On a scale of 0 – 10, how effective is your finance committee? Most organizations would probably answer between a 5 and 7 – they’re smart people and meet on a regular basis, but are they really adding much value? They definitely can if you give them some guidance about what matters.
The finance committee role is to provide oversight for the financial health of the organization and offer guidance to management. The finance committee does not necessarily exist to provide a detail review of the financial statements or to manage the accounting staff. The finance committee exists to monitor the big picture aspects of the organization’s financials. Is the organization operating with a sustainable business model? Pursuing the strategies set by the board of directors? Observing and responding to trends in cash flow, grantor funding and donor restrictions? Finance committees often get distracted by too much detail and focus on relative minutiae rather than the big picture view. It may not be easy, but consider phasing out the detail reports they’re currently getting and provide a dashboard that focuses their attention on what really matters. If you have a program that incurs a loss on a regular basis, make sure you’re explaining to the finance committee why that program is relevant and how it contributes to the mission and overall financial health of the organization. Many finance committee members come from for-profit backgrounds and don’t necessarily understand how to evaluate nonprofit financial health as a delicate balance of money and mission.
If you don’t currently have a formal finance committee, don’t worry. As long as someone on the board is providing some oversight for the accounting function of your organization and asking the tough questions, you’re probably fine. Hold staff (or whomever is handling the accounting function) accountable for timely, accurate financials. Most grantors require it and your donors deserve it.
