Nonprofit Checklists for Financial Best Practices
A recent article from the GAR Foundation discusses some of the financial best practices for nonprofit organizations. This checklist for finances delineates internal controls of the organization and shows the importance of daily nonprofit leadership. Maintaining best practices is vital to the success of an organization in making sure that both your staff and the board of directors have what they need in the financial process. Listed below you will find a summation of these best practices for both the staff and board teams:
Nonprofit staff leadership should:
- Limit the number of individuals that can sign checks within the context of the organization. This is especially important in making sure that people are not just making decisions about the finances of the organization without any sort of checks and balances.
- Open a business banking and checking account in the organization’s name. While this step may seem simple. This simple step is something that is overlooked by many smaller nonprofits but is integral for financial integrity.
- Create protocols for accounting systems, including different checks and balances. This prevents any one staff member from having total control over the finances. This also
helps mitigate any potential concern of financial malfeasance. - Maintaining accurate financial records of all income, different transactions, and expenditures. While this item could be included in the previous point, it deserves its own
category of importance. Your organization’s financial records will be reported to the IRS every year when you turn in your 990 form. Having clean books keeps the organization in good standing and ensures that your finances are being utilized for the mission of the organization. - Practice quarterly board review your financial documents and statements. This regular financial check-up with your board includes your balance sheet, profit and loss documents, and a budget cashflow forecast document.
- Treasurer performing regular inspections of key records. A list of these records includes: bank reconciliation documents, credit card statements and the executive director expense reports regularly.
- Review and regulate your conflict of interest policy document.
- Create and execute a fundraising plan. It is super important for nonprofit leaders to make sure that they have everything that they need to raise the funds that are required to carry out the various tasks to advance the mission of the organization. Execution of this plan will be vital to the success of the organization.
The board and the executive committee have different responsibilities that also ensure best practices for the finances of an organization. The Board of Directors should:
- Know the names of the individuals that can sign checks in the organization, as well as know all the financial institutions that hold the assets of the nonprofit. This means the
board should have the names of the individuals listed on those accounts in the organization. This also includes knowing if there has been any money that has been borrowed or distributed from the organization or to the organization. To make sure that they are in the best financial shape, the nonprofit board or executive committee should also ensure that the organization has final financial checks and balances, and then sticks to those checks and balances. - Review and approve any compensation paid to the executive director. In the spirit of checks and balances, a board should know the financial dealings regarding the director of
the organization to ensure fair compensation and prevent financial malfeasance. - Enforce the conflict of interest policy. This includes making sure this document is reviewed on a regular basis, signatures are up to date and regulated.
- Look over the financial reports on a quarterly, if not monthly basis.
- Provide oversight and approval for all annual budgets, fundraising, insurance, and IRS documentation. In addition to providing approval for all annual budgets, the board
should also review the 990 form before it is filed with the IRS. If an organization can perform an independent financial audit, it should be done. This will ensure the highest integrity for your organization. The board should also review the financial fundraising plan for the organization. Insurance coverages and reimbursable expenses should also be looked at by the board. This is important for making sure that employees are covered for various expenses and risks and prevents the organization from potential lawsuits. - Oversee the investments and then also reinvest assets that have been garnered by the organization. Overall, it is the responsibility of the board to distribute assets according to the mission of the organization, including the disclosure of any related transactions between board members and their families to the board of directors. All dealings should be disclosed to the IRS and an auditor.
- Keeping the minutes for board meetings, noting any financial decisions. This level of accountability will help make sure the executive director has checks and balances
All in all, these checklists are to help maintain right standing for nonprofit organizations and provide proper financial management policies for board members and staff. If followed, this checklist will ensure that an organization is in the highest form of integrity with the IRS and maintains the mission of the organization.
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