Roles of the Finance Committee
The finance committee is charged with overseeing and keeping the board of directors informed of an organization’s overall financial health. Ideally, this entails more than simply scanning financial reports.
The most valuable finance committees take a strategic role when it comes to oversight and planning. Active involvement not only pays off with robust financial governance, but also boosts the satisfaction levels of committee members. Conversely, members asked to do nothing more than routinely review reports may not stay engaged and may not find their involvement on the committee as rewarding as it could be.
Wide range of responsibilities
Although the exact parameters of the participation of committee members will vary based on factors such as staff size and organizational budget, the finance committee generally should be involved in the following tasks:
- Budgeting and Financial Planning
Before the budgeting process begins, the committee should identify key assumptions and initiatives that will influence the process. Members and staff must discuss internal and external factors that could affect budgets over the next several years, including an organization’s strategic plans. This includes considering issues relating to the industry (state/federal funding changes, expected donor changes, etc.)
- Financial Reporting
The accounting/finance team within the organization plays a huge role in the success of the financial reporting role of the finance committee. The committee should work with the accounting/finance team to ensure that financial information is available for their review on a timely basis. The committee then oversees the preparation and distribution of financial statements. It monitors the adequacy of the organization’s financial resources and their allocation toward the accomplishment of its mission. Simultaneously, the committee ensures that donor-imposed restrictions are being met. Additionally, the committee evaluates if the resources are sufficient to support expected program and operating expenses.
- Internal Controls
Strong internal controls are the biggest key to the detection and prevention of fraud in the organization. The finance committee should work with staff to develop effective controls and policies and document them. The committee also must make sure that approved controls are followed and that filing deadlines are met.
- Administration of Financial Resources
The finance committee establishes and confirms compliance with fiscal and related policies and procedures. Approved policies should reflect an organization’s specific circumstances, such as size and life-cycle stage, rather than just general “best practices.” The committee should take care, though, not to overstep. It must respect the line between the development of overall policies and the development of specific staff processes and procedures.
- Communication with the Board
The committee works with staff to determine the best way to convey information the board needs for sound decision-making. The main takeaway here is to find an effective way of relating financial information to the board. Board members may not understand the technical terms that may be a fluent language to the finance committee, so presenting information to the board in a way they understand is important.
While an active finance committee is crucial for an organization’s health and reputation, it is important to remember that fiduciary responsibility isn’t limited to the committee’s members. The entire board has the duty to safeguard an not-for-profit’s financial welfare as well:
If an organization does not have a separate audit committee, the finance committee also is responsible for independent audits. The committee must engage and regularly interact with the auditors, review the audit report and Form 990, present the audit report to the board and propose changes to implement any auditor recommendations.
Even if an organization does not have enough cash to support a separate investment portfolio, liquid funds need to be managed to maximize earned revenue. This means it falls to the finance committee to develop and execute an appropriate investment policy and retain qualified investment advisors, when needed. Depending on the size of the investments, an investment committee may be necessary.
A strong finance committee is important to the overall success of an organization. Knowing the roles and responsibility of this committee is a pivotal starting point for establishing this committee. Although the mission of the organization is always the top priority, don’t forget that the organization cannot exist if its finances are not managed properly.
For more information, contact Kevin Omahen at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.