Financial Roles of a Non-Profit Board Member
By David Dirks and Jamie Osborn, Plum Street Advisors LLC

As a non-profit board member, you take on a wide range of oversight responsibility.  Non-profit board members are expected to set and guide the mission and strategy of the entity, review the Executive Director’s performance, help with fundraising, and oversee the entity’s financials and investments.

In our non-profit board experience, we have found that many board members are uncomfortable with the fiscal responsibilities of their post.  Board members often defer oversight and guidance to the few board members with a financial background, sometimes looking only for the approval of one or two of their fellow board members.  While delegation is an important part of being an effective board member, it is important to be able to participate in the financial review at a high level for major warning signs and ensure that the messaging from the organization’s leadership matches the story told by the financial statements.

The following article is intended to offer a brief guide to financial oversight for board members, with emphasis on the quarterly financial review, annual budget approval, and long-term investment policy (or endowment policy, if your non-profit has an endowment).  We hope to come back to the topic of fundraising in a future article.

Financial Reviews

The annual or quarterly financial review is a key piece of evaluating an institution’s financial health.  We want to touch on three main points for any financial review: the materials, what to look for/red flags, and what questions to ask.

First, the board should insist that the materials are consistent from quarter to quarter, that they compare the current period versus budget as well as versus the previous period, and that they present the information you wish to see (for example, the board might wish to see the number of clients served during a quarter, even though this is not technically part of what is considered standard financials).  The board should insist that financial materials are sent in advance so they can be reviewed thoughtfully.


 Just 36% of CEOs felt that, to a great extent, boards are prepared for meetings

  • Leading with Intent, 2015 Survey of Non-Profit Boards by Boardsource


During the review of the balance sheet (also known as the “Statement of Financial Position” for non-profits), you are looking for any upcoming liquidity crises most of all:

  • Are the cash and cash equivalents balances too low? If you have less than 5% of your annual expenses (not including non-cash expenses like depreciation) in cash and cash equivalents, you should ask why cash is so low.  Are you at risk of not meeting payroll if there are any delays in the arrival of anticipated cash?  What is the back-up plan?
  • Do your liquid or semi-liquid assets sufficiently cover your short-term liabilities? Current assets divided by current liabilities is also known as the current ratio, and a good ratio is 2.0 to 4.0.  You should ask questions to make sure you understand any large differences from this ratio, and/or if you see your ratio is worsening compared to the last balance sheet.  A very similar ratio is known as the “quick ratio” which is cash, cash equivalents, and accounts receivable divided by current liabilities (generally accounts payable and debt due within 12 months) – look for a similar range of 2.0 – 4.0 in this ratio.
  • Are your accounts receivable growing faster than the overall organization? A ballooning accounts receivable line can mean you’re having trouble collecting on bills or pledges (or it could just mean rapid growth in the entity).  If you see this, ask why.

During the quarterly review of the income statement (also known as the “Statement of Activities” for non-profits), the bottom line (profit/loss) is called the “Change in Net Assets” for non-profits.  Look at this and at any significant differences in the line items:

  • What is the Change in Net Assets? Total revenues should exceed total expenses in most cases.  If there is a deficit, be sure to ask why, and if it’s expected to recur.  There could be good reason – for example, organizations with a large depreciation line may well continually run deficits because they have a building that is depreciating for accounting purposes, but it has no impact on cash and the value of the building may not be diminishing.
  • Differences in line items versus the budget: are certain expenses running meaningfully ahead of budget or are certain revenues behind budget?
  • Differences in line items versus last quarter, or the same period last year. For example, why did events raise much less this year than last year?
  • Change in the components of total expenses (inquire especially about increases in the percent of expenses from management and fundraising as compared to from program services).

There may be other statements included, such as a statement of cash flows, but the two statements outlined above tend to be the primary ones that should always be part of any financial review with the board.

If this is your annual review, and the entity is audited (as it should be), ask whether your entity received a “clean” or “unqualified” audit (i.e. no major findings), and ask the auditor if there was anything found that was unusual or cause for concern – it may be an uncomfortable question, but this is your role as board member.

Budget Discussion and Approval

The annual discussion and approval of the upcoming year’s budget is a great opportunity to ensure that the entity is prioritizing properly.  Are you growing the areas that are most important?  If you’re downsizing, are you cutting in areas that are less essential to the mission?

A common (but backwards) tendency in building budgets is to be optimistic about revenues in order to meet all the expenses identified. To help understand the stability of your revenue projections, it can be helpful to learn how many of the projected funds are already approved or part of recurring or multi-year grants.  If revenue projections look overly rosy compared to what was achieved in the most recent year, ask how the increases were justified.  If new revenue does seem prudent to expect, discuss how expenses will be adjusted if the revenues do not materialize.  If new revenue seems uncertain, better to plan conservatively and add programs or expenses when the funds are committed.  For example, if a cost-of-living adjustment for staff is dependent on new revenue, commit to this at the middle or end of the budget period, not at the start – and consider the impacts to future years as well (for example, suggest a bonus instead if the revenue is not recurring).

Budgets should also include non-financial goals for the year unless that is handled in a separate process.  Understand what the budget means for the number of clients served, programs and services added/expanded/reduced/eliminated, number and size of grants distributed, or other metrics relevant to your non-profit’s mission.

Budgets are all about trade-offs.  Rarely can an entity afford to do everything it wants to do.  It can be very difficult to make the hard decisions, but the board should be guided by the mission of the entity in making these decisions.  There are often competing factions supporting the multiple goals of the entity, and it’s ultimately up to the board to decide if some requests cannot be fully met.

Only 19% of CEOs strongly agree that board members are engaged

  • Leading with Intent, 2015 Survey of Non-Profit Boards by Boardsource


It is up to the staff to ensure that budgets are adhered to.  Remember that the board’s role is one of oversight, not management.  The board must ensure that the staff is held accountable to managing to the budget.


Not every non-profit is in the position of having investible assets, but even if your non-profit is not in a position to have an endowment it should strive for a “rainy day” fund.  Segregating some assets into a separate fund allows the board to see that the non-profit has a cushion that is not used in between reporting periods, and helps to ensure you are getting the best returns for your assets.

Entities without an endowment or long-term investment fund:

If you do not currently segregate assets, consider whether your cash account is large enough to warrant it.  If you have more than 10-15% of annual expenses in cash at the end of the period, you should consider at least setting up a short-term securities account.  The most important factor is the expected holding period for your assets.  A bank account currently earns a fraction of a percent, while a money market fund (fully liquid, but not guaranteed like a bank account) will at least earn a percent or so.  Depending on the size of your investment, even this small adjustment can add up to the equivalent of a fairly significant annual donation.

Example of expected returns by investment:


*Estimated returns are shown for illustrative purposes only and do not represent any particular funds or products offered by Plum Street Advisors. Estimated returns will vary depending on many factors including prevailing market conditions during the investment term.

There are a number of factors that impact the amount of risk an organization should take with its assets in addition to the expected holding period.  Things like the diversity and stability of the organizations’ revenue sources, the total amount of surplus, whether the organization has a line of credit, and the flexibility in timing of its outlays all will impact its choice of investments.

Entities with an existing endowment or long-term investment fund:

For any entity with an existing endowment or long-term investment fund, it is critical to have an investment or endowment policy.  The policy should spell out:

  • The purpose of the investment,
  • The process for determining the amount to be withdrawn annually,
  • Guidelines regarding asset allocation and investment risk,
  • Restrictions on allowable investments,
  • Any socially responsible investment policy or other restrictions, and
  • Reporting frequency.

Finally, if a non-profit does have an endowment, it is important that the board ensures that any gifts with permanent restrictions are clearly identified and accounted for.  Such funds are subject to a rule called UPMIFA (the Uniform Prudent Management of Institutional Funds Act) which governs prudent investment and spending of endowment assets.

Implementation of the investment policy is another question the board should consider seriously.  Is the board comfortable with a “do it yourself” approach, often led by staff or the finance committee, or should it consider hiring a consultant, advisor, or outsourcing the role entirely?  If there is no suitable staff member to handle investments, it is important to come back to the role of the board.  The board’s role is oversight, not ongoing management and implementation.  It should set investment policy and oversee that it is being followed.  The board is not generally the right body to take on ongoing management responsibility for investments, just as it does not take on ongoing management responsibility for other facets of the organization.

Implementation options range from a low-touch relationship with an asset management firm like Vanguard, to hiring an outsourced Chief Investment Officer, and many options in between.  The board should take into account cost, its need for customization, expertise, and familiarity with non-profits in selecting an advisor, consultant, or other investment manager.


It is every board member’s responsibility to ensure the non-profit is prudently shepherding its resources.  High-level oversight of financials, budgets, and investments should not be simply left to the finance committee.  You don’t have to be a CPA to recognize red flags, ask good questions, and identify points in a non-profit’s life when changes might be considered.  At Plum Street Advisors, we want to thank you for your non-profit service and stand ready to be helpful in any way we can.


Glossary of Non-Profit Financial Terms:

Income Statement (Statement of Activities): The entity’s financial activity over a certain period of time (the revenues and expenses during a month, quarter, or year)

Balance Sheet (Statement of Financial Position): The financial condition of the entity at a point in time, expresses in assets, liabilities, and net assets.

Net Assets: Comparable to the shareholder equity of a for-profit firm, calculated as total assets minus total liabilities.

Change in Net Assets: Comparable to the profit or loss of a for-profit firm, calculated as revenues minus expenses.

Restricted Assets: Contributions from a donor that are restricted either to use for a specific purpose or for a specific period of time.

Unqualified Audit Opinion: An independent auditor’s judgement that the entity’s financial records and statements are fairly represented, and in accordance with Generally Accepted Accounting Principles (GAAP).

Unrestricted Assets: Contributions for which the donor does not specify a specific use or purpose or timeframe.


David Dirks is a founding partner of Plum Street Advisors LLC.  He has served as a chair, treasurer, executive and finance committee member, and board member for small and medium sized non-profit boards.  He has also served a large and diverse number of large non-profit boards as an executive at institutional investment firms.

Jamie Osborn is a founding partner of Plum Street Advisors LLC. He has served as a treasurer, finance committee member and board member for small and medium sized non-profit boards. He has also served a number of medium sized non-profit boards as a financial advisor. Prior to his work as a financial services professional, he spent many years as a development & fundraising professional working with a number of small to medium sized non-profits.