Board of Directors & Committees: Power Tools for Nonprofit Success

Board of Directors & Committees: Power Tools for Nonprofit Success

July 29, 2025

Board of Directors. Finance committee. Audit committee. Words that you may have heard at work. But what or who are they? Should you have one? Are you required to have one? What purpose do they serve? How can they benefit your organization?

To start off, are required to have one?  If your organizatio n is incorporated , you will need to have a board of directors. However, audit and finance committees are considered optional, even if incorporated.  Although you may not be required to have an audit or finance committee, you may still consider having one, or both.

Below: we will dive into each group and how they can serve your organization.

Board of Directors

The purpose of a board of directors is to maintain oversight of an organization. They typically meet monthly, or more or less often depending on the need of the organization,  to discuss the nonprofits operations and make decisions that will further the mission of the organization. Items that can be reviewed during these  include financial statements, the budget to actual, grant proposals, and policy changes to the board.

One of the benefits of a board of directors is creating accountability. When there is someone or something we are accountable to, we tend to work harder and ensure we are reaching goals and moving in a positive direction. Another benefit is better decision making. Having a board of directors can provide a soundboard of individuals with diverse viewpoints leading to healthy discussions, which lead to well thought out ideas and decision making. One additional benefit of a board is to help mitigate risk of fraud. In smaller nonprofits, it can be difficult to segregate duties among the employees. A board can be used to help provide oversight of processes in an organization, review and approve payments (as needed), and be signers for bank accounts.  

Finance Committee

As the name implies, this committee’s purpose is to provide oversight on financial matters. They will review and approve the organization’s financials and ensure all things are in order. Another function they serve is to review the organization’s cash flow and see what actions need to be taken for the organization to be able to continue operations.

How can this benefit your organization? A finance committee can provide insights to the organization’s finances to help them stay financially healthy. If a  organization is in good financial standing, it opens the door to be able to fund projects to further their mission or receive additional funding. Furthermore, by having oversight of the finances, they can help management when approving the annual budget and if t he budget is reasonable.

Audit Committee

An audit committee helps review financial reports and provide recommendations for internal controls to help deter fraud. The audit committee also assists in selecting the auditors and be an intermediary between the auditors and management. Also, they can recommend policies to help obtain a clean audit opinion and be in compliance with all  grants and other agreements.

The best benefit of an audit committee is their ability to review the audit and assist in providing recommendations from the audit to ensure a clean opinion. With a clean opinion, an organization is more likely to receive better funding from grantors or other sources that require audit work.

Formation

At minimum, you will need a board of directors. From there, you can decide to form a finance and/or audit committee from board members.

Now, how do you form a board and who should be recruited? Typically, there are at least three members on a board, but there can be more depending on the size of your organization. When selecting board or committee members, find those who have experience, whether it be in nonprofits, the niche industry, or licensed CPAs. Those with more experience will prove more helpful as board members. Lastly, to find potential members, reach out to the local nonprofit association and attend their networking events. You can also reach out to your auditors or local accounting firm, as they may be able to recommend those in their network that could be willing to serve on your board or one of the committees.

Then once you have found those you want on the board, they will need to be formally appointed. Once they have been appointed as board members and the board is formed, you can decide if you want to form an audit and finance committee, whose members are usually a subset of the board who have a finance or accounting background.

Final thoughts

Ultimately, it is management’s responsibility to form their board and then decide if they want additional committees. When a proper board of directors is formed, it will help provide oversight for the organization and monitor the operations to help mitigate the risk of fraud. Likewise, a finance and audit committee can also provide benefits to a nonprofit with their expertise in understanding the organization’s finances and audit. Although not required, those committees can be beneficial to your organization.

For futher guidance, please contact us.  Larson and Company has developed a suite of services specifically to serve the needs of companies of all sizes in a wide range of industries.