Financial Management
Principles and Practices for Nonprofit Excellence
Nonprofits have an obligation to act as responsible stewards in managing their financial resources. Nonprofits must comply with all legal financial requirements and should adhere to sound accounting principles that produce reliable financial information, ensure fiscal responsibility and build public trust. Nonprofits should use their financial resources to accomplish their missions in an effective and efficient manner and should establish clear policies and practices to regularly monitor how funds are used.
Functions
- Individuals responsible for an organization’s financial reporting should prepare and analyze consistent, timely and accurate financial reports on at least a quarterly basis.
- A nonprofit should ensure separation of financial duties to serve as a checks and balances system to prevent theft, fraud or inaccurate reporting to the greatest extent possible. This system should be appropriate to the size of the organization’s financial and human resources.
- Nonprofit organizations should adopt written financial procedures to monitor major expenses, including payroll, travel, investments, expense accounts, contracts, consultants and leases.
- Nonprofits should periodically assess their risks and purchase appropriate levels of insurance to prudently manage their liabilities.
- A nonprofit’s board of directors or its designees should set compensation for the organization’s executive director and stay informed of compensation levels for other key personnel.
- A nonprofit’s board should strictly prohibit financial loans to board members, the executive director and other key personnel.
- Board members should clearly understand how to read and interpret financial statements.
Compliance
- Nonprofit organizations must comply with all financial regulations, such as withholding and payment of federal, state and Social Security taxes and the management and use of restricted funds.
- Nonprofit organizations should complete the annual IRS Form 990 in a timely, accurate manner and include specific information about the relevant year’s activities and outcomes. The organization’s board should be provided with a copy of the completed IRS Form 990 in a convenient, timely manner. If a nonprofit’s total revenues for the previous fiscal year exceed $750,000, it must ensure that its financial statements are audited, certified and prepared in accordance with sound accounting practices.
- The board should designate an audit committee to hire the auditor, oversee the audit process, meet with the auditor to review the audit’s content and present the audit to the full board for its review and approval.
- Nonprofit organizations should have systems in place to protect individuals who report financial misconduct from any negative repercussions for doing so.
Openness and Fidelity
- A nonprofit organization must openly communicate the annual reporting information contained in its IRS Form 990 to constituents and others who request such information.
- Nonprofit organizations should work diligently to avoid recurring deficits and to secure appropriate levels of funding to carry out their missions and activities.
- Nonprofits have a legal obligation to expend funds responsibly in compliance with conditions attached to funding.
- A nonprofit organization has a responsibility to ensure that its assets are used solely for the benefit of the organization and not for personal or other gains. It should have a clear conflict of interest policy that is annually signed by board members and actively enforced by the officers of the board.
| << Previous | Next >> |
