Five Minutes for Finance: Roles and Responsibilities
Our previous article covered Segregation of Duties (SoD), a method to reduce risk and to support the achievement of organizational objectives. In order to effectively implement SoD in your organization, it is important to understand the different roles and responsibilities of finance staff so that the duties and authorizations are assigned in an effective manner.
Key Finance Roles in Nonprofits
Chief Financial Officer (CFO): The CFO is responsible for the overall financial strategy and health of the organization. Their key responsibilities include:
Strategic Financial Planning: Developing long-term financial goals aligned with the nonprofit’s mission.
Budget Management: Overseeing the annual budget process, ensuring resources are allocated effectively.
Financial Reporting: Presenting financial statements to the board and stakeholders, ensuring transparency and compliance.
Finance Director/Controller: The Finance Director or Controller supports the CFO and is often responsible for day-to-day financial operations. Their duties typically include:
Accounting Oversight: Managing the accounting team and ensuring accurate financial record-keeping.
Grant Management: Monitoring the financial aspects of grants, ensuring compliance with funder requirements.
Internal Controls: Implementing and maintaining policies that safeguard the organization’s assets.
Bookkeeper/Accountant: The Bookkeeper or Accountant is responsible for maintaining financial records and assisting with routine accounting tasks. Their tasks often include:
Transaction Recording: Keeping accurate records of income, expenses, and donations.
Reconciliation: Regularly reconciling bank statements and ensuring the accuracy of financial data.
Payroll Processing: Managing payroll and ensuring compliance with employment regulations.
Financial Analyst: Financial Analysts provide insights and data to inform decision-making within the organization. Their responsibilities include:
Budget Analysis: Analyzing budget variances and providing recommendations for adjustments.
Financial Forecasting: Projecting future financial performance based on historical data and current trends.
Reporting: Preparing detailed reports for management and the board to assess financial health.
Development/Fundraising Officer: While primarily focused on fundraising, Development Officers also play a vital role in financial management by:
Grant Writing: Crafting proposals for funding opportunities and ensuring compliance with donor requirements.
Donor Relations: Building and maintaining relationships with donors, which can lead to sustainable financial support.
Budgeting for Programs: Collaborating with finance staff to create budgets for new initiatives and programs.
Key Responsibilities of Finance Professionals in Nonprofits
Budgeting and Financial Planning: Budgeting is a cornerstone of financial management in nonprofits. Finance professionals must create realistic budgets that reflect the organization’s goals and the resources available. They work closely with program directors and the Development team to align funding needs with strategic priorities.
Fund Accounting: Nonprofits often use fund accounting to track the allocation and use of resources. Finance professionals are responsible for ensuring that funds are spent according to donor restrictions and organizational policies, thereby maintaining trust and compliance.
Financial Reporting and Compliance: Nonprofits are required to adhere to various regulations and reporting standards. Finance teams are responsible for preparing financial statements, conducting audits, and ensuring compliance with local, state, and federal regulations, as well as with standards like Generally Accepted Accounting Principles (GAAP).
Cash Flow Management: Effective cash flow management is critical for nonprofits to maintain operations. Finance staff must monitor cash inflows and outflows, ensuring that the organization can meet its obligations and maintain solvency.
Risk Management: Identifying and mitigating financial risks is essential for nonprofits. Finance professionals assess potential risks, implement controls, and develop strategies to protect the organization’s assets.
Considerations for Small Organizations
Most smaller nonprofit organizations do not have the resources or needs for a large finance team. Even mid-sized and larger organizations may choose to limit the size of their finance team in order to direct more resources towards other activities, such as programs, fundraising, or human resources. In these situations, organizations have several options from which to choose:
Combine roles/responsibilities:
Transfer some of the CFO’s responsibilities to the Executive Director or another member of the leadership team. Very small organizations may choose to assign some of these duties to the Board Treasurer.
Divide the Financial Analyst duties among the Director of Finance/Controller and/or the Bookkeeper/Accountant.
It is important to keep the concept of SoD in mind as the duties are reassigned to ensure adequate oversight of each phase of the work.
Outsourced finance staff: There are many firms that provide outsourced accounting and finance services to nonprofit organizations. These firms are often able to fill whatever gaps exist in your organization’s staffing or take over the accounting and/or finance function entirely. Each organization must weigh the benefits (e.g. professional staff, back up staff to cover absences or surges in activity) against the costs (e.g. team is not exclusively focused on your organization, staff are often working remotely).
Fractional staff: Employing (or contracting with) individuals on a part-time basis may be a cost-effective solution. There are many firms and individual contractors/consultants who offer these services (especially for the CFO role), which can be tailored to meet the specific needs of your organization.
Conclusion
The finance roles and responsibilities in a nonprofit setting are multifaceted and essential for the organization’s sustainability and success. Effective financial management not only ensures compliance and transparency but also empowers nonprofits to fulfill their missions. By understanding these roles, organizations can better appreciate the importance of financial stewardship in achieving their goals and making a meaningful impact in their communities. As the nonprofit landscape continues to evolve, strong financial leadership will remain a cornerstone of effective nonprofit management.
The challenge that all organizations face is how to optimize its resources towards achieving its mission. In this light, establishing the right-sized finance team will require a thorough evaluation of the complexity of the organization’s financial situation and the demands placed on each of the finance team roles.
About this Series
Subsequent articles in this series will cover other topics related to nonprofit financial management. Here is a list of, with links to, previous articles:
About the Author
For over 30 years, Robert Pascual has been a leader in nonprofit financial management as a CFO, consultant, conference speaker and educator. He holds an MBA from the Haas School of Business at the University of California and is the founder and principal of Robert Pascual, MBA LLC. He has worked with small, mid-size, and large nonprofit organizations spanning the fields of education, workforce development, housing, health, philanthropy, social services, media, fiscal sponsorship, nature, and the environment. Each of these organizations has faced both unique and common challenges, some of which are probably similar to ones that you wrestle with.