June 29, 2016

What are a Nonprofit Board's Role and Responsibility Regarding Accounting and Fiscal Oversight?

nonprofit, board, boards, board of directors, bod, accounting, Fiscal Oversight, board members, legal, responsibility, financial oversight,

Share This Post

Most nonprofit boards are established and filled with generous people who give their time, talents, and treasures — all of whom care about the mission of the organization. However, it is critical that all board members of nonprofit organizations know and understand their legal responsibility, particularly regarding the financial oversight and accounting practices of the nonprofit.

Both state law and the IRS establish which type of management and governing structures are acceptable for nonprofits in each state. In some states, nonprofits can be managed by a board of directors, by voting members, or by a combination of directors and members. A nonprofit’s Articles of Incorporation will set out what type of management needs to take place. Most often, the board of directors is the legal, governing body.

Legal and Financial Oversight

With their legal and fiduciary responsibility, board members are to steer the organization towards a sustainable future by adopting sound ethical and legal governance, as well as implementing financial management policies. Bottom line, the board is to ensure that the nonprofit is operating in accordance with its mission and the purpose for which it was granted tax-exempt status.

The main legal responsibilities of a nonprofit board make up what are called the “the Ds”:

  • Duty of Due Care: Board members are expected to take care of the nonprofit by ensuring prudent use of all assets - including facilities, people, and good will - and providing oversight for all activities that advance the nonprofit’s effectiveness and sustainability. 
  • Duty of Loyalty: A board member must make decisions in the best interest of the nonprofit corporation, not in his or her own self-interest.
  • Duty of Obedience: Board members must ensure that the nonprofit obeys applicable laws and acts in accordance with ethical practices, that the nonprofit adheres to its stated corporate purposes, and that its activities advance its mission.

As safeguards of the public trust, board members are also responsible for protecting the organization’s assets. The board should ensure legal and ethical integrity to maintain accountability. The board should also provide proper financial oversight, including setting and approving an annual budget.

Ultimately, the board is responsible for the performance of the organization in all areas of its work and should ensure that the organization is in compliance with every state and federal law.

To learn more about nonprofits and board member roles, visit Aplos Academy.

* Please note that this article was for informational purposes only and was not intended to be legal advice.

Share This Post