As part of a non-profit’s board, the finance committee has a fiduciary responsibility to oversee all financial matters, ensure that budgeting and spending align with your mission, and keep your non-profit organization (NPO) financially accountable.
Since these duties can seem daunting to anyone new to non-profit financial management, we look at the most common non-profit finance committee responsibilities.
First, let's review the basics of NPO finance committees. The finance committee is a vital component of a non-profit organization's governance structure. It is primarily responsible for overseeing the organization's financial health, ensuring accountability, and supporting the board in making informed financial decisions.
NPO Finance Committee Members
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.
Non-Profit Finance Committee Responsibilities
Here are the key responsibilities an NPO finance committee should be prepared to carry out while providing financial oversight to its organization.
1. Maintaining Financial Records
One of the committee’s most important duties includes ensuring the non-profit’s financial records are accurate and complete. The importance of financial oversight and reporting can't be overstated. They involve:
- Reviewing Financial Statements: The committee should regularly examine financial reports, including income statements, balance sheets, and cash flow statements, to monitor the organization's financial status.
- Ensuring Accuracy: It should verify that all financial information is accurate, complete, and prepared in accordance with applicable accounting standards.
- Budget Monitoring: It should also compare actual financial performance against the budget and investigate significant variances.
That means that the committee must regularly verify important financial aspects of NPO operations like:
- 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 an NPO board fulfill its oversight function.
2. Budgeting and Financial Planning
Finance committee members typically work with leadership staff to develop, approve, and monitor your organization’s annual budget and spending plan. Key NPO finance committee activities include:
- Developing Annual Budgets: NPO finance committees should collaborate with management to prepare the annual operating and capital budgets aligned with the organization's strategic goals.
- Long-Term Financial Planning: An NPO finance should assist in creating multi-year financial forecasts to ensure long-term sustainability.
- Recommending Adjustments: It should suggest budget modifications based on changing circumstances or priorities.
In addition to managing mission-related costs, non-profit finance committee responsibilities often include predicting and planning 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
The NPO finance committee must also present these financial goals and proposals to the full board for approval.
3. Preparing Internal Financial Reports
Since the board of directors is responsible for decisions that affect your operations, they must have access to accurate, up-to-date financial information. At a foundational level, the finance committee should fulfill the following tasks as core to their reporting to the NPO board:
- Prepare Reports: Provide the board of directors with timely and accurate financial information to support decision-making.
- Highlight Issues: Identify and communicate significant financial matters that require board attention.
- Educate Board Members: Help board members understand financial statements and the implications of financial decisions.
More specifically, the NPO 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 the NPO finance 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
NPOs have multiple legal and financial reporting requirements (to the CRA or your funders, for example) impacting their tax status and eligibility for grants or contributions. Specifically, the NPO finance committee should:
- Communicate with Donors: Provide financial information to major donors and funders as required.
- Engage with Financial Institutions: Maintain relationships with banks, investment firms, and other financial service providers.
- Regulatory Bodies: Interact with governmental agencies regarding compliance and reporting issues.
Not only do nonprofit finance committee responsibilities include ensuring these requirements are met, but 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. Broadly, this means:
- Establish Internal Controls: Ensure that effective systems are in place to protect assets, manage risk, and prevent fraud.
- Policy Development: Develop and regularly update financial policies and procedures, including those related to expenditures, investments, and cash management.
- Risk Assessment: Identify financial risks and implement strategies to mitigate them.
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
The NPO committee may also need to ensure compliance by establishing accountability policies around compensation, gift acceptance, contracts, insurance, loans, capital purchases, or cybersecurity.
6. Monitoring and Managing Audits and Investments
Smaller non-profits may require their finance committee to handle duties typically reserved (in larger organizations) for investment and audit committees.
For audit-related tasks, this could include:
- Hiring an external auditor: It may have to facilitate annual audits by selecting auditors, reviewing audit scopes, and ensuring access to necessary information.
- Overseeing the auditing and follow-up processes.
- Determining whether to use the same auditor in subsequent years
- Review Audit Findings: Examine audit reports and management letters and oversee the implementation of recommendations.
- Regulatory Compliance: Ensure compliance with all legal and regulatory financial reporting requirements, such as tax filings and disclosures.
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: Create guidelines for investing the organization's funds, balancing risk and return in line with the organization's objectives.
- Hiring an investment advisor or manager
- Monitor Investments: Regularly review investment performance and make adjustments as necessary.
- Endowment Oversight: If applicable, oversee the management of endowment funds to ensure adherence to donor intentions and legal requirements.
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 to support 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.
