Your board of directors has ultimate oversight over your organization and is responsible for long-term planning and ensuring the organization’s overall health. A significant component of this is your finances, which the board should have a committee dedicated to. The committee’s work will cover the annual budget, reviewing regular financial reports, setting long-term financial goals, and overseeing internal controls and financial policies.

Working with management/senior staff, your finance committee should prepare the annual budget. It should reflect immediate needs, and long-term goals you’re working towards, such as a cash reserve fund, or sinking funds to replace equipment and large assets. This should include not just financial, but strategic goals, such as starting or expanding programs, or restructuring the organization. You should also monitor adherence to, and variances from, the budget throughout the year, based on financial reports from management. If your organization has a long-term strategic plan, you should use multi-year budgets to work towards achieving it.

Management should produce financial reports at least quarterly, possibly monthly, depending on your needs. The reports should be in a format that’s clear and useful to the finance committee, with enough detail and context to know where the organization stands. They should cover financial performance (revenue and expenses), cash position, a budget-to-actual comparison, and the impact of donor-imposed restrictions on contributions. The committee should use its discretion to decide how frequently, and in how much detail, to report to the full board. It’s prudent to alert the board in a timely manner if the organization is facing financial problems, or is expected to in the near future.

The finance committee should also take the lead on developing and maintaining internal controls and accountability policies, and making sure they are followed. Significant policies include conflicts of interests, executive compensation, and whistleblower protection. The committee may also play a role in gift acceptance policies, personnel policies, absent a human resources committee, as well as reviewing capital purchases, how to handle donated stock, and record retention. They should also review the annual Form 990 in detail before it’s filed with the IRS.

The finance committee is usually chaired by the treasurer, whose specific duties should be spelled out in the organization’s bylaws. The treasurer will be the liaison between the committee and the full board, and should ensure the committee performs all its work to a high standard.

The size, culture, and needs of your organization and the board will drive how in-the-weeds the finance committee will get. In general, management and staff are responsible for day-to-day financial and accounting activities, but the finance committee should give oversight, guidance, and direction for long-term and big-picture goals. In a smaller organization, the committee may be involved in developing the annual budget, whereas a larger organization may have management prepare it, then have the committee review it, suggest changes, and recommend it to the board for approval. The finance committee should set policies and internal controls, but management will likely be the group to determine exactly how to implement them, in terms of day-to-day activities and the responsibilities of individual staff members.

A finance committee that is engaged in their work will help your organization leverage its resources to accomplish its mission. Planning clearly for the future and regularly reviewing your performance will keep you focused on where you are in meeting your goals and what steps you need to take in order to meet them. This should give confidence to your staff and to external stakeholders that you’re stewarding your money well and are prepared for what lies ahead.