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By:Eugene Fram
Frequently, I encounter nonprofit case stories surface related to inadequate oversight by nonprofit boards of directors. Some of the cases result in substantial dollar losses to the nonprofits. Following is my personal list of what reasonable board oversight means to attempt to help nonprofit boards of directors to avoid such losses.
- At least half the board should be able to analyze the monthly or quarterly financial statements. Have voluntary information sessions available for those who do not have the skills.
- Make certain that an external audit is conducted at least every two years, and the board is involved in the selection of the external auditor from a list of two or three suggested by board members and/or management. [i]
- Be alert to the system used for developing new programs. Be wary when new programs are described such as “mindboggling.”
- Be certain the organization has either a comprehensive assessment committee, finance committee, and/or audit committee. (Some states require nonprofits to have an audit committee once the organization has a certain annual revenue.)
- Be alert to the development process for filing critical reports –Examples: 990s, employee tax withholdings and both state and federal tax reports.[ii]
- Make certain the board has developed or is developing a current strategic plan.
- Make certain that the organization has a knowledgeable CFO. No board member should have to worry about the safety of the organization’s assets.
- Be especially alert when financial reports are frequently late or one or more directors perceive financial personnel are inadequately skilled.
- If you don’t understand something, be ready to raise questions, even if the question appears to be innocuous
- Nonprofit transparency is critical in the 21st century. “Trust But Verify.”
[i] For guidance in this process see: Eugene Fram & Bruce Oliver, (2010)“Want to Avoid Fraud? Look to Your Board,” Nonprofit World, pp.18-19.
Nonprofit Management 
Eugene, this is a strong and practical checklist, particularly around financial oversight and transparency. It reflects the discipline many boards need but often lack.
Building on your points, I would offer three additional considerations from a board chair perspective.
First, financial literacy should translate into decision-making. It is not enough for directors to understand the numbers. The board should be using financials to inform strategic choices, assess funding concentration, and evaluate program effectiveness. The question is not only “do we understand this” but “what decisions does this drive.”
Second, audit and compliance should be complemented by enterprise risk oversight. Most organizational failures are not audit failures. They are strategic, leadership, or operational risks that were not surfaced early. Boards should regularly assess what could materially impact the organization over the next 12 to 24 months.
Third, the ability to ask questions must be supported by board culture and role clarity. Effective boards encourage constructive challenge while maintaining discipline around governance versus management. The board governs through questions, not instructions.
Your list captures the fundamentals well. These additions help extend it from compliance to full governance effectiveness.
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Thanks for adding substantial comments to the discussion
Gene
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Hello Dr. Fram,
I teach several nonprofit management classes through multiple community education programs in California. A couple of them include sections on effective boards. May I use/provide your article on “Once Again! What Does Nonprofit Board Oversight Mean” in these classes?
Thank you.
Bob Reich
Brainstorm Bob Consulting
916-715-9371
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Bob: Yes you may use the article for education purpposes.
Gene
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