Hartford Business Journal

22 HARTFORDBUSINESS.COM | JULY 14, 2025 FOCUS | NONPROFITS EXPERT'S CORNER Nonprofit board members have financial responsibilities — regardless of their backgrounds By Amber Tucker F or professionals who are passionate about a cause, joining a nonprofit board is an excellent way to give back to the community and build a more well-rounded career. While some board members come from a financial background, many who bring other areas of expertise are surprised to learn that all members of a nonprofit board have a fiduciary responsibility. Nonprofit board members have a legal obligation known as "duty of care," which includes ensuring that the finances of the organization are managed effectively. This aspect of the role may be intimidating to board members without extensive finance experience, but the basics are relatively straightforward. Financial health oversight Every board member should review and understand the organization's financial statements, including the statement of financial position, statement of activities and functional expenses, more commonly known as the balance sheet, income statement and operating expenses. Management team members of many organizations are pulled in many different directions and are deeply involved in the day-to-day operations — the board needs to take a broader view and ensure resources align with the strategic plan. Any unusual or unexplained financial activity should spark a discussion with the nonprofit's directors. As with any business, reality will differ from the plan, and it's best when these discus- sions are collaborative and don't take on a confrontational tone. Questions that can guide these discussions include: • Are we allocating enough resources to achieve our mission effectively? • Are we in compliance with all financial regulations and reporting requirements? • Are there any major financial concerns that the board should be aware of? • What are the biggest expense drivers, and are they in line with our mission and priorities? • Are there any cost-saving oppor- tunities, or areas where we could improve efficiency? Ensuring internal controls Part of the responsibility of each nonprofit board member is to ensure internal controls are in place to prevent fraud and mismanagement. Each indi- vidual board member should approve or review policies for financial manage- ment, such as expense reimbursement, procurement and segregation of duties. For example, if a key staff member suddenly leaves their position, could the organization continue to pay its bills and access its finances seamlessly? Or, if a staff member committed fraud or inadvertently paid a bill twice, is there a system in place where another staff member would certainly detect this? If any one leader has access to both the checking account and recon- ciliation system, duties have not been sufficiently segregated. For board members to avoid liability if something goes awry, there needs to be sound and well-documented controls in place. The nonprofit may have directors and officers liability (D&O) insurance that could provide some protection, but documenting internal controls would be part of making a claim. Additional responsibilities for foundation board members Public charities include organizations such as food banks, churches, schools and animal shelters, and they typically take donations from a wide range of sources. Many foundations are funded by one source (an individual, family, corporation or their own investments) and make grants to other nonprofits rather than operate programs directly. While nonprofit organizations are tax exempt, foundations do have to pay an excise tax on net investment earnings. Currently, the tax is a flat 1.39% on net investment income including interest, dividends, capital gains (net of losses), royalties (in some cases) and rents from investment property. There are currently pending changes to these tax rates though, so stay tuned on what is to come. In addition, private foundations are required by the IRS to distribute at least 5% of the average fair market value of their assets each year for charitable purposes. This rule ensures that founda- tions actively support charitable work, rather than just accumulate wealth. Ensuring these obligations are met is part of the role of a foundation board member, in addition to the overall fiduciary responsibility of maintaining financial stability and internal controls that apply to any nonprofit. Amber Tucker is a CPA and partner at Connecticut accounting and advisory firm Fiondella, Milone & LaSaracina LLP (FML CPAs) with offices in Glastonbury, Avon, Enfield, New Haven and Stamford. EXPERT'S CORNER Tips for nonprofits planning a software change By Katrina Olson U pgrading software can be a major step forward for a nonprofit, but without proper planning, it can also become time-consuming and costly. Whether replacing outdated accounting software, introducing a donor management platform, or integrating tools for better reporting, a successful software change requires more than just a purchase decision. It calls for stra- tegic planning, people alignment and long-term vision. If your nonprofit is considering a software change, here are key areas to plan around and insights many organizations miss. Start with strategy, not software Many organizations start researching software options before outlining what problems they're trying to solve. Before browsing demos, step back and define: • What inefficiencies or frustrations are prompting this change? • What data do we need to track that we can't today? • What outcomes do we want to improve — faster reporting, stronger donor engagement, better compliance? A strategy-first approach ensures your software change supports long- term goals, not just short-term needs. Develop a clear project plan Treat a software transition like any other project. Assign a project sponsor (ideally someone on the executive team) and a project champion (usually a department lead or operations manager) who will keep things moving. Your plan should include: • Defined phases (e.g., selection, testing, training, go-live); • Milestones and deadlines; • Assigned roles and responsibilities; and • A risk management plan in case of delays or setbacks. Remember to build in time for surprises. Data cleanup, stakeholder feedback and change fatigue can slow your timeline if not anticipated. Budget realistically for more than just the software Most nonprofits underestimate the true cost of a software transition. Beyond the licensing or subscription fee, factor in: • Implementation or configuration services; • Staff training; • Possible third-party consulting; • Staff time pulled away from other duties; and • Data migration and system testing. Build a budget that accounts for both direct and indirect costs, and consider phasing implementation if budget constraints are tight. Involve the right people One of the most common pitfalls is selecting software in a vacuum. Soft- ware may impact multiple departments, so involve stakeholders from every affected function. Start conversations early, collect input and be transparent about tradeoffs. Even if the final decision can't satisfy everyone, involving them creates buy-in and often uncovers needs you hadn't considered. Prioritize change management and communication A software change is never just about the tool. It's about changing habits, workflows and expectations. That's why change management is essential. Keep lines of communication open through: • Project kickoff meetings with staff; • Monthly updates to stakeholders; • Trainings that are role-specific, not one-size-fits-all; and • Clear support channels post-launch. Plan for data migration early Poor data migration is one of the top reasons new systems are underdeliv- Amber Tucker Katrina Olson

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