You have been asked to sit on the Board for a small not-for-profit; perhaps your child’s soccer team or a local art organization. You accept the invitation, attend monthly meetings, and maybe even become part of a committee to further the organization’s purpose. Do your responsibilities stop there? This article will cover the financial aspects of your duties.
More and more you read in the newspaper that funds have been stolen from nonprofit organizations, especially the small town sports groups. You wonder – who was watching over the money? After all, the Board members are the parents of your children’s friends, neighbors, or maybe even relatives. Isn’t everyone involved in the organization there for the betterment of the children?
As a Board member you should understand that the entire Board has a fiduciary responsibility to the organization. This means you have an obligation to act in the best interest of that organization – a Duty of care to actively participate in planning and decision making; a Duty of loyalty to put the interests of the nonprofit before any personal or professional concerns and avoid potential conflicts of interest; and a Duty of obedience to ensure that the organization complies with all applicable federal, state, and local laws and regulations but also remains committed to its established mission. You should be familiar with the Articles of Incorporation, Bylaws, and Mission of the organization. Be aware of information returns that are required to be filed at the federal and state level to avoid losing the tax-exempt status of the organization.
Typically the first several months as a Board member are a learning process. Things do not start to sink-in until mid-way through the first year. For this reason, it is practical to have officer terms longer than one year. An organization could stagger when board members reach their term-end to ensure cohesiveness across the organization. More seasoned members could assist the newer members in explaining the goals of the organization. At the same time, limiting the number of terms would also ensure fresh blood and a change of duties for members.
The Board acts in a fiduciary role by maintaining oversight of the nonprofit’s finances. Board members should be aware of the financial policies, approve annual budgets, and review monthly financial statements. While every Board member may not be a financial wizard, you should have an understanding of the basic terminology, recognize warning signs, and pose questions to better grasp the operations future. Active participation at Board meetings is crucial for the success of the organization.
For example, controls should be in place and designed to prevent error and fraud. Segregation of duties is at the top of the list for effective internal controls. The same person should not receive monies, deposit those funds, record the receipts, pay the bills, sign the checks, and reconcile the bank statements. One person wearing all of the bookkeeping hats will leave an organization ripe for abuse. You may be thinking, we only have a handful of folks in our organization but not enough to spread the duties, or isn’t that the treasurer’s job-why should I have to do it? While several people may have to take on more than one role, the risk of theft and error lessens with more involvement. Perhaps the president could receive the income and have the treasurer deposit the monies. Checks above a set amount should have two signatures. After the treasurer reconciles the bank statements, the president or vice-president should review the report and it should be available at monthly meetings for the entire Board. Financial statements should be reviewed monthly with the full Board and reasons for variances from budgeted figures discussed. An audit performed by a Certified Public Accounting firm will go a long way to provide piece of mind to the nonprofit as well as potential donors. Note that these control mechanisms are not intended to detect fraud but rather to prevent it.
If you do suspect someone is stealing or some other type of fraud is occurring, contact the police. You may want to get a Certified Fraud Examiner involved to determine how much money has been confiscated. Most people do not start out with the intention of stealing but circumstances in their lives often change and they feel it is either necessary or just too easy to get away with it.
Becoming a Board member is very rewarding and a great way to give back to the community – just remember there are fiduciary duties involved as well.