A nonprofit’s finance committee oversees and keeps its board of directors apprised of the organization’s overall financial health. This should be more than simply scanning financial reports. An active finance committee is crucial to maintain a nonprofit’s health and reputation. The success of your finance committee depends on your board, staff and committee members understanding the committee’s duties. 

Finance committee responsibilities

Although the exact parameters of committee member participation will vary based on factors such as staff size and organizational budget, the finance committee generally should be involved in the following:

1. Communicating with the board. The committee works with staff to determine the best way to convey information the board needs for sound decision-making. Not everyone understands financial statements and related jargon. Numbers require explanation and context; the committee must connect them to the organization’s mission, goals and strategies.
   
   
2. Budgeting and financial planning. Before beginning the budgeting process, the committee should identify key assumptions and initiatives that will influence the process. Members and staff must discuss internal and external factors that could affect budgets over the next several years, including your organization’s strategic plan. After approval, the committee monitors variances from the budget.
   
   
3. Financial reporting. The committee oversees the preparation and distribution of financial statements and sets expectations for the nonprofit’s staff about the level of detail, frequency and deadlines of other financial reports. The committee monitors the adequacy of the organization’s financial resources and the allocation toward accomplishing its mission. Simultaneously, the committee ensures that donor-restricted contributions are being met. Additionally, the committee decides whether resources are sufficient to support expected program and operating expenses. 
   
   
4. Developing internal controls. Internal controls are essential for protecting your organization’s assets. Have your finance committee work with staff to develop effective controls and policies and document them in a manual. It’s also up to the committee to make sure that approved controls are followed and filing deadlines are met. 
   
   
5. Administering financial resources. The finance committee establishes and confirms compliance with fiscal and related policies and procedures. Approved policies should reflect your organization’s specific circumstances, such as size and life-cycle stage, rather than just general “best practices.” The committee should take care, though, not to overstep. It must respect the line between the oversight of overall policies versus the actual implementation and execution of specific staff processes and procedures.
   
   
6. Overseeing audits. If your organization doesn’t have a separate audit committee, the finance committee is also responsible for the audit. The committee must engage and regularly interact with the auditors, review the auditors’ report and IRS Form 990, present the audited financial statements to the board, and propose changes to implement any auditor recommendations.
   
   
7. Creating an appropriate investment policy. Even if your organization doesn’t have enough cash to support a separate investment portfolio, liquid funds need to be managed to maximize revenue. This means it falls to the finance committee to develop an appropriate investment policy and retain qualified investment advisors, when needed. A separate investment committee is advisable, though, for organizations with substantial investments, planned giving programs or endowments. And remember that fiduciary responsibility isn’t limited to the committee’s members. The entire board has the duty to safeguard your organization’s net assets.
   
   

The payoff

When a nonprofit has a vital and engaged finance committee, it sends a strong signal to stakeholders — namely, that the organization is committed to responsible stewardship of its financial resources and long-term sustainability. When your finance committee takes an active and strategic role in oversight and planning, the payoff will likely be robust financial governance and higher satisfaction levels of committee members.