The 501 S(c)ene

The latest view on not-for-profit accounting issues

Board responsibilities

conflict of interest, nonprofit, accountingBeing a not-for-profit board member is a great way to get involved in causes that are important to you, but before diving in and offering your services, keep in mind there are responsibilities to being a board member.

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Board member responsibilities can be broken down into three categories: strategic, legal and fiduciary:

  • Strategic – The board will set and oversee the implementation of objectives for the organization to fulfill its mission. As part of setting the organization’s overall strategic plan the board will need to:
    • Evaluate and hire a CEO – The board will need to hire a Chief Executive that fits into the organization culture as well as terminate this individual if they are not meeting expectations.
    • Compensation of Executives – The board is responsible for voting on and setting the appropriate compensation of all chief executives. Appropriate compensation should be determined through compensation studies and surveys prior to being implemented.
  • Legal – The board has three legal duties. Duty of care, loyalty and obedience:
    • Care – Board members should make reasonable and sound judgments when acting on behalf of the organization, like any prudent person.
    • Loyalty – Board members should never use information obtained as a member for personal gain and should put the organization’s interest above their own. It’s highly recommended that the board have a conflict of interest policy in place.
    • Obedience – The board should not take actions inconsistent with the organization’s mission and should also ensure the organization is compliant with laws and regulations.
  • Fiduciary – The board should act to protect the property, financial assets and, most importantly, the reputation of the organization. The board is responsible for:
    • Evaluating financial policies such as investment and debt policies
    • Approving annual operating and capital budgets
    • Reviewing and analyzing financial information to ensure that the organization has the resources necessary to fulfill its mission while remaining accountable to its donors and other stakeholders.

In summary, board members should ensure they received from the organization all the necessary tools they need to fulfill their responsibilities. Also, there are potential legal consequences for board members who fail to fulfill those responsibilities.  If you serve on a board or are considering serving on a board, review all financial reports and metrics related to programs to properly assess the organization’s performance in order to make sound decisions.

Feel free to contact your Henry+Horne tax adviser with any questions.

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