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Board Essentials: What Every Board Member Should Know – Part 1

Over the past year, this blog has covered the waterfront on topics from board development to marketing strategy to basics of fundraising. For the coming weeks, I plan to focus on a series of governance topics:

  1. Parameters for a board of directors
  2. Role of the board within the nonprofit
  3. Strategic work of the board
  4. Board as Hub of the Nonprofit Network

Today, my focus is on parameters for the board.  We hear a lot about thinking “outside the box.”  That can be great fun. But first it’s good to know the box we’re living in: the bylaws, rules and regs for 501(c)(3) status, laws in the Sate where we’re incorporated, and fiduciary responsibility of boards according to accounting (AICPA) standards.

Board members must be aware of the bylaws that govern their work.  Each member should have a board manual, and prominent in the manual will be the bylaws of the nonprofit organization.  Beyond mission and purpose set forth in this document, it usually contains the rules of the road for the board: how often it meets, what it’s responsible for (usually oversight of the nonprofit tangible assets), attendance requirements, term of office, election of officers.

Board members also need to understand what the IRS  requires when it bestows 501(c)(3) status. There are requirements limiting lobbying. There are requirements to file documents with the IRS annually when it achieves a certain budget size. There can be no self-dealing where members of the board somehow profit at the expense of the nonprofit. There are areas of unrelated business income when nonprofits do, in fact, pay taxes.  The board should be aware how this applies.

Each nonprofit is incorporated in a State and must comply with nonprofit State law. There are requirements unique to each of the fifty States. The Secretary of State may have reporting requirements. The Attorney General’s office may have a department devoted to investigating and enforcing nonprofit law.  On the State website there are usually PDF’s of rules and regulations that apply.  The nonprofit executive should identify the applicable documents and provide copies of the most important ones to board members for their manual.

The fourth item on today’s list is fiduciary duties of a nonprofit board. Regular financial reports from staff capable of issuing documents that give a good representation of expense and revenue, update the balance sheet, indicate cash flows for the period, and compare financial position month-to-month with the previous year, and compare actual against the budget.  The Treasurer and/or chair of the finance committee present a report on updated financials at least quarterly if not monthly.  There are members knowledgeable about finance on the board, there is a senior staff member who understands and issues the reports, and there is a capable staff member entering revenue and expense items on a timely basis.

The nonprofit board members who know these basics are best equipped to make sound decisions on behalf of the nonprofit. They know, when asked to think outside the box, what’s in the box and how comfortable they can be moving in a new direction, undertaking a new program, launching a new fundraising activity.

Board members in the know can sleep soundly. They know the deal.

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