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What The Bylaws Tell You About A Nonprofit's Finances

best practices board finances foundation fraud funding reporting Aug 03, 2023

What the Bylaws Tell You About a Nonprofit’s Finances

     As the nonprofit leader, you're responsible for making sure that the organization is sound and operating within legal and ethical boundaries. But one often overlooked tool is your nonprofit’s bylaws. Today I want to share with you how your bylaws can be a very valuable resource. 

     Every organization has a set of bylaws and governing documents. It may be a Certificate of Formation  or Articles of Incorporation.  Those documents contain important information that is essential to the finances of the organization. These are the first thing I ask for when I'm consulting with a new nonprofit client. Simply knowing and following your bylaws can keep you out of a tremendous amount of trouble and give you great clarity.

Financial Policies

     The first item you should check for is a description of financial policies set forth on the topic of budgeting. For example, how often does the organization need to approve a budget and who should approve it? You may see accounting policies requiring, for instance, cash or accrual-based books. How often are financial reports to be provided and who should receive them? Some bylaws will require an annual audit of the organization’s finances. 

Instructions About Membership Dues

      The next area to look for in your nonprofit’s bylaws are instructions about membership dues and fees. Many nonprofits are funded through membership dues and fees, in which case,  the bylaws will outline how those funds should be collected and managed. This section may also state whether a separate bank account is needed, and how those funds can be used or spent. 

Definition of Key Roles

     Another important area to look for in your nonprofit’s bylaws is a definition of key roles. Do your governing documents require that you have a finance committee? Do they specify the role of a treasurer? They might also state where the financial records should be kept. This is one area where I often see outdated bylaws in which current practice does not match what's documented. Here’s your reminder to revisit those areas of your bylaws and get them updated. What's written is what should be done. So if what's done isn't what's written, it's time to get it updated.


     Finally, your nonprofit bylaws should contain a statement about what happens if the organization dissolves or terminates operation. Typically, this section will state that the nonprofit’s assets have to be used for a similar purpose or given to a similar type of nonprofit. Hopefully this doesn't ever apply to your organization, but I do think it's helpful to at least be familiar with the policy so you know what the process may look like in case your organization is ever faced with that possibility. This info can also provide guidance in day to day decisions, like selling an asset that’s no longer needed. 

     In conclusion, your nonprofit bylaws and governing documents are a valuable source of information and I hope that you dive in and get to know them well. But, if you can't find them, then this is also a good reminder that they should always be handy to your Executive Director, and should be a part of your onboarding packet for any new board members. 

     Remember, I am always here to help! If I can be a resource to you, I invite you to reach out and schedule a consult with me here. You can also sign up here to receive these tips directly to your inbox on a weekly basis. I always look forward to sharing what I know with you!

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