Fiduciary responsibility? Questions every nonprofit board should ask

What financial questions your board should ask?

For years I’ve been looking for a practical, easy to understand book on nonprofit finances to recommend to nonprofit boards and to use in the graduate class I teach at Brown University. Well, thank you to Andy Robinson and Nancy Wasserman for writing The Board Member’s Easier Than You Think Guide to Nonprofit Finances.

Too many boards leave oversight of organizational finances up to one or two people. So I asked Andy if he’d share his thoughts with you on what a board needs to know about its organization’s finances

By Andy Robinson

We can debate all the dimensions of board leadership – strategic planning, program oversight, serving as ambassadors on behalf of your organization, and so on – but one essential aspect is written into the law governing nonprofit organizations: fiduciary responsibility.

These are big words, and they don’t mean simply approving a budget or signing off on an audit. In the deepest sense, accepting fiduciary responsibility means integrating financial thinking into every aspect of board governance. If you don’t know the financial information by heart – if you’re not marinated in the numbers and understand why they’re important – it’s impossible to exercise that responsibility.

Consider the follow quiz questions. Could your board members answer these without flipping through a pile of paper?

• What is your organization’s annual budget?
• What are your current sources of income – and what would be the best mix of income for your organization?
• What are your largest expenses? What percentage of the budget do they consume?
• Does your organization have a reserve fund? How much is in it, and under what circumstances can it be used?
• What is your biggest financial risk?
• How do you use financial management tools to measure your impact? Does your organization compute the cost per unit of service: for example, for each client you help, or audience member you entertain, or acre you protect?
• What would help you better understand your organization’s financial situation?

If each of your board members can answer these questions with confidence and clarity, congratulations. If not, develop a training program to increase their financial literacy. The quiz questions above would be a great way to begin the training.

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You can’t go wrong with any of Andy’s many books, especially his newest Train your board (and everyone else) to raise money. (You’ll find an exercise from yours truly on the last page of this practical  workbook). Learn more about Andy at www.andyrobinsononline.com and www.trainyourboard.com.

And while you are trolling the Emerson and Church website for Andy’s finance book, I hope you’ll also order a copy of my book How to Make Your Board Dramatically More Effective, Starting Today. 🙂