The COVID-19 era makes board financial oversight more important than ever.

The board of directors plays a special role in ensuring that an organization stays financially on track. This responsibility is magnified in the shadow of the COVID-19 crisis, which has often pushed donations and other revenue down while upping the need for services. Keeping an eye on the following areas will benefit your nonprofit.

What does the budget reveal?

Board members should keep an eagle eye on the organization’s budget. Certain budget-related issues hint at rocky financial times to come. Each month, members should compare the budget to actual results and look for unexplained variances. Some discrepancies are bound to happen in a year such as this one; nonetheless, staff should explain all significant differences thoroughly. There may be reasonable explanations for changes in incoming revenue and expenses, such as increased program demands, funding changes or an event’s cancellation. When necessary, the board should direct management to modify activities to mitigate negative variances or institute cost-saving measures.

Board members also should keep an eye open for overspending in one program that’s funded by another. And they should watch for dips in the organization’s “rainy day” fund (its “reserves”), the raiding of an endowment or unplanned borrowing. Such moves might mark the beginning of real financial trouble.

Is there increased pressure on donors?

The board also should note if staff begins reaching out to historically major donors outside of the usual fundraising cycle. This may not be surprising in times like these — however, such contacts could mean the organization is scrambling for cash and hoping its most dependable donors will fill the gaps.

Staff should explain all significant differences in the budget thoroughly.

Additionally, it’s a red flag if board members start hearing from long-standing, passionate supporters who’re worried about the organization’s finances. What exactly are they hearing or seeing that prompts their concerns? What actions can the board take to better the situation?

Is the board relinquishing power?

It’s understandable that board members who have full-time jobs and other responsibilities might cede some of their responsibilities to a trusted executive director (ED). This may be especially true during and after the COVID-19 crisis; unforeseen conditions can force decisions to be made quickly.

However, the board relinquishing power can be risky. It should note, for example, if the ED is making strategic decisions without board input and guidance.

Also, an ED shouldn’t be allowed to ignore expense limits, even if a program’s needs unexpectedly expand. Going outside of the organization’s budget or policy guidelines should require board approval.

How reliable are your financial statements?

Inconsistent financial statements — or statements that aren’t prepared using U.S. Generally Accepted Accounting Principles (GAAP) — can lead to poor decision-making. It also can make it difficult to obtain funding or financing or compare the organization’s metrics to those of other nonprofits in the same niche. If your organization isn’t using GAAP (or another comprehensive basis of accounting), it may be time to implement it.

For larger nonprofits, the board or audit committee also should insist on annual audits and expect to select the audit firm. Members of the responsible group, such as an audit committee, should communicate directly with auditors before and during the process. All board members should have the opportunity to review and question the audit report.

Additionally, the audit firm may provide a management comment letter that reflects issues noted during the audit and opportunities for improvements in accounting, internal controls and operations. The board should carefully consider these recommendations and determine if suggested changes will lead the organization to a stronger financial footing.

Keep up the inquiries

The board needs to thoroughly understand what’s going on financially within your organization to guide it properly. Board members shouldn’t be afraid to ask questions, and they should offer suggestions based on facts.