocations, and program budgets. They scrutinize the proposed budget to ensure alignment with the organization’s strategic goals and financial sustainability. Throughout the year, they monitor budget performance against actual results, identifying and addressing any significant deviations.

Investment Management

Many nonprofits have investment portfolios. The Finance Committee is responsible for establishing investment policies that align with the organization’s risk tolerance and long-term financial goals. They monitor investment performance, ensuring compliance with the established policies and engaging with investment advisors as needed. Proper diversification and responsible investment strategies are key priorities.

Financial Policies and Procedures

The committee develops and maintains comprehensive financial policies and procedures, covering areas like cash management, purchasing, accounts payable, and receivable. They ensure that these policies are documented, implemented, and regularly reviewed to maintain internal controls and prevent fraud or mismanagement. This often involves monitoring compliance with grant requirements and other funding stipulations.

Risk Management

Identifying and mitigating financial risks is a critical function. This includes assessing potential threats to revenue streams, managing liabilities, and ensuring adequate insurance coverage. The committee should also develop contingency plans to address potential financial crises.

Reporting to the Board

The Finance Committee regularly reports its findings and recommendations to the board of directors. This ensures that the board is well-informed about the organization’s financial condition and can make informed decisions. The committee also answers questions and provides context to financial information.

Compliance

Ensuring compliance with all applicable laws, regulations, and accounting standards is paramount. The committee stays abreast of changes in these areas and takes steps to ensure the organization’s financial practices remain compliant. This can include monitoring IRS regulations, state reporting requirements, and generally accepted accounting principles (GAAP).

A well-functioning Finance Committee is vital for a nonprofit’s long-term sustainability. Its members contribute their expertise to guide the organization’s financial strategy, protect its assets, and ensure its resources are used effectively to achieve its mission.