Recommendations for Nonprofit Board Oversight of their Organizations
Originally published on March 7, 2020
Updated on October 31st, 2023
An effective board plays a critical role in the strength, impact and longevity of nonprofit organizations. Yet all too often, we find that board members don’t fully understand their fiduciary roles and responsibilities, and the unintended consequences that can result from their action or inaction.
Nonprofits need to adopt sound financial policies and ensure their board members understand their fiduciary responsibilities. But where do you start?
Steps Board of Directors should take to fulfill their fiduciary responsibility:
1) Clearly train Board members of their collective and individual fiduciary responsibilities.
2) Adopt and adhere to a strict conflict of interest policy to ensure that Board members do not have outside interests that could conflict with their Board duties.
3) Do not allow as Board members any individuals whose livelihood will be directly affected by the organization’s revenue stream or by decisions of the Board or the organization.
4) Conduct regular Board oversight of the CEO – including performance, compensation, and benefits.
5) Establish clear policies to document the process by which executive compensation within the organization is determined (both of the CEO hired/retained by the Board and senior managers under the executive’s authority).
6) Compare senior executive salaries to those of similar positions in similar organizations.
7) Establish formal procedures to educate Board members how to effectively carry out their duties.
8) Provide additional training for Executive Committee members (or individuals holding similar roles), including the chair and treasurer.
9) Hold in-person board meetings, allowing remote telephone participation by individual Board members only when necessary and approved.
10) Provide training to ensure that all Board members understand financial statements, audits, and IRS Form 990s.
11) Ensure that the Directors & Officers insurance policy is adequate and understood.
12) Clarify/establish process for suspension or removal of executive for cause.
13) Educate Board members of their larger responsibility to call out inappropriate executive behavior – including their management, leadership, and compensation – to fellow Board members and to other, higher authorities for a check-and-balance function.
Changes that policymakers should consider:
1) Ensure that appropriate responsible agencies have adequate resources to perform sufficient oversight of nonprofit organizations receiving/administering state and/or federal funds.
2) Establish financial penalties for executives of funded organizations who do not provide requested oversight information in a timely manner.
3) Consider legislation, rules, or policy changes that provide more oversight and power to quickly intervene and take control of any ‘runaway train’ organization, leader, or Board.
Need more help?
The needs of nonprofits differ from traditional businesses. So it’s important to seek assistance from firms that serve organizations like yours. James Moore’s nonprofit CPAs can help you establish sound fiduciary guidelines and help train your board members. Contact us for more information.
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