What are the Financial Responsibilities of an Association Board?

So, you have volunteered to become an association board leader, but what responsibilities does this position entail? Specifically, overseeing the financials can be a barrier to a fully engaged board. Some may feel uncomfortable reviewing financial information and providing the required oversight to the financial affairs of an association. Overseeing the finances of a not-for-profit is a key responsibility of the Board and every member of the Board. The Board’s responsibility regarding the accounting is not just for accountants and does not require an in-depth accounting knowledge. Here are some tips for grasping what is being asked of you in this role and how to be proactive when it comes to the association’s financials.

The Basic Responsibilities of the Board

Board members are legally responsible to act on behalf of and for the benefit of an association; this is fiduciary duty. Fiduciary duties are defined by law and are the legal principles by which the actions of a board are evaluated. There are three branches of fiduciary duties, commonly known as the three D’s.

Duty of Care requires that all board members be informed of the association’s activities and that they ask questions where necessary to act in favour of the association. It also describes the level of competence required of a board member as “acting with the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.” (1)

Duty of Loyalty requires that board members show interest in the well-being of the association and act ethically. Board members are not to make decisions for personal gain at the expense of the association. Also, this includes disclosing any conflicts of interest.

Duty of Obedience requires that the board ensures the association is acting in compliance with laws, bylaws, policies, and CRA.

For more on how to successfully manage your role as a board member, read Back to the Basics—Being an Association Board Member.

The Role of Management, the Auditor, and the Board

Auditors are basically “the accountants,” and thereby all financial responsibility falls to them. This is not an effective way to manage an association’s financials. The auditor’s role is to give an independent assessment of the financial position of the association from a high level. They can be a resource, but more responsibility needs to fall to staff, management, or the board members.

Staff and management should be preparing the financial reports and developing proper internal controls. Also, they should exercise reasonable judgment on the financial decisions of the association.

The board is responsible for overseeing the financial reporting process and internal controls to ensure they are appropriate and operational. However, the most important role of a board member regarding financials is to ask questions to become comfortable with the information.

In addition, it is important to stress the relationship between the auditors and the board. The auditor’s work for the members and the board to express their independent audit opinion. The board’s role is to select and recommend the auditor to be appointed at the AGM. The board members should have open and honest communication with the auditors (without management) whenever questions arise.

Budgeting

Budgeting can be difficult for someone with little experience on the subject. Accounting staff can help guide you on the trends of revenue and expenditures and provide a starting point. Revise the budget as necessary through discussions with the board, management, and staff to consider all perspectives of the association’s future. Everyone involved should monitor financial goals regularly. Ultimately, it is the board’s duty to approve the budget and ensure that assets are available to achieve the association’s goals.

Where to Start

Having a system for welcoming and training new board members is important to board development. It will also help board members to have the confidence to succeed in their role. A good strategy is to pair a new board member with a seasoned member of the board. Alternatively, the person that previously acted in that role on the board.

One association I work with recently sought out resources to help them understand the financial activities of the association. They had always asked regular questions of the Executive Director and Accountant but felt they could benefit from more. They scheduled a meeting with their investment advisor to get more in-depth knowledge about how their funds are managed. Also, how the current economy is affecting these investments. Given the current pandemic situation this is a conversation any association could benefit from.

They also engaged financial training aimed at not-for-profits from CPA Canada. This training provided them with an overview of what to look for in financial statements including key concepts and terminology. It is beneficial to take steps to become comfortable with the language, concepts, and words used in accounting.

Overall, accounting is indeed a complex subject. Board members do not need to be accounting experts but should strive to acquire a basic understanding of financial matters. Achieve this by seeking out resources (some below) and by questing financial information. Turning to experts for assistance is useful but making decisions requires the full context of the association’s financial picture and is the board’s responsibility.