Nonprofit Accounting Basics

What Board committees are recommended for a newly formed nonprofit?


Question: I will be forming a new nonprofit organization soon and I am in the process of recruiting the initial Board of Directors and drafting governing documents. I have served on nonprofit Boards in the past with most having numerous committees. However, I am unsure which Board committees my new organization should have, since we are just starting out. What Board committees are recommended for a new nonprofit?

Answer: Like a lot of things in life, less is more. Generally, for a new nonprofit, especially a small organization with seven or fewer founding Board members, I recommend starting with one governance-focused committee and one key program committee. This results in a tight governance structure consisting of a Board of Directors supported by two standing committees.

For the governance-focused committee I recommend establishing a finance committee. A finance committee is always essential, and most nonprofits have one in place. The finance committee generally oversees financial resources and reporting, budget preparation and internal accounting control systems. For small nonprofits, the finance committee is also commonly charged with oversight of annual audits, Form 990, and other registrations, tax filings, and licenses. The finance committee can even be assigned other duties outside their regular parameters on a temporary basis, since there is usually a financial connection. For example, I have seen finance committees tackle membership issues, oversight of grants, fundraising, event planning, and monitoring of investments.

For the program-based committee, the Board should identify the initial key efforts that will drive the organization’s activity in the early years and establish a committee to oversee these program efforts. Keep the committee’s perspective as wide-ranging as possible. The Board can give this committee any name that it desires, but the name should generally align with the organization’s key program goals. I have seen new small nonprofits start with a research and projects committee, scholarships and awards committee, community programs committee, or other similar variations.

As the organization grows and evolves, committees can be added to better handle oversight and workload. When the time is right, initial finance committee responsibilities can move to a separate audit committee, investment committee, budget committee, fundraising committee and others. Likewise, a general programs committee can be separated into individual program committees.

If the initial Board of Directors is larger (12 or more members) you should consider adding an executive committee. The executive committee generally comprises the officers from the Board of Directors (as well as the chief non-Board staff position in a non-voting role) and is usually tasked with overseeing operational matters in between meetings of the full Board. However, founding Boards have a lot of work to accomplish to guide the organization’s initial direction, with no organizational precedent to rely on. For this reason, I generally do not like to establish an executive committee until the organization has had a few years to develop and solidify its core operations.

Planning Tip – New nonprofits can benefit from strategically using task forces and working groups. These groups operate under either the Board of Directors or one of the standing committees. They are given specific tasks and can have a sunset date where appropriate. As the organization grows and evolves, some of these task forces and working groups could be added as standing committees.

In the early years keep your governance structure tight with a minimum number of Board members and standing committees. As the organization grows and evolves, affective strategic expansion of the governance structure can be considered.