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Five practical ways nonprofit directors can ask better questions, protect the organization’s resources, and fulfill their fiduciary responsibilities.

By William D. Pawlucy, CAE, MPA, IOM and Bob Harris, CAE

Board members can delegate a lot of things. They can delegate tasks to committees. They can delegate operational decisions to staff. They can delegate detailed analysis to the treasurer.

They cannot delegate fiduciary responsibility.

Every director who votes on a budget, approves a financial report, or signs a tax filing bears responsibility for understanding what those documents mean. You do not need to be an accountant. You do need to know enough to ask good questions, recognize warning signs, and make informed decisions.

Financial oversight does not belong to the treasurer alone. It does not belong to the finance committee, the chief executive, or the outside CPA. It belongs to every person seated at the board table.

Here are five practical ways to put that responsibility into action.

1. Understand and Approve the Annual Budget

The budget is the strategic plan expressed in dollars. It reflects the organization's priorities, its assumptions about revenue and expenses, and the resources it is committing to its mission.

Before approving the budget, directors should understand the principal revenue assumptions, the major expense categories, anticipated cash flow, how reserves are being used, and the significant risks the organization faces. No one expects every board member to explain every line item. But every director should be able to describe the organization's financial picture in a few sentences and feel confident that the budget is realistic.

If you cannot do that, ask questions until you can.

2. Review Financial Reports at Board Meetings

Financial reports should be presented in a format that board members can actually understand. At minimum, reports should show the current financial position, performance against the approved budget, cash flow, and any emerging concerns. If the report requires an accounting degree to read, it is not serving its purpose.

The board's job is to compare actual results with the budget and understand significant or unexpected variances. What counts as significant depends on the organization, the budget category, and the circumstances. A 2% variance in a major revenue line may be more important than a 10% variance in office supplies. Directors should ask what caused the variance and whether it signals a larger issue.

Routine financial reports are generally "received" or "accepted" by the board, not "approved." The distinction matters. The board is acknowledging its review of transactions that have already occurred, not reauthorizing them.

3. Establish the Appropriate Level of Independent Financial Review

Most organizations benefit from an independent financial review by a qualified CPA. The appropriate level depends on legal requirements, funding agreements, organizational size and complexity, risk, and professional advice.

An audit provides the highest level of assurance. An independent CPA performs risk-based procedures, tests transactions, and issues an opinion on whether the financial statements are fairly presented. A review provides limited assurance through analytical procedures and inquiries. A compilation organizes financial information into a professional format without providing assurance.

Beyond the external review, the board should ensure that internal controls are adequate. Approvals, documentation, bank reconciliations, and segregation of duties are essential. Smaller organizations may not have the staff to fully separate every function, but they should implement compensating controls where complete segregation is not practical.

4. Use the Treasurer and Finance Committee Effectively

The treasurer and finance committee provide focused financial leadership. They review information in greater depth, monitor performance between meetings, work with staff and outside advisers, and help the full board understand what the numbers mean.

Their work supports the board's fiduciary responsibility. It does not replace it.

A board that assumes "the treasurer has it handled" has stopped governing. A board that tries to redo the committee's work has stopped trusting its own process. The goal is balance: the committee does the deeper work, and the full board satisfies itself that the committee's work is sound.

5. Review Form 990 Before It Is Filed

Form 990 is far more than a tax return. It is a public document that communicates the organization's finances, compensation, governance practices, policies, related activities, and use of resources. Donors, stakeholders, and regulators routinely review it.

The board should receive the complete Form 990 before it is filed and follow an established review process. Documenting that review in the meeting minutes is a sound governance practice. It shows that the board exercised due diligence before signing off on a document that carries legal and public significance.

Five Questions Every Board Member Should Ask

These questions apply across every financial oversight responsibility:

1. Are our financial results consistent with the approved budget?
2. What explains the most significant or unexpected variances?
3. Do we have sufficient cash flow and reserves to meet anticipated obligations?
4. Are our internal controls appropriate for our size and operations?
5. What emerging financial risks require the board's attention?

Stewardship Is the Standard

The goal is not to turn every board member into an accountant. It is to ensure that every director understands enough to ask informed questions, identify concerns, and make responsible decisions.

Good financial oversight builds public trust. It protects the organization's resources. And it gives the board the confidence to focus on what matters most: advancing the mission.

William D. Pawlucy, CAE, MPA, IOM, is president of Association Options and advises associations and nonprofits on governance, strategy, and organizational effectiveness. Bob Harris, CAE, is an association governance consultant, author, and frequent adviser to boards and nonprofit leaders.