Financial Committee

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Why might an organization’s board request help in establishing finance committee effectiveness and efficiency?

There are many reasons why a board will request assistance with Finance Committees;

Observation indicates that most not-for-profit organizations’ finance committees have little idea what they should be doing, beyond certain traditional functions such as reviewing financial statements, the budget, and sometimes investments.  But without specific objectives and direction, the usefulness of finance committees to the boards they serve will remain limited.

Boards establish finance committees to assist, through targeted analysis of financial issues, their responsibilities for organizational oversight.  Generally, those members of the board who have professional backgrounds in financially related fields are selected to serve on finance committees.  Duties and responsibilities of finance committees are generally left to the judgment of the committees themselves.  Additionally, when financial matters are introduced to the full board directly, the board may ask the finance committee to look into them and report back with advice or recommendations.

Nevertheless, most finance committees seem to function in a reactive mode.  As financial statements, auditor reports and management generated issues are placed before them, they respond to issues as they arise.  The danger in this approach lies in the risk that issues that exist that should be looked at, may not be reviewed on a timely basis, if at all.  Therefore, the organization is left consistently in danger of overlooking important financial issues, or responding to them in crises or simply after strategic control can effectively be exercised.

Consider that the board’s responsibilities for all governance matters can be couched in terms of planning for the future, monitoring present and emerging issues, and reviewing historical events and performance.  Furthermore, there exists a substantial list of matters for which the board might seek continuing oversight assistance.

Given the myriad of financial matters that require oversight, it is appropriate that finance committees regularly consider the development of a future agenda involving multiple future meetings.  This might involve annual finance committee planning, particularly when planning for future financial health and operations should be dealt with.

JR Haeck Governance Consulting can assist not-for-profit organizations in developing statements of responsibilities, agenda planning, and scope analysis for finance committees.