Care, Compliance, Loyalty & Financial Accountability – Rea CPA

Care, Compliance, Loyalty & Financial Accountability

Getting To Know The Role Of A Not-For-Profit Board Member

Nonprofit Board Members | Fiduciary Duties | Ohio CPA Firm
Above all, board members need to keep their board strong. The lack of an active and engaged board can doom the future of a nonprofit organization. Members should look for ways to recruit a diverse group of community representatives who have an interest in the charity’s mission and represent diverse viewpoints or skill sets. Additionally, it’s good practice to institute term limits to avoid stagnation. Read on to learn about the fiduciary duties of board members.

Joining a board as a member or trustee of a nonprofit organization can be a very rewarding experience. From fueling your passion for philanthropy to enhancing your sphere of influence and/or gaining experience to enrich your resume; there is much to be gained from volunteering your time and resources to the cause.

While board members are central when it comes to bringing new ideas to their organizations, providing oversight and guidance in line with the mission and objectives, and helping their group remain relevant and healthy, there are a fair share of more serious responsibilities to consider. For example, by law, boards of directors are specifically tasked to ensure the nonprofit’s integrity and accountability.

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Fiduciary Responsibilities Of Board Members

Board members and directors of charitable organizations have fiduciary obligations to ensure that the mission of the organization is honored and that the group’s resources are used to support the mission. Statutory provisions spell out their responsibilities. In addition to federal requirements regarding fiduciary duties, states have nonprofit corporation codes for tax-exempt entities. These responsibilities apply whether the group is formally incorporated or not and if the group’s budget is $100 or $100 million.

Failure to follow through on legal board duties can have devastating consequences to a charitable organization, which can include civil or criminal penalties levied against board members  ̶  especially if they have benefited from their action or inaction. The fiduciary obligations of board members fall under four specific legal duties:

  • Duty of care
  • Duty of compliance
  • Duty of loyalty
  • Duty to maintain accounts

A Closer Look

Duty Of Care

To fulfill the duty of care, a member should be active within the charity by participating in meetings, establishing and enforcing organizational policies and conducting themselves in a respectable manner. Under this duty, board members should be prepared and informed, review performance, exercise sound judgment, and keep reasonable records. It’s also essential to exercise independent judgment at all times.

Duty Of Loyalty

The duty of loyalty requires the interest of the charity and its objectives take precedence over a board member’s personal interests or those of family or friends. Members should establish and comply with a written policy for dealing with conflict-of-interest situations, not engage detrimental transactions and use extreme caution when entering into any business relationship between the organization and a board member.

Duty Of Compliance

Under duty of compliance, board members must be faithful to the organization’s purpose and mission, which means they should adhere to the organization’s governing documents, laws and regulations that relate to the charity and its operations. Board members should understand and comply with the charity’s articles of incorporation, constitution, bylaws, codes of conduct and ethics, and any other governing documents. Know and follow state and federal laws relating to nonprofit entities, reporting requirements, fundraising, and tax-related issues.

Duty To Maintain Accounts

With the duty to manage accounts, board members are responsible for the charity’s financial stability and accountability by establishing procedures to help the organization operate in a fiscally responsible manner. This includes developing policies and procedures that protect the organization’s business interests, operations and annual budgets that provide clear direction for spending. Board members need to ensure minutes are kept of meetings and all financial records are maintained throughout the year. Internal accounting systems need to be established, including checks and balances so that one staff person does not have total control over finances. It is essential to invest and reinvest assets. Develop honest and fair fundraising goals and policies and assist the organization in acquiring resources wisely.  It is also good to insist upon getting the best value for goods and services through a bidding process.

Above all, board members need to keep their board strong. The lack of an active and engaged board can doom the future of a nonprofit organization. Members should look for ways to recruit a diverse group of community representatives who have an interest in the charity’s mission and represent diverse viewpoints or skill sets. Additionally, it’s good practice to institute term limits to avoid stagnation. Performing annual assessments of how the board is operating and whether the group is adequately addressing all necessary issues is also a good idea as is strategic planning to analyze the organization’s strengths, weaknesses, opportunities, and threats.

Prospective board members or trustees should fully investigate what the board commitment will entail before accepting a position as each situation is unique. It is important to understand the role, function, time and monetary commitments and responsibilities.

Board membership should not be taken lightly. However, if you know the expectations and have a great passion, you can make all the difference in the world to a nonprofit – as well as enjoy a very rewarding experience. Email Rea & Associates to learn more about your fiduciary responsibilities as a board member or for access to a wealth of information designed to make your board experience more enjoyable.

By Maribeth Wright, CPA (Cambridge office)

Check out these articles for additional insight to help manage your nonprofit:

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