Q&A #106 – Should a finance committee vote to approve monthly financial reports?

Question: I was recently invited to serve as a volunteer member on a nonprofit organization’s finance committee. During my first meeting, the finance committee was asked to vote to approve the current month financial reports. Is this a normal best practice? I have served on several nonprofit finance committees in the past. We were not asked to vote to approve financial reports.

Answer: No, a nonprofit organization’s finance committee should not vote to approve interim monthly financial reports. Finance committees use information within financial reports but do not have the direct responsibility, time, or resources to check the financial reports for accuracy and compliance. Thus, while it is common for finance committees to receive and review monthly financial reports and discuss the reports with staff, it is neither proper nor a best practice for finance committees to “approve” these reports.

Financial reports are a very valuable tool that help finance committees to perform their dual fiduciary monitoring roles of oversight and safeguarding of the organization’s financial resources. Finance committees use and rely on information within financial reports to be better informed about the organization’s financial status and performance.

However, finance committees are not charged with the direct responsibility for the accuracy and compliance of financial reports. That responsibility rests with senior management and staff, subject to the oversight provided by the annual financial statement audit process.

Finance committees are generally focused on current performance of acquiring and use of financial resources and how financial assets held by the organization are safe and protected. This typically includes monitoring the organization’s funding needs, assessing the organization’s financial health, and helping to review and approve the organization’s budget.

Planning Tip – When a request from an outside third-party (bank, vendor, insurance carrier, etc.) for financial statements is received, default to sending out year-end audited financial statements which have been subject to formal oversight. If interim financial statements are required to be sent outside the organization, make sure to alert the finance committee, not to obtain approval of the accuracy of the financial statements but rather to make the finance committee aware of the request and to seek their approval for distribution.

Interim monthly financial reports will provide valuable information that helps finance committees serve their roles but voting to “approve” these reports gives a false impression that the finance committee has checked the reports for accuracy and compliance.

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