As part of your nonprofit’s board, the finance committee has a fiduciary responsibility to oversee all financial matters, ensure they’re in line with your mission, and keep your organization financially accountable.
Since these duties can seem daunting to anyone new to nonprofit financial management, this article will take a closer look at the most common nonprofit finance committee responsibilities.
Who should be on your nonprofit finance committee?
While a nonprofit background isn’t mandatory, it’s best if your finance committee includes:
- A committee chair—typically your board treasurer—committed to accountability and long-term financial stability (a CPA is ideal for this role)
- 3-4 members with experience in financial management
- At least one member with knowledge of nonprofit financial reporting (like a CFO or similar corporate accounting professional with experience supporting nonprofits)
It’s also important that the individuals overseeing your nonprofit’s finances aren’t staff members or tied to your organization in any other way.
6 Nonprofit finance committee responsibilities
Here are the key responsibilities your finance committee should be prepared to carry out while providing financial oversight to your organization.
1. Maintaining financial records
One of the committee’s most important duties includes ensuring your nonprofit’s financial records are accurate and complete.
That means regularly reviewing your:
- Revenue and expenses
- Budgeted vs actual amounts
- Cash flows
- Investments and other financial solvency matters
By verifying the accuracy of financial information—and sharing any discrepancies—the finance committee plays an integral role in helping your board fulfill their oversight function.
2. Budgeting and financial planning
Finance committee members typically work with leadership staff to develop, and then approve and monitor, your organization’s annual budget and spending plan.
In addition to managing mission-related costs, nonprofit finance committee responsibilities typically include predicting and planning around operational costs.
This may mean:
- Setting long-term financial health goals around the creation of working capital, cash reserves, or equipment funds
- Creating strategies to achieve financial goals
- Developing multi-year budgets that incorporate and support strategic planning
Your finance committee must also present these financial goals and proposals to the full board for approval.
3. Preparing internal financial reports
Since your board of directors is responsible for decisions that affect your operations, it’s critical that they have access to accurate, up-to-date financial information.
Your finance committee should work with leadership staff to:
- Determine which financial reports the board needs (and how often these should be shared)
- Review and understand the implications of monthly financial statements before presenting them to board members
- Create clear narrative reports that highlight key information about your nonprofit’s cash and financial position, resource allocation, budget adherence, and any donor-imposed contribution restrictions
It’s best if your committee establishes a predetermined list of expectations so staff will have time to prepare high-quality reports. This will help your board understand financial trends, risks, and expected outcomes better so they can develop informed strategies for handling financial changes or setbacks.
4. Meeting external reporting requirements
Your nonprofit will likely have multiple legal and financial reporting requirements (to the CRA or your funders, for example) impacting its tax status and eligibility for grants or contributions.
Not only do nonprofit finance committee responsibilities include ensuring these requirements are met, by keeping your financial information in order and properly documented, the committee helps your organization stay audit-ready.
5. Developing internal controls and policies
Developing and maintaining strong internal controls mitigates risk, protects your nonprofit’s assets, and improves financial reporting.
While your entire board shares in this responsibility, your finance committee leads the way in terms of:
- Ensuring internal controls for financial transactions are documented, followed, reviewed, and updated
- Assigning account signatories and overseeing filing deadlines
- Conducting risk assessments to help prevent fraud and preserve financial data integrity
Your committee may also need to ensure compliance by establishing accountability policies around compensation, gift acceptance, contracts, insurance, loans, capital purchases, or cybersecurity.
6. Covering audits and investments
Depending on the type and size of nonprofit, the finance committee may also have to handle duties typically reserved (in larger organizations) for investment and audit committees.
For audit-related tasks, this could include:
- Hiring an external auditor
- Overseeing the auditing and follow-up process
- Determining whether to use the same auditor in subsequent years
For investment-related tasks, this could include:
- Ensuring cash reserves and investments for long-term success are in place
- Drafting, overseeing, and updating investment policies
- Hiring an investment advisor or manager
Since it’s important to optimize earned revenue (even if you lack the cash to support a full-blown investment portfolio) nonprofit finance committee responsibilities also often include working with staff leaders to draft guidelines for putting excess operating cash into low-risk, short-term investments.
At the end of the day, every nonprofit needs a finance committee to help build and preserve resources for supporting its ongoing mission.
If you need a board treasurer to provide financial leadership and oversight to your organization, Enkel can help!
At Enkel, our experts have years of nonprofit accounting experience, allowing us to provide nonprofit organizations across Canada with controllership services that include budgeting, forecasting, and scenario planning.