VCG Governance Matters: Good Governance Guide

Financial Oversight

All revenue and expenses including grant funds are accurately recorded and managed capably.
Resources are allocated appropriately: 1) To programs that achieve the mission of the organization 2) To enable proficient oversight by management 3) To support all fundraising activities.
Accurate and timely financial reports enable management, the board, and funders to track the use of the funds.
The organization can demonstrate the indicators of good, overall financial health by: 1) Covering current liabilities with current cash and receivables 2)Increasing total revenues and/or decreasing total expenses 3)Increasing total net assets each year

Indicators of Good Governance

The board has established sound internal financial controls and reviews them annually.
The board approves an annual operating budget before the start of the fiscal year.
The board reviews regular financial reports to monitor budget compliance and fiscal health, and responds appropriately when performance varies from original plans.
A finance/audit committee engages the auditor, and maintains open and direct communication with the audit firm.
The board approves the annual audit after it has been recommended by the audit committee and, preferably, presented by the auditor.
The organization has financial reserves that cover at least 3 months of operation.
The board actively oversees or manages the organization's investments.
The board understands the organization's exposure to risk and actively manages that exposure.

Funders’ Questions For Nonprofits

Board Practices

Has the board approved a fiscal policies and procedures manual, including policies on record-retention and whistle-blower protection?

Yes. [Note: An absence of internal controls, or lack of clarity as to the Board's role in maintaining them, places the organization at high risk for mismanagement.]

Does the board approve the budget prior to the beginning of the fiscal year?

Yes.

Does the board regularly receive: accurate balance sheet; cash flow statement; and year-to-date, comparison budget reports with a management narrative that highlights significant areas?

Yes.

Is there a standing committee that oversees and evaluates the organization's fiscal performance?

Yes. [Note: The treasurer alone should not fulfill this role, but should work in conjunction with board members to whom s/he has no familial or business ties.]

Is the annual audit overseen by an audit committee and approved by the board?

The audit committee oversees an annual audit that is then approved by the full board. [Note: the treasurer alone should not fulfill this role, but must work in conjunction with board members to whom s/he has no familial or business ties.]

Does the organization have strategies for creating and/or maintaining financial reserves that are invested and monitored competently?

Financial reserve accumulation is considered on an annual basis as part of the budget process. The reserves are managed and monitored by a board committee.

Does the board have strategies that ensure its fiduciary responsibilities are fulfilled by the actions of the organization’s management?

Yes. [Note: The board cannot make management decisions but provides the overall direction for the organization.]

Does the board have policies and procedures regarding investments, reserves, and spending rates?

Yes. Investment, reserve, and spending-rate policies are under the auspices of an Investment Committee and are reviewed annually.

Has the board approved a risk-management policy that dictates how the organization will act in order to maintain the public trust?

Each year, the board reviews and approves an organization-wide policies and procedures manual (including a risk-management policy) that demands the highest standards of ethics, transparency and accountability.

What specific action can funders take to encourage better governance in this area?

Funders can provide support for appropriate training or consultation in accounting and financial management.
Funders can recommend resources through which the organization might find qualified candidates with a background in accounting and finance for the management team and for the board.
The discussion can be followed-up when the nonprofit presents a grant report or makes a renewal application.

Case Studies