Many for-profit and nonprofit businesses have a board of directors that sets the general direction and policies of the organization. A board of directors does not manage the day-to-day operations of an organization -- it sets guidelines for management -- but has the ultimate say in all business matters. A finance committee oversees a specific area of an organization and operates similar to a board, guiding, but not managing, an organization's finances.
Board of Directors
A board of directors sets the mission, goals, standards and procedures of an organization. A typical board of directors consists of a chairman of the board or president of an association, a vice president, a secretary, a treasurer and board members. Some boards combine the secretary and treasurer roles, have first and second vice presidents and have committee members.
A board can be appointed or elected by members or shareholders. Board positions often come with specific terms and rules for appointment and election. Some boards stagger board member terms so the board always contains members with knowledge of the last one, two or three years. Other boards must be completely re-elected at the same time, with certain board members often retained to maintain continuity. Some boards have a defined hierarchy, leading to the presidency, while others select a new president by a vote of the board, members or shareholders.
A finance committee works with the organization's accountants, bookkeepers, chief financial officer or treasurer to direct its work. In some instances, a finance committee simply reviews reports from the person handling the organization's finances so that at least one part of the board is knowledgeable about the organization's income, expenses, assets and liabilities. Other finance committees are more active, creating the annual budget, reviewing purchases and expenses and authorizing expenditures by the treasurer or CFO. Because Internal Revenue Service regulations hold board members personally responsible for an organization's financial problems in some instances, a finance committee protects the board. For example, if a CFO or treasurer embezzles money, board members may have to reimburse the organization if they were malfeasant in monitoring the organization's financial records. This is why many board meetings begin with a treasurer's report.
In a nonprofit organization, the treasurer oversees the organization's finances. If it is a small organization, the treasurer may perform the day-to-day deposits and bill paying. A treasurer may hire a contractor to do simple bookkeeping and accounting, but will sign all checks prepared by the contractor. If an organization has a hands-on treasurer, the finance committee of the board may only meet twice each year, to review the projected annual budget and to review the year-end financial results of the organization.