A board of directors or trustees is the source of governance and accountability for any nonprofit organization. Board members provide appropriate oversight of an organization and ensure the organization is consistently moving towards its mission. Boards generally consist of many individuals with varied and diverse backgrounds who share the same passion for the organization and want to share their expertise with the organization. Although being part of a board can be a deeply moving and rewarding experience, it also comes with significant responsibility.

Boards have legally mandated fiduciary duties to their organizations. These duties describe the manner in which board members are required to carry out their roles and responsibilities. The fiduciary duties are obedience, care and loyalty.

Boards have three essential roles (the HOW of governance – the things the board needs to do):

Boards have five oversight responsibilities (the WHAT of governance – the things that require the board’s oversight):

This article will focus on a board’s financial oversight responsibility.

Managing the organization’s day-to- day finances is the responsibility of executive management; however, the board has ultimate responsibility for overseeing the financial affairs of the organization. The board’s fiduciary responsibility is to protect the organization’s financial status so it can meet its obligations – economic and social – to its communities. Meeting these obligations typically involves a variety of finance-related tasks. Not all board members need to have a strong financial background; however, they should be able to understand basic terminology along with review and understand the financial statements and be comfortable asking questions about the financial health of the organization.

Board financial oversight also encompasses establishing and reviewing financial controls. Areas the board should look at are proper segregation of duties. This is a fraud and material misstatement prevention measure that requires different employees be responsible for the various steps in the areas of cash receipts, cash disbursements and payroll processes to mitigate risk. An example of a control to help mitigate weaknesses in segregation of duties is requiring two individuals to sign checks (one of those individuals being a board member who can review and approve cash disbursements before issuance). For many organizations, small staffing levels prohibit an ideal segregation of duties environment; which makes the financial oversight role even more important as a board responsibility.

The COVID pandemic changed the financial landscape for many non-profit organizations and financial sustainability should be at the forefront of all board decisions. In addition to reviewing the organization’s current operations to budget, the board should look beyond the current financial performance to ensure the organization has enough liquid assets to meet future needs. This could involve creating a financial reserve policy which sets aside enough funds to cover a certain number of months' operating expenses (payroll, rent, utilities, insurance, etc.). A best practice would be to maintain six to nine months of operating expenses in this reserve fund.

In performing its oversight role, the board helps ensure the organization has adequate resources available to pursue its mission. Being on a board can be very rewarding, but it is something that should be taken seriously.

If you have any questions in regards to board member responsibilities, please contact your Hawkins Ash CPAs professional.

Over the past year and a half, non-profit organizations have faced significant challenges due to the worldwide COVID pandemic. Organizations were forced to assess and redesign their business models from programming and fundraising to staffing. In reality, no stones were left unturned. Even with the challenges faced by most organizations, some were exposed to new opportunities – one of those being the receipt of funds through federal and state granting agencies. Receiving grant funds may be something that is new to your organization, so it is important to develop a successful grant management program to ensure compliance with the terms of each grant received. In this article, we discuss some guidelines for properly managing your grant funds.

The first step is designating an individual or group of individuals with overall grant responsibility. It is important that the individual (or team) has a full understanding of the grant terms and the compliance requirements involved. The grant agreement should be treated as a legal document. When reviewing the agreement, consider the following:

As part of the grant management program, you will want to make sure there is a strong system of internal controls over the funds. Questions to consider include:

These are just a few of the questions that need to be addressed when creating an internal control policy over the grant cycle. A detailed, written policy will ensure all staff involved in the grant process understand their roles and responsibilities.

Expense tracking is an integral part of any grant management process. Proper tracking of expenses ensures that grant funds are being used as intended, are allowable, and are accurately reported to the funding source (as applicable). Some organizations track expenses using specific general ledger accounts; while other organizations create separate funds or classes within their accounting system. Many times, it will depend on the size and complexity of the grant. Additionally, it is important to track the progress of the grant. Individuals involved in the grant process should set up periodic meetings to discuss current grant activity and grant activity to date claims reporting and reporting deadlines, and if specific compliance requirements are being met.

Finally, proper communication between all organizational departments is imperative in a strong grant management process. Development, finance and programming all play key roles throughout the grant period. All departments need to work together to ensure all compliance aspects of the grant are met. If these individuals/departments are operating independently with no communication, it increases the risk of non-compliance with grant requirements and jeopardizes your grant dollars.

A successful grant management program will require communication and cooperation from all individuals involved. It can take time to develop a successful program, but doing so will ensure you are meeting all the requirements of the grant – which will keep the funding agencies happy and the grant dollars rolling in!

If you have any questions in regards to grant management, please contact your Hawkins Ash CPAs representative.

The majority of tax-exempt organizations are required to file an annual return called a Form 990. Four different Form 990s are available for filing. The Form an organization should file depends on its financial activity.

When an organization has annual gross receipts less than or equal to $50,000, it should file this Form 990-N. The Form 990-N is submitted as an electronic postcard which can be found at www.irs.gov. Although it is not required, organizations that fit into this category have the option to file a full Form 990 or 990-EZ if they choose instead of the Form 990-N. Private foundations, supporting organizations and section 527 organizations cannot file a Form 990-N regardless of their annual activity.

Organizations with annual gross receipts less than $200,000 and total assets at the end of their tax year of less than $500,000 can file Form 990-EZ. They also have the option to file the full Form 990. Special rules apply to sponsoring organizations of donor-advised funds, Organizations that operate one or more hospital facilities, and Section 501(c)(29) nonprofit health insurance issuers; these organizations are required to file a full Form 990 regardless of the level of their receipts or assets.

Form 990 must be used when an organization has annual gross receipts greater than $200,000 or total assets at the end of its tax year of greater than or equal to $500,000.

990-PF is for all private foundations to file, regardless of their financial status.

State laws may also require charitable organizations to register and file separate annual reports. Also, if tax-exempt organizations generate unrelated business income, they may be required to file an additional Form 990 called a 990-T.

For additional information on these forms and which is the correct one for your organization to file, contact your Hawkins Ash CPAs professionals.