Is your board equipped to handle financial oversight and risk?

For today’s nonprofit boards, financial oversight goes far beyond budgets and spreadsheets. Decisions around money and risk can either drive or derail mission-driven work. And with so much turbulence across funding models, leadership and regulatory expectations, boards are being asked to step up in new ways to protect and strengthen their organizations. 

That’s the spirit behind Beyond the Budget: Smarter Financial and Risk Oversight, a recent BoardEffect webinar. The conversation was moderated by Meghan Day, who leads strategy and operations for Diligent’s risk and audit business and serves on the board of the Alice Paul Center for Gender Justice. She was joined by Dr. Froswa' Booker-Drew, president and CEO of Solstice Consultancy, and Katherine Earhart, partner and co-founder of Fairlight Advisors.

Watch the full 45-minute discussion here, and read on for some of the highlights.

Does every board member understand their responsibilities?

Ensuring roles and responsibilities are clear for the board, executive director, key staff and others is especially important around board financial oversight and management. Dr. Booker-Drew noted that you should “use board meetings as an opportunity for education. When you have more established board members, how do you pair them up with newer board members?”

Moreover, education should be ongoing. She continued, “There is a danger in assuming that, because people have been on boards, they understand board governance and understand the running of a nonprofit. I've seen a lot of people who've been on dysfunctional boards who believe that they're doing right. Making education not just the governance piece of how to do Robert's Rules of Order. It's also making sure the education is embedded in your board meetings can be very helpful.” 

Empower the board to do its job

The board may understand its mission, but to be truly effective, every team member should feel comfortable asking questions about financial oversight or simply saying, “I don’t understand.” The responsibility for creating that culture is up to everyone.

As Earhart pointed out, “Board members don't necessarily know the right questions to ask. It's incumbent upon them to do their own research. And then it’s up to board leadership and organizational staff leadership to help the board with narrowing down what's most important to focus on.”

Dr. Booker-Drew noted, “Creating the space to ask questions is very important. You have to have a culture in your organization and on your board that allows people to not know and not have the expectation that everyone understands finances. So, how do we create a culture that is open to curiosity and not people feeling stupid, but people feeling empowered to ask questions and get the tools that they need to be supported?”

Understand your nonprofit’s risks

Every nonprofit is unique, and fully understanding the risks that lay on the horizon is the responsibility of every mission-driven leader. But identifying risks is just the first step for board members who are expected to steer the organization. 

Earhart described different types of risks that may lie ahead for an organization, citing a “key-person” risk as common: “The executive director or the CEO of the organization leaves or retires and benefactors will also part ways. ‘Well, my favorite person left.’ It seems odd to give to an organization based on one relationship, but sometimes that's how it works.”

Day cites a risk-assessing exercise her organization undertook. “We went through a pretty robust scenario-planning exercise this year in terms of what would happen if X, Y, and Z took place from a funding perspective,” she said. “We took the time as a board to think about the choices that we would make if those things came into effect that would have real repercussions for the organization.”

Get the right data in front of board leaders

The board needs clear, understandable, relevant data for the best, most efficient and most confident decision-making. This goes back to the importance of creating a culture that encourages asking questions.

Earhart noted, “As long as you create space in the organization to ask questions, you're bringing stuff down to the basic level of, ‘Do we have enough run rate? What is our cash reserve?’ It's equating it to your own life; you don't want to spend more than you make. Make sure that the board has those reports at a very simplified level. What is the cash flow for the next year? What are we keeping in cash reserves?”

Dr. Booker-Drew emphasized the importance of organization and being willing to change processes to get what the board needs: “I was a part of an organization that lost their 501(c)(3). And I remember a funder saying, ‘How did that happen on the board's watch?’ We entrusted the accountant who said those things were being done, but it wasn't happening. It forced us to start asking even harder questions. Let's make sure that we're looking at reports and questioning them a little bit deeper.”

Watch the full webinar for more tips and insight on financial and risk oversight from these experts.

BoardEffect offers other resources such as a guide to financial oversight and a cheat sheet packed with even more tips from more nonprofit leaders.

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