Common Nonprofit Board Responsibilities
Responsibilities for Nonprofit Boards
One of the fundamental, legal responsibilities of a nonprofit board is to provide oversight and accountability for the organization. Board members serve as a guiding body, providing insights and actionable steps to navigate a path toward the nonprofit’s mission. Overall, the board is responsible for ensuring that the organization is appropriately stewarding the resources entrusted to it and following all legal and ethical standards, which is often referred to as the ‘fiduciary’ responsibility. Below, discover the recommended practices and governance options that help members successfully fulfill these key responsibilities.
Common Nonprofit Governance Practices
BoardSource has codified many of these legal and ethical standards as a part of our Recommended Board Practices, which includes the following recommendations:
- The board should have more than the one annual meeting required by law. Most state laws require at least one annual meeting, but BoardSource believes that one meeting is insufficient for boards to provide proper oversight.
- The board must formalize a process for setting appropriate compensation for the chief executive and the full board should approve the compensation package. This ensures that the full board is confident that the chief executive is being appropriately compensated and that the organization is not opening the organization to the risks of excessive or inadequate compensation.
- The full board should review the Form 990 before it is filed. This ensures that board members are familiar with the information reported on the 990 and that it accurately reflects the organization’s financial and operating environment.
- The board must ensure that there are policies related to disclosing and managing conflicts of interest and that there is a strong whistleblower process in place.
- The board should ensure that an annual audit is conducted and that the board engages directly with the audit firm to discuss the results.
To increase transparency around organizational practices, including the work of the board, nonprofit organizations can update their Candid (formerly GuideStar) profile to provide additional information about their leadership practices. Learn more about BoardSource’s partnership with Candid.
Lead with Learning
True oversight and accountability goes far beyond these core practices and requires active engagement from each individual board member. Effective nonprofit leadership in these areas requires a comprehensive understanding of the organization and a willingness to continuously learn. From practical advice for first-time board members to deep, analytical dives for seasoned ones, BoardSource has a number of relevant resources to explore to find out more.
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Written Resources
All 101-level topical resources listed below are available publicly. BoardSource members have access to 101, 201, and 301- level resources. Don’t forget to visit the BoardSource store for more resources and training on this topic.
10 Common Benefits of Dashboard Reporting
201| Community resource. There are probably as many ways to work with dashboards to realize these benefits of critical thinking and board engagement as there are board members. The following are 10 common ways that have proven in practice to be valuable.
501(h) Lobbying Election
201| Members-only resource. In 1976, the IRS created the 501(h) lobbying election for public charities that want to lobby. Its purpose is to allow charities more leeway with their lobbying activities, establish clear guidelines, and, in general, dissipate the confusion concerning the legality of lobbying by public charities. 501(h) election makes sense for 501(c)(3) organizations that find lobbying essential to fulfilling their mission.
7 Questions to Ask When Reviewing the Annual Budget
201 | Members-only resource.Many nonprofit staffs send their organizational budgets to their boards for review and approval. Here are seven questions the board should ask before giving the budget a thumbs-up.
Advocacy, Lobbying, and Political Activities
201| Members only resource. Advocacy, lobbying, and political activity by nonprofits often are misunderstood. This outline defines the terms and the legal limits for lobbying for nonprofit organizations.
Annual Board Actions
101| Community resource. Every board must verify that numerous activities get performed regularly or on schedule. An action calendar can help the board ensure that its legal, financial, and other tasks get accomplished in a timely manner.
Audit Committee Responsibilities
201 | Members only resource.Many nonprofits are legally required to have a standalone audit committee. But even if you are not, you should consider establishing one if your organization’s finances are independently audited. Here’s some information about what the committee should do and who should serve on it.
Auditing Your Nonprofit
201 | Members-only resource. Continual financial pressures, an increased demand for accountability, and the Sarbanes-Oxley requirements for publicly traded companies awakened many nonprofits to look at their own auditing procedures.
Avoiding Financial Risks
201| Members only resource. To avoid or diminish financial and accounting risks that might threaten the organization’s existence or decrease its effectiveness, the board needs to be aware of proper financial processes and practices.
Avoiding Legal Trouble
201| Members only resource. Being a legal entity, a nonprofit organization must realize that laws and regulations guide its activities and practices. There is no limit to the legal risks. In fact, the abundance of risks can be troubling unless the leaders of the nonprofit are aware of organizational and board legal obligations, laws governing nonprofits, and internal protective measures that can prevent many unnecessary headaches or irreparable damage.
Avoiding Personal Liability
201| Members only resource. The nonprofit board’s ultimate task is to assure that the organization adheres to appropriate standards, and that it functions within the framework of its stated mission. All board members have legal and ethical responsibilities to the organization and the community at large. Rarely do individual board members get sued for the malfunctions of an organization, but it is important that every board member understands their responsibilities and that adequate precautions are taken.
Board Meeting Attendance Reimbursement Policies
101| Community resource. The cost of attending board meetings should not create undue financial burden for any board member. Regional and national boards sometimes have a special challenge in this regard. At the same time, transferring the financial burden to your organization is not necessarily the best or easiest solution. Here are possible options to consider when your board decides to adopt a meeting attendance reimbursement policy.
Board Member Compensation
101| Community resource. Serving on a nonprofit board is usually a volunteer commitment. There are circumstances where reasonable compensation is acceptable, but it is always critical that board service neither leads to personal financial gain nor violates the public trust.
Board Member Independence
201| Members only resource. We often define individual independence as freedom from outside control or influence by others around us or having the confidence to act according to our own will. We can refer to the same definitions when we look at the independence of our organization’s board of directors or the individual board members composing the governing team, though it is not always straightforward.
Board Members as Providers of Professional Services
201| Members only resource. Should technical specialty be a necessary criterion for board service? In all-volunteer organizations, professional skills are particularly helpful. However, experts and representatives of specific fields can find themselves in a difficult position of trying to define their role as an active and contributing board member while being expected to perform professional services for the organization.
Building a Nonprofit Board for the First Time
101| Community resource. After determining that there is no other organization to partner with, the first challenge for a founder of a new nonprofit organization is to build a board. This is not a simple task, and involves more than just finding a group of dedicated people.
Confidentiality in the Boardroom
201| Members-only resource. Maintaining relationships relies on trust, and the expectation of keeping private information, well, private is not limited to our personal relationships. The same expectation expands to our business relations, including board service.
Conflict of Interest for Nonprofits
101| Community resource. What should happen when a board member clearly has a conflict of interest but does not recognize it or won’t acknowledge it? Is it acceptable to join a board if you come with an apparent conflict of interest? These are both questions with which many boards struggle.
Dashboard Reporting
201| Members only resource. Dashboard reports emulate the function of a car dashboard: Before pressing the gas pedal, you have in front of you the necessary lights and signals indicating whether the car is ready and safe for travel.
Developing Diverse Income Streams
201| Members only resource. Every nonprofit struggles to balance its budget. Besides controlling its expenses, a nonprofit should also study closely its income options. Good financial management includes both monitoring expenses and exploring new opportunities for revenue.
Disqualified Individual
201| Members only resource. Without exception, every person associated with a nonprofit organization encounters a conflict of interest at one time or another. These situations are natural and cannot be eliminated when a dynamic, engaged individual is involved in activities where he or she has to weigh multiple options while keeping in mind the ultimate objective: to serve the good of the organization.
Dissolving a Nonprofit
201| Members only resource. There may come a day in the life of every nonprofit when a difficult question must be posed: Is it time for us to close? For some, the final answer will be no, but asking the question may stimulate necessary changes. For many, the only honest answer will be yes.
Elements to Include in a Chief Executive Employment Contract
101 | Community resource. A chief executive employment contract provides security to both the executive and to the board, and makes absolutely clear the details of the compensation arrangement and the mutual expectations of the two parties.
Emergency Leadership Transition Plan
201| Members only resource. Nonprofit board meetings are often considered as private meetings that only the board and a few select staff attend. While this picture is true for most nonprofits, sunshine laws require some organizations to open their board meetings to anyone who wants to attend.
Every Board’s Must-Have Documents
101| Community resource. Even the most organized, responsible, and amiable board needs to document its activities, internal rules, and processes. Here are the various documents to which your board needs to pay attention.
Executive Sessions for Nonprofit Boards
101| Community resource. Executive sessions are closed or special meetings-within-a-meeting that provide an opportunity for the board to convene privately to handle sensitive and confidential issues, foster robust discourse, and strengthen trust and communication.
Financial Issues — FAQs
101| Community resource. BoardSource has been answering governance-related questions posed by nonprofit leaders for more than 30 years. Here are our answers to some of the most frequently asked questions about financial issues.
Fiscal Sponsorship
101| Community resource. Traditionally, fiscal sponsorship refers to an arrangement where an established nonprofit provides financial support for a project that may be independent or that yet has to obtain its own tax-exempt status. This is not to be confused with fiscal agency, where a nonprofit is retained as the legal agent to a project. In fiscal sponsorship, the relationship is the reverse: An established nonprofit takes a new project under its wings as an extension of its own charitable purposes.
Governance Documentation: Articles, Bylaws, and Policies
301| Members only resource. All boards (even the most organized, responsible, and congenial ones) need to document their activities, internal rules, and processes. For a board that takes its fiduciary role seriously — and they all should — written rules and documentation of activities are simply part of ongoing, everyday risk management.
Governance in Form 990
301| Members only resource. In this paper, we dissect the Form 990, focusing on the board and addressing only direct governance issues. Part VI of the Form is the key section for this purpose, though we do cover relevant topics that pop up in other sections of the Form as well.
Insurance and Risk Management
201| Members only resource. Let’s face it: The world of commercial insurance is of little interest to the vast majority of nonprofit board members. Yet a board that pays scant attention to its organization’s insurance needs and arrangements unwittingly puts the mission of the organization at risk.
Intermediate Sanctions
201| Members only resource. The IRS is paying attention to the financial transactions of nonprofits. It is important that those in positions of influence understand the implications of the regulations and realize how the organization and they personally can be financially affected.
Internal Controls
201| Members only resource. The board is responsible for watching out for the safety and effectiveness of the organization. It therefore must ensure that all the necessary policies and processes are in place feeding into this objective — even if it is not directly involved in carrying out all the various activities. Internal controls — systems that guide behavior and action through checks and balances — form the key tools for the board’s oversight function.
It’s Time to Talk About…the Recent College Admissions Scandal
Conversation starter. The recent college admissions scandal casts a spotlight on issues related to access, race, and inequality in our educational system, and provides a case study on how those with wealth and power in our society too often exercise their privilege in ways that are immoral, unethical, and illegal.
Need for Legal Assistance
201| Members only resource. Numerous nonprofit boards find it highly desirable to recruit lawyers as board members. The expected role of the attorney is to keep the board aware of and in compliance with all the legal requirements that may affect its members as fiduciaries of the organization.
Nonprofit Business Plan
201| Members only resource. There are many types of planning techniques a nonprofit can use to try to become financially stable. More popular in the corporate sector, business plans are an often-overlooked practice for nonprofits. They make good business sense when crafted to test or start a new program, service, or a business venture.
Nonprofit Bylaws
101| Community resource. Bylaws are the legally binding rules that outline how the board of a nonprofit will operate. While they are unique to each organization, nonprofit bylaws generally have a similar structure and use.
Nonprofit Fiduciary Duty + Responsibilities
101| Community resource. Board members act as trustees of the organization’s assets and must exercise due diligence and oversight to ensure that the organization is well-managed and that its financial situation remains sound. Here is an outline of how board members can fulfill their role as fiduciaries.
Nonprofit Incorporation
101| Community resource. When starting a nonprofit, one of the first decisions is to determine whether to incorporate. Note that nonprofit incorporation is not the same as applying for a tax-exempt status. Both nonprofits and for-profits can incorporate. This outline discusses the basics of the nonprofit incorporation process and provides answers to common questions.
Nonprofit Operating Reserves
201| Members only resource. What is the optimal level of operating reserves for a nonprofit? There is no single answer that suits every organization. What is universal is that functioning without a reasonable buffer against unforeseen, seasonal, irregular, or exceptional cash shortages is not intelligent financial management.
Nonprofit Organization Laws and Regulations – FAQs
101| Community resource. BoardSource has been answering governance-related questions posed by nonprofit leaders for 30 years. Here are answers to the most frequently asked questions about nonprofit legal and compliance issues.
Organizational Information: What’s Public? What’s Private?
101| Community resource. Every nonprofit is encouraged to function transparently. This infographic explains which documents your organization should share publicly or keep privately.
Performance Goals for the Chief Executive
101| Community resource. Clarifying performance goals is essential for both employees and supervisors. The position of chief executive of a nonprofit is no exception. Since one of the key tasks a board has is to evaluate the chief executive’s performance annually, it is important that a mutual understanding and agreement of the anticipated accomplishments exists between the board and the chief executive.
Political Activity and Public Charities
101| Community resource. Lobbying and political activity are easily confused. It is vital for public charities (501(c)(3)s) to know the difference.
Private Benefit, Private Inurement, and Self-Dealing
101| Community resource. Private benefit, private inurement, and self-dealing are defined by the Internal Revenue Service as unacceptable practices for nonprofit tax-exempt organizations. The IRS expects nonprofits to exist for the public good and not to be created or operated for the benefit, financial or otherwise, of a private individual. Violation of these doctrines can result in heavy taxation and/or loss of nonprofit status.
Regulating and Monitoring Nonprofits
301| Members only resource. Nonprofits, like all businesses, have quite a bit of flexibility concerning the internal organization of their structures and processes. However, that flexibility is constrained by a myriad of agencies, governmental and otherwise; statutes; and individuals that regulate their activities and to whom they are accountable.
Removing a Board Member
201| Members only resource. Managing difficult board members is one of the board chair’s toughest tasks. Differences of opinion are common but that is not a reason for removing a board member. However, a board member who is not able to fulfill his or her individual responsibilities, who does not abide by the rules set by the board, or who displays illegal and unethical behavior does not belong in the boardroom.
Risk Management
201| Members only resource. Risk comes in many forms — and its effects can be potentially devastating to an organization. However, risk can also create unanticipated opportunities. Viewing, analyzing, and managing risk from all angles places the nonprofit in a strategic position.
Sunshine Laws — Frequently Asked Questions
201| Members-only resource. Nonprofit board meetings are often considered as private meetings that only the board and a few select staff attend. While this picture is true for most nonprofits, sunshine laws require some organizations to open their board meetings to anyone who wants to attend.
The Accountable Board
201| Members only resource. The board sits on top of the hierarchical pyramid of an organization, and in that position bears the responsibility for the health and secure future of the nonprofit. Board members must reconcile demands for accountability both as a collective group and as individuals.
The Board’s Role in Supervising Investments and Three Must-Dos
101 | Community resource. With effective policies and procedures, a board can be very active in supervising investments while still delegating authority for the operational management of investments.
The Importance of Board of Directors
101| Community resource. All nonprofits need a board. Although the specific responsibilities may vary due to mission focus and different phases of an organization’s existence, the basic role and purpose of all nonprofit boards remain the same.
Transparency
201| Members only resource. Every nonprofit is encouraged to function in a glass house. The more information it shares, the easier it is for the public to get to know it and determine whether it is worthy of support. At the same time, indiscriminate openness can also backfire. It is important to know where the line lies between the public’s need to know and internal confidential information.
Unrelated Business Income Tax
201| Members only resource. A nonprofit plans its activities and establishes new programs within the scope of its mission. However, to enhance its income flow, a nonprofit may undertake business activities that are not substantially related to its core purpose.
When a Funder Stops Funding
201 | Members-only resource. Nonprofits must be able to cope with an impending deficit when a major funder announces that it will no longer provide operational support. This resource explains common terms for grants, reasons funders might cut funding, and exit strategies for funders and recipients.
Who Handles the Finances?
201| Members only resource. Every nonprofit must clarify how the board and the staff interact when handling the financial issues affecting the organization. Solid job descriptions, appropriate policies and procedures, and a system of checks and balances will ensure that the financial management and oversight are in good hands.
Why is D&O Insurance Important?
201| Members only resource. Even the most stringent risk management policies and procedures do not provide adequate protection against liability in legal actions. Here are some common questions posed by board members concerning liability insurance and appropriate coverage for their nonprofit organizations.