Volunteers who serve on the board of directors of a nonprofit organization have fiduciary duties. These duties are defined by a high standard of legal and ethical obligations.
The relationship between the directors and the organization is one of trust.
Irrespective of a volunteer’s commitment and absence of compensation, fiduciary obligations are directly associated with certain legal principles.
Breach of these duties can create both personal and organizational liabilities.
A board of directors’ fiduciary duties broadly defined are as follows:
n Exercising reasonable care, which requires directors to perform their duties in the best interests of the organization. This includes meeting attendance, seeking new resources when needed, maintaining financial responsibility and eliminating mismanagement.
n Conflicts of interest avoidance and disclosure requires directors to reveal any other interests they may have which may compromise decision making with respect to mission, policy, laws or regulations affecting the nonprofit they serve.
n Protecting the organizational entity requires that directors follow all local, state and federal laws and regulations impacting the corporate structure. They are required to preserve and maintain all legal documents, safeguard confidential information and not allow misappropriation of organizational opportunities.
Oversight, fiscal duties
Board members share equally in the responsibility of governance oversight. The financial health of the organization is the foremost fiscal duty. The following list expands on fiduciary duties in more specific terms.
Directors are responsible for:
- Creating mission- and purpose-related income streams with well-controlled spending and disbursing only approved expenditures.
- Planning sound fiscal budgeting in advance of each year and protection of the organization’s assets by implementing generally acceptable accounting practices and controls.
- Regular review of financial statements setting optimal operating reserves that anticipates potential revenue shortfalls.
- Establishing a compliance system to submit government filings and reporting obligations with an emphasis of on-time submission.
- Practice sound financial controls and monitor all transactions with an emphasis on review of recurring expenditures.
- Budget permitting, allow impartial audits of financial, management and oversight effectiveness.
Nonprofit organizations do not operate in a perfect world.
The foregoing statements must be tempered with reasonable practices that are consistent with annual revenue, capacity and size of the volunteer group and paid staff, in any, and the level of services that can be successfully performed with respect to mission and purpose.
When questions and concerns arise, experienced professionals and volunteers should be sought for their guidance.
Credit for the content of this article is hereby given to the American Society of Association Executives and attorney Gerald Jacobs, and the National Society of Nonprofit Organizations.
Dr. Frederick J. Herzog is the founder and executive cirector of the NonProfit Resource Center in Citrus County. He can be reached via phone at 847-899-9000, or via email to firstname.lastname@example.org. Visit TheNonProfitResourceCenter.com.