Holding organizational funds “in trust” is a very important board function.
Fiduciary responsibility requires that a nonprofit board work hand in hand with the CEO to do the following four things:
1) Review and approve how the organization budgets, spends, and makes money.
2) Verify that the organization’s financial systems and practices meet accepted standards.
3) Ensure that the organization has adequate organizational reserves.
4) Safeguard the organization’s reputation and ensure it’s not subjected to unnecessary risk.
Approving an annual budget and tracking revenues and expenses against the approved budget is the responsibility of the full board, and should be done on at least a quarterly basis.
Many nonprofits form committees to assist with financial oversight, but the final responsibility still remains with the board itself.
Audits are increasingly important for earning the public’s trust and ensuring transparency. The board should work closely with their auditor to provide comprehensive oversight of the entire process.