What Board Members Need to Know About Not-for-Profit ...
What Board Members Need to Know About Not-for-Profit Finance and Accounting
1-2013
Table of Contents
Introduction
2
Role of Board Member in Financial Oversight
3
Understanding Financial Statements
4
Financial Statements: Review Checklist
12
Reviewing the IRS Form 990
13
Key Financial & Governance Policies
17
Evaluating Funding Sources
18
Roles and Responsibilities
20
Glossary of Terms
26
(words and terms found in glossary are italicized throughout)
Contact Us
30
? 2013 Jacobson Jarvis & Co PLLC. All rights reserved.
1
Introduction
Thank you for agreeing to serve on the board of a not-for-profit organization. Without your dedication and commitment, we would not enjoy the thriving not-for-profit community we do. As a board member, you are probably very familiar with some aspects of not-for-profit management. You understand the basic need to raise money to support the activities of the organization for which you volunteer, and you probably have seen the fundamental challenge every not-for-profit management team faces ? to make the dollars raised go as far as possible. However, in addition to addressing funding challenges, as a board member you now have a legal responsibility to protect the organization's assets by overseeing its financial activities and implementing "best practices" to protect the organization. For board members without experience in notfor-profit accounting,and especially for those without any formal accounting training, it is easy to neglect this important responsibility and bear some liability for the outcome. This booklet is designed to help you perform your financial responsibilities more effectively. It outlines some of the key indicators that we, at Jacobson Jarvis, find that board members sometimes overlook when they are exercising their fiduciary duties to the organization. It should not be considered as a substitute for continued education or professional advice. Rather, this booklet was produced as a service to our clients and friends of the firm, and their board members.
2
Role of the Board Member in Financial Oversight
As a board member, your fundamental role is to oversee the implementation of the not-for-profit organization's mission. This includes exercising your fiduciary duty to ensure that the organization's financial resources are effectively managed and sufficient to assure the organization's long-term financial viability.
In Washington state, exercising fiduciary duty incorporates three basic duties: the duties of good faith, loyalty and care. The duty of good faith requires that you act in good faith, in a manner that you reasonably believe to be in the best interests of the organization. The duty of loyalty requires that you act in a manner that furthers the interest of the organization and that you refrain from engaging in personal activities that could be construed to injure or take advantage of the relationship to the organization.
As a board member exercising duty of good faith and duty of loyalty you should:
? Maintain confidences
? Identify and disclose conflicts of interest
? Never use information obtained as a board member for personal gain
The duty of care requires that you exercise diligence in the oversight of corporate officers, seeking and reviewing all necessary information in order to make informed decisions. As a part of that duty you must make reasonable inquiries and exercise independent judgment using the skill, caution and diligence that a prudent person would use in handling corporate affairs.
As a board member exercising the duty of care, you should:
? Regularly prepare for and attend board meetings
? Read all the information provided to you
? Actively participate in board discussions, exercising independent judgment in decision making
? Ask questions so that you have a complete understanding of the organization's financial picture 3
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