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Nonprofit Finance Committee – Who, What, Why & When

Nonprofit Finance Committee – Who, What, Why & When

By: Dean Dorton | June 8, 2023

Each finance committee is unique to the culture of the organization it serves, but a transparent structure and accountability can go a long way to advancing the mission of the organization as whole.

Accounting and Financial Outsourcing | Nonprofit & Government

The finance committee plays a vital role in nonprofit organizations by providing oversight and guidance on financial matters. Its primary responsibility is to assist the organization’s governing board in fulfilling its fiduciary duties related to financial management.

The Finance Committee’s Roles in a Nonprofit Organization

  • Financial Planning and Budgeting: The finance committee helps develop the organization’s financial plans and budgets. It reviews and assesses the financial implications of strategic plans, program initiatives, and resource allocation. The committee collaborates with the executive director and finance staff to ensure that financial projections align with the organization’s goals and objectives.
  • Financial Reporting and Analysis: The committee reviews and monitors the organization’s financial statements, reports, and financial performance indicators. It ensures that accurate and timely financial information is provided to the board for decision-making. The committee also analyzes financial data, identifies trends, and makes recommendations to improve financial efficiency and sustainability.
  • Internal Controls and Risk Management: The finance committee oversees the establishment and monitoring of internal controls and financial policies. It helps mitigate financial risks by ensuring compliance with applicable laws, regulations, and accounting standards. The committee may also engage external auditors to conduct independent financial audits and reviews.
  • Fundraising and Revenue Generation: The committee collaborates with the development or fundraising team to provide financial expertise and strategic guidance. It assesses the financial feasibility of fundraising campaigns, evaluates revenue diversification strategies, and monitors the organization’s fundraising performance. The committee may also review grant proposals, major donor strategies, and sponsorship agreements.
  • Investment and Asset Management: If the nonprofit organization has investment funds or endowments, the finance committee may oversee the management and investment of these assets. It establishes investment policies, selects investment managers or advisors, and monitors investment performance. The committee ensures that the organization’s investment activities align with its mission, risk tolerance, and legal requirements.
  • Compliance and Legal Oversight: The finance committee ensures compliance with financial reporting requirements, tax regulations, and other legal obligations. It may review and approve financial policies, procedures, and contracts. The committee also stays informed about changes in financial regulations and recommends appropriate actions to maintain compliance.
  • Board Education and Governance: The finance committee may provide financial literacy training to board members to enhance their understanding of financial matters. It supports the board in making informed financial decisions and ensures that the organization follows good governance practices. The committee may also participate in board meetings, providing financial updates and recommendations.

Overall, the finance committee plays a critical role in ensuring the financial health, accountability, and sustainability of nonprofit organizations. Its expertise and oversight help maintain financial transparency, safeguard assets, and support the organization’s mission and strategic objectives.  Establishing a charter is a valuable step toward maintaining committee focus on its important role and tasks.

The Finance Committee Charter

Generally speaking, the charter for a finance committee serves as a guiding document that clarifies the committee’s purpose, authority, and responsibilities. It helps establish a framework for effective governance, accountability, and collaboration within the committee and the broader organization.  The charter should provide detail in the following areas and may also include an annual calendar of specific duties:

  • Clarity of Purpose: The charter clearly defines the purpose, roles, and responsibilities of the finance committee. It outlines the committee’s objectives, areas of focus, and authority, ensuring that all members have a shared understanding of their roles and expectations. This clarity helps the committee stay focused and aligned with the organization’s financial goals.
  • Governance and Accountability: The charter establishes the finance committee as a formal governance body within the organization. It outlines the committee’s reporting structure, decision-making processes, and accountability mechanisms. This ensures that the committee operates within the governance framework of the organization and is accountable to the board of directors.
  • Structure and Composition: The charter defines the structure and composition of the finance committee, including the number of members, qualifications, and appointment process. It helps ensure that the committee has the necessary expertise and diversity to effectively fulfill its responsibilities. The charter may also outline the term limits and rotation of committee members.
  • Authority and Scope: The charter clarifies the authority and scope of the finance committee’s activities. It outlines the areas of financial oversight, such as budgeting, financial reporting, internal controls, fundraising, and risk management. This helps prevent ambiguity and ensures that the committee has the necessary authority to carry out its responsibilities.
  • Decision-Making and Processes: The charter outlines the decision-making processes within the finance committee. It establishes how meetings are conducted, how agendas are set, and how recommendations are made. This ensures that decision-making within the committee is transparent, fair, and consistent.
  • Collaboration and Communication: The charter defines the committee’s relationship and collaboration with other stakeholders, such as the executive director, finance staff, board of directors, and other committees. It establishes communication channels and mechanisms for information sharing. This promotes effective collaboration and coordination between the finance committee and other parts of the organization.
  • Continuity and Succession Planning: The charter provides a framework for continuity and succession planning within the finance committee. It may outline procedures for the selection of committee chairs, rotation of leadership roles, and the transition of committee members. This helps ensure a smooth transition of responsibilities and knowledge transfer over time.

Each finance committee is unique to the culture of the organization it serves, but a transparent structure and accountability can go a long way to advancing the mission of the organization as whole.

For assistance in creating a charter or to address other pain points in your nonprofit organization, please contact Kaydee Ruppert.

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