Not-for-profits must often make do with few resources. As recipients of donations, government grants and other public funds, they have a moral obligation to be good stewards of those funds.

Furthermore, directors and officers have fiduciary duties under tax, bankruptcy, incorporation, environmental and other statutes, with personal exposure for unpaid wages, salaries, and statutory deductions, and other liabilities.

Therefore, competence in financial matters—including matters that are directly financial, and non-financial issues with potentially significant or catastrophic financial consequences—is essential. Directors, officers, and senior management should prepare to address these topics when they appear on board agendas and equip themselves to give meaningful input into discussions or decisions. The following are some essential considerations for these roles:

1. Understand financial concepts and financial statements. It is helpful to understand key financial definitions like accruals, capitalization, depreciation, amortization, deferred income, and similar terms.
2. Avoid operating deficits, with exceptions for board-approved, time-limited deficits or unavoidable circumstances.
3. Ensure prudent investing.
4. Ensure payment or remittance of wages, pension contributions, statutory deductions, payroll taxes, value-added taxes, sales tax, and similar amounts without delay and on time. Boards should ask senior management to certify to the board that these types of payments and reporting are current.
5. Diversify revenue sources if possible.
6. Comply with Income Tax and other statutes. For instance, comply with charity reporting and donation receipting requirements.
7. Maintain robust internal controls. Management is responsible for internal controls, and the board must ensure that management fulfils this responsibility.
8. Ensure effective accounting software and other information and technology systems.
9. Comply with accounting standards.
10. Maintain effective risk management mechanisms. Mechanisms include sufficient insurance, budgets, forecasts, securing tangible and intangible assets, and cyber security.

Meeting your duty of care

It is not a defence for the board and management to say that financial matters are complex and require specialized training or that it is the auditor’s responsibility. Competence in financial matters to the extent necessary to perform these roles is essential. Seek help from auditors, accountants, consultants and others if needed. The Not-for-Profit library in PolicyPro®, particularly SPP NP 4.01 – Financial Management Primer, includes guidance.

Policies and procedures are essential, but the work required to create and maintain them can seem daunting. The Finance and Accounting, Operations and Marketing, Not-for-Profit, and Information Technology libraries in PolicyPro®, co-marketed by First Reference and Chartered Professional Accountants Canada (CPA Canada), contain sample policies, procedures, checklists and other tools, plus authoritative commentary to save you time and effort in establishing and updating your internal controls and policies. Not a subscriber? Request free 30–day trials of Finance and Accounting, Not-for-Profit, Operations and Marketing, and Information Technology librairies in PolicyPro® here.