Your California nonprofit’s board members need more than deep-seated dedication and belief in your cause and programs. To be a good board member, California nonprofit audit providers emphasize they must be a fiduciary. Fiduciaries are people who can be trusted to always act in the best interests of your nonprofit. They avoid unnecessary risk and are committed to making thoughtful decisions and executing them efficiently.
The core duties of a good fiduciary
It’s up to your organization to ensure every board member understands their fiduciary duties, as some aren’t aware of their obligations. According to tax and audit professionals, a fiduciary has three primary duties:
- Caring for the organization
Board members exercise reasonable care while overseeing your nonprofit’s finances and operations. Though they’re largely disengaged from daily routines, they understand the nonprofit’s mission, programs, make informed decisions, and consult others when appropriate.
- Loyalty to the organization
Board members act solely in the best interests of your nonprofit and its constituents, and never for personal gain. They must be trustworthy individuals who don’t ignore financial warning signs and will speak up about concerns relating to your nonprofit’s health.
Board members act appropriately regarding your nonprofit’s mission, bylaws, and all applicable state and federal laws.
If your board members violate their fiduciary duties, they could be held personally liable for any resulting financial harm.
Good fiduciaries avoid improper transactions
A challenging but critical component of fiduciary duty is avoiding conflicts of interest. In general, a conflict of interest exists when a nonprofit does business with:
- A board member
- An entity in which a board member has a financial interest
- Another organization for which a board member serves as a director or trustee
Your nonprofit should treat a transaction as a conflict of interest if it involves a board member’s family member, or an entity in which a family member has financial interest. This extra rule avoids the appearance of further impropriety.
The key to dealing with conflicts of interest, whether real or perceived, is disclosure. The board member involved should disclose the relevant facts to the board and abstain from any discussion or vote on the issue — unless the board determines that he or she may participate.
Educating your board
To help your board carry out its fiduciary duties, a new member orientation that educates your board on the basics of responsible nonprofit finance and accounting. Also provide a regularly updated list of responsibilities that covers financial documents, compliance requirements, and risk management. For further assistance, contact Ernst Wintter & Associates for a California nonprofit audit to help guide your board members.