Monitoring your organization’s systems for budgeting, record keeping, financial reporting and safeguarding assets is generally more than a volunteer Treasurer or full-time Executive Director can do or should do by him or herself. Setting up a Finance Committee of the Board of Directors is a team approach that can make it easier to manage your organization’s finances. A Finance Committee can also provide valuable links between your organization’s Board of Directors, the staff and the external auditor.
Setting up a Finance Committee
Your Board of Directors should tailor the design of a Finance Committee to suit its needs. As there are no legal requirements under Ontario or Canadian Incorporation statutes to have a Finance Committee, your Board can design and set the terms of reference for the Committee as it sees fit. Following are some suggestions to consider when setting terms of reference and assigning responsibilities.
Remember that it is critical for your Board to document in writing the role and responsibilities of the Finance Committee. Documentation will provide for continuity over time and give new Finance Committee members a clearer understanding of their responsibilities.
Who should sit on the Committee
As the Finance Committee will be a sub-committee of the Board of Directors, it is important that members of the Board form the committee. You could recruit non-Board members to provide advice on an ongoing basis provided non-Board member participation is not prohibited in the by-laws of your organization. This is also a way to recruit and train future Board members.
We recommend having at least three members on your Finance Committee to foster discussion. Recruiting Board members with non-financial experience can provide fresh points of view and varied experiences. We believe it is as important to have Finance Committee members who question the way things are done as it is to have members with preset notions of how finances should be managed.
The staff person responsible for your organization’s finances should be asked to attend most Finance Committee meetings. This will help ensure that the Committee receives accurate information and is advised of changes in the organization’s financial circumstances on a timely basis.
You could also invite your auditor to at least one Finance Committee meeting each year. The Committee should review the findings of the annual audit and discuss any concerns and/or suggestions regarding internal control at that meeting.
What the Finance Committee should review
The Finance Committee should review and be responsible for reporting to the Board all aspects of the financial management framework including:
- establishing budgets to meet the organization’s objectives
- regular monitoring of the financial position of the organization
- comparing where you are financially with where you planned to be and recommending appropriate adjustments to the Board.
The Finance Committee should also look at areas of internal control and ensure that you get the most from your financial resources.
The terms of reference for your Finance Committee could include the following:
Monitoring the Budgeting Process
The level of Finance Committee involvement in the budget preparation process will depend on the financial capabilities of your organization’s staff. Some Committees will primarily provide a supervisory role whereas others will find themselves preparing the annual budgets. In either case the Finance Committee should be responsible for presenting the annual budget to the Board once it is completed.
Regular reports comparing actual financial results with budgeted forecasts should be made by the Committee to the Board throughout the year. The Committee should periodically (at least quarterly) review the critical underlying budget assumptions (enrolment, fees charged, number of staff and salaries paid, etc.) and recommend appropriate budget adjustments to the Board.
The Committee should make recommendations to the Board for fee increases where necessary and report if and when funds are available for salary increases. While it would generally not be appropriate for the Finance Committee to recommend individual raises to the Board (this is usually left up to the Personnel Committee), it would be their responsibility to determine how much in total is available for raises on an annual basis.
Monitoring day-to-day record keeping
The Finance Committee should determine whether the day-to-day internal controls of the organization are functioning as expected. This review should be done at least once a year. If circumstances change during the year then an interim review may be appropriate. For example, if parent fees receivable steadily increase over several months it would be appropriate for the Finance Committee to review whether the organization’s policies of debt collection are being followed and determine whether the policies themselves are effective. The Finance Committee could also consider having staff report on the status of financial reporting systems on a quarterly basis. Consider using a financial management checklist to help this process.
The Finance Committee should approve significant changes in day-to-day accounting systems such as implementing new accounting software and reallocation of record keeping duties (e.g. hiring a bookkeeper).
The Finance Committee should:
- review internal financial statements on a regular basis to make sure that the statements make sense and that financial trends are brought to the attention of the Board of Directors.
- review the annual audited financial statements prior to presentation to the Board of Directors and discuss the statements with the auditor if necessary. Items to be discussed with the auditor could include:
- any changes in accounting policies and practices
- recommendations for improving internal controls
- observations the auditor might have regarding the financial efficiency and future financial viability of the organization.
- recommend to the Board of Directors the selection of an auditor for the following year together with the anticipated fees.
- present the financial statements and a brief annual financial report to the members of the organization at the Annual General Meeting.
- review funding submissions to various government bodies prior to submission, including municipal budgets (e.g. the Metro Children’s Services budget), the grant utilization forms required by the Province of Ontario and Pay Equity reports if applicable. Consideration should also be given to reviewing T4 Summaries, annual employee health tax and income tax/Charity Information Returns and other reports as required by various levels of government. The level of detail of the Committee’s review will depend on the financial expertise of staff at your organization. Remember that no matter how expert your committee members and staff are, the Board is responsible for ensuring the ongoing financial viability of the organization.
Keeping assets safe
At least annually the Finance Committee should review financial policies to ensure safety of assets. The Committee should review whether the policies governing the signing of cheques, use of organization credit cards and purchase of investments (T-Bills, GICs) continue to be appropriate and have been adhered to throughout the year.
Frequency of meetings
The Board and members of the Finance Committee should determine the frequency of the Committee’s meetings. We recommend that the Committee meet at least quarterly. These meetings should not, however, replace the review and discussion of financial information at the monthly Board meetings. Following is a sample agenda:
- Review T4s, etc.
- Review the annual audited financial statements
- Review budget assumptions for the period to June 30
- Review the organization’s summer budget
- Review prepared grant utilization forms, corporate tax returns and other government reporting forms as applicable
- Re-review budget assumptions for the fall
- Compare actual results for the summer with those budgeted
- Review the following year’s municipal subsidy budget if applicable
- Prepare a budget of revenue and expenses and monthly cash flow for the upcoming fiscal year
- Discuss financial reporting and any related concerns with the auditor if appropriate.