Nonprofit board members - keep an eye out for these warning signs

Nonprofit board members play a vital role in ensuring the fiscal health of the organization. With recent federal funding cuts, it's critical to monitor your nonprofit's finances and its capacity to support critical programs. Here are some warning signs to watch for for:

Lack of a budget - A nonprofit without a budget, or with a poorly constructed one, demonstrates a lack of fiscal discipline. The board should require a budget that aligns with strategies developed and approved strategies.

Unexplained variances - Once the budget has been approved, the board needs to compare it to actual results to identify discrepancies. Some variances are bound to happen, but your nonprofit's staff should have reasonable explanations for them.

Unusual spending - Board members must be wary of overspending in one program that's funded by another. Drawing from reserves, unplanned borrowing or using endowment funds can signal the beginning of a financially unsustainable cycle. 

Inconsistent financial statements - Sloppy financial statements that aren't prepared using U.S. Generally Accepted Accounting Principles (GAAP) or another accounting basis - can lead to poor decision-making. They can also undermine your nonprofit's reputation because they may be read as a sign of lax internal controls, mismanagement or fraud. Your board must make sure statements are prepared properly.

Late financials - Ideally, board members should receive financial statements within 30 days of the close of a period. 

Concerns from stakeholders - Not all red flags are found in a nonprofit's numbers. For example, if long-term, dedicated supporters express doubts about your organizatin's finances, board members need to take them seriously. It is essential to notice if the development staff is reaching out to historically major donors outside of the usual fundraising cycle.

Executive director overreach - Sometimes, an executive might insist on making strategic or spending decisions without board input and guidance. Such actions can indicate potential dishonesty or financial instability.

As a board member, keep in mind your fiduciary responsibilities, which include identifying and addressing financial warning signs.