How to maintain proper fiscal oversight through nonprofit boards

Many people join a nonprofit board of directors because they are passionate about the organization’s mission. What they really want to do is to help the organization accomplish it, but there is a host of governance responsibilities that go along with that.

Marie Brilmyer, CPA, M.Acc., a director of assurance services at SS&G, says nonprofit boards need to think about strategy, monitoring, oversight, compliance and financial health like a corporate board.

“A board needs to think ahead,” she says. “It needs to be sure that the organization can fulfill the mission today and tomorrow. It can’t be uncomfortable with profit because a model where an organization continues to lose money, and is budgeted to do so, is clearly not going to be sustained.

“While there are different nuances, at the end of the day, they really need to be looked at, whether it be for-profit or nonprofit, in a similar manner with regards to finances.”

Smart Business spoke with Brilmyer about the nonprofit board’s role in creating smart, sustainable fiscal decisions.

Many nonprofit board members are from the corporate world. How similar are the two board types?

It’s not that different. Nonprofit boards look at the executive director’s performance; corporate boards look at the CEO’s. Corporate boards look out for investors; nonprofit boards look out for the donors. The two discuss compensation, internal controls and fraud risks. Each of the respective boards’ charges can be aligned.

Nonprofit boards often have people with financial backgrounds for their expertise. The organization looks to the board to set financial policy and help management make decisions. Boards go through the budget process, review financial reports regularly, ensure investments are prudent and oversee compliance. Compliance is key because nonprofits follow rules and regulations for gifts, endowment restrictions, fundraising, lobbying, tax filings and private inurement, when a 501(c)(3)’s money is devoted to private use, not charitable purposes.

What can happen if the oversight falls short?

Not only could the nonprofit organization be unsustainable, it could lose its tax exemption status. Recently, there’s been a slight trend of nonprofits, especially in Ohio, losing that status by not properly filing taxes. Although recent IRS regulations make it easier to regain tax-exempt status, it can still cripple the organization.

How should a board be set up?

Boards need to discuss financial matters routinely, which might be more often than standard board meetings occur. At every meeting, the board should receive a formal report from the treasurer or staff — and then ask questions of those reports. Check for consistency from period to period.

Monitor restricted dollars regularly. If a donor donates money for a specific purpose, such as a scholarship, somebody must keep track of that donation to ensure it gets used for what it was intended.

Examine the organization’s internal controls. In a small organization with few employees, the board should see if it could possibly be part of that internal control function, such as acting as a check signer or reviewing certain transactions.

Assess the capabilities of the accounting staff. Is the bookkeeper capable? Are things being recorded properly, or is it somebody who is inexperienced? Assessing this upfront can help lessen the headache later when things have to be cleaned up.

Always check on compliance, whether taxes or other areas. The board needs to review and approve of tax filings, making sure they are going out the door properly.

Finally, assess the fraud risks and see if there is potential for fraud. Does staff have an open line of communication to the board? Direct communication can head off fraud that may occur later.

Board members need to know what their responsibilities are, and if for some reason they can’t fulfill them, especially for complicated matters, seek outside council.

Do board members get nervous about finding funds to pay for outside expertise?

That’s always the No. 1 concern, but often the board gets accountants involved too late. You can save time, energy and money by setting things up properly first, rather than going back in after something has been accounted for incorrectly.

Marie Brilmyer, CPA, M.Acc. is a Director of Assurance Services at SS&G. Reach her at (330) 668-9696 or [email protected].

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