The Board's Financial Role | Faith Foundation Education

3 Fiduciary Duties

What Every Board Member Is Legally Responsible For

Care (make informed decisions by reading materials and asking questions), Loyalty (put the organization's interests ahead of your own), and Obedience (ensure the organization follows its mission, bylaws, and the law) — these duties are the legal baseline for nonprofit board service

First 90 Days

When Board Orientation Has the Most Impact

The most common board governance problems — uninformed votes, missed conflicts, and budget surprises — happen to members who were never properly oriented. Understanding your role and the organization's financial position before your first vote prevents the most avoidable mistakes

5 Questions to Ask

The Foundation of Sound Financial Oversight

Every board member should come to every meeting prepared to ask: Are we spending within budget? Do we have enough cash for 90 days? Are restricted funds used correctly? Has the auditor flagged anything? Are we on track for year-end? These five questions catch most financial problems early

Governance, not management

Board members are responsible for financial oversight — not day-to-day financial management. That distinction matters enormously. The staff manages cash, pays bills, and produces financial reports. The board's job is to ask the right questions, set the right policies, and hold the organization accountable to both its mission and its fiduciary obligations.

The finance committee

Most boards delegate detailed financial review to a finance committee, which meets monthly or quarterly to review reports before the full board meeting. The committee should include at least one member with financial expertise — an accountant, CFO, or banker — and report its findings and recommendations to the full board.

Finance committee best practices

At least one financially credentialed memberA CPA, CFO, banker, or investment professional — someone who can read financial statements fluently and ask technical follow-up questions.Meets before every full board meetingThe committee's job is to pre-digest the financial package so the full board can focus on decisions, not explanations.Reviews staff-prepared financials against the budgetNot just "does the report look right" — but "are we on track, and if not, what is management's plan?"Communicates directly with the external auditorThe auditor should have a private session with the finance committee (without management present) at least once per year.Reports findings and recommendations to the full boardA brief summary at the board meeting: what was reviewed, what looks healthy, and anything that warrants full board attention.

Five questions every board member should ask

Ask these at every board meeting

Are we spending within our approved budget?If not, why not? What corrective action has management taken?Do we have enough cash to meet obligations for the next 90 days?Check unrestricted cash, not total cash balance.Are restricted funds being used only for their intended purposes?Restricted fund misuse creates legal and reputational risk.Has the auditor or finance committee flagged any concerns?Board members should see auditor communications directly.Are we on track to meet our year-end financial targets?Compare actual-to-budget variance, not just the current period.

Financial red flags that require board action

Escalate to the full board immediately if you see:

Operating reserves below 60 daysLess than two months of unrestricted cash is a crisis threshold. The board should receive a cash flow projection and management's plan within two weeks.Three consecutive months of deficit spendingOne bad month is a blip. Three in a row is a structural problem. Demand a revised budget and expense reduction plan.Restricted funds used for unrestricted purposesThis is a legal violation, not just an accounting error. Notify legal counsel immediately and implement a repayment plan.Auditor issues a qualified opinion or management letterThese are formal signals of material weakness. The board — not just the finance committee — must review and respond in writing.Unexplained transactions or missing documentationThis warrants an immediate internal investigation, not a wait for the annual audit. Engage independent legal counsel, not just management.

What "fiduciary" actually means

The Three Fiduciary Duties

Duty of Care

Act with the care an ordinarily prudent person would exercise. Read board materials, attend meetings, ask informed questions, and seek expert counsel when needed.

Duty of Loyalty

Put the organization's interests first. Disclose conflicts of interest before they become relevant and recuse from votes where you have a personal stake.

Duty of Obedience

Ensure the organization stays true to its mission, follows its bylaws, honors donor restrictions, and complies with applicable laws and government reporting requirements.

For board members, this means making decisions based on what is best for the organization's mission and long-term health, not personal relationships or convenience. A board member who votes on financial matters without reading the financial report has likely failed to meet this standard.

Knowledge Check

The executive director asks the board to approve a new vendor contract at tonight's meeting, distributing the documents only minutes before the vote. What should the board do?