Whether you compensate your nonprofit’s board or it’s made up of volunteer members, their position as trustees of your organization comes with critical fiduciary responsibilities. These duties may be codified in state law, but even if they are not, fiduciary duties are essential to preserving the integrity and sound financial governance of your organization. Given the significance of financial management, it is important to educate each board member about the three primary fiduciary duties they must uphold and their implications for the way your board operates and governs.
Basic fiduciary duties
One of the three fundamental fiduciary responsibilities of your board members is duty of care. This responsibility means they must demonstrate reasonable care in their oversight of your nonprofit’s finances and operations. Duty of care requires board members to be educated about your nonprofit’s mission, structure, and programs and utilize outside expert services such as a California nonprofit audit when the decisions at hand are outside the board’s scope of knowledge. Board members must also demonstrate duty of loyalty. This means that their actions and decisions cannot further their personal financial interests, but solely those of your nonprofit organization and its constituents. The third primary fiduciary responsibility is duty of obedience. This requires board members to observe all relevant state and federal laws and your organization’s charter and bylaws in their work on the board. It also requires them to act under your nonprofit’s mission, an essential responsibility for anyone affiliated with your nonprofit, whether they are a front-line employee or the board president.
Implications for your board
Taken together and practiced diligently, these fiduciary duties can ensure the sound decision making and governance of your board. They can also help your board and nonprofit navigate conflicts of interest. In general, a conflict of interest exists when an organization does business with a board member, an entity in which a board member has a financial interest, or another company or organization for which a board member serves as a director or trustee. When not appropriately handled, conflicts of interest can compromise the reputation of your nonprofit with donors and within your community and be difficult to repair. By educating your board members about their fiduciary duties and creating an expectation and process of disclosure in the event of conflicts of interest, you can set your board up to preserve the integrity of your nonprofit, something you have worked hard to foster. And as is an expectation of your board members, if learning about and informing them of their fiduciary duties is outside your scope of expertise, it is crucial to engage outside consultation such as nonprofit audit services to aid in this process.
Ernst Wintter & Associates LLP specialize in California nonprofit audit and tax preparation services. Contact us today for help with your non-profit audit or tax prep needs.