Financial Duties of NonProfit Boards

Last week’s blog post, “Financial Skills for Effective Nonprofit Boards,” described some professions to keep in mind when recruiting finance-savvy Board members. This week, we talk about the financial duties of nonprofit Boards to fulfill the stewardship and oversight role known as “Fiduciary Responsibility.” 

Understanding how to fulfill fiduciary responsibilities is critically important because nonprofits collect and spend other people’s donated money. Plus, the term “Fiduciary Responsibility” is legally defined. Failure to act with due care and loyalty to the organization can have serious consequences, such as loss of public trust. 

Responsible and effective nonprofit Boards engage in these four activities to fulfill fiduciary duties to oversee the organization’s finances:

  • Establish Financial Policies

Documented policies are essential for establishing a common understanding and framework for overseeing the organization’s financial resources. Board-level financial policies define authority, delegation to management, investment objectives, risk tolerances, and risk mitigation activities to protect and preserve assets.

  • Monitor Financial Performance

Board members must receive complete periodic financial statements to oversee financial performance in relation to the budget, financial ratios, and other objectives. Financial oversight responsibilities can be performed by a Finance Committee but results must be reported to the full Board.

  • Ensure Audit or Independent Review is Conducted

The Board must be familiar with financial statement audit and IRS information reporting requirements. If applicable, based on income and asset levels, the Board is responsible for hiring the auditor and receiving the audit results. Nonprofits with income and assets below the audit thresholds should consider an independent financial review.

  • Take Corrective Action on Audit/Review Results

The results of any audit or independent financial review should be received by the Finance Committee and reported to the full Board. Reported issues or risks should be acted upon. The action plan and progress on taking corrective action should be documented and reported to the full Board.

Nonprofit Boards that address these four financial oversight activities are more likely to make appropriate financial decisions, and helps ensure that the nonprofit meets donor expectations to protect and preserve the organization’s assets, and to ensure that regulatory and legal requirements are addressed. 

Want to know more? Check out these resources for Nonprofit Boards at