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10 Ways for Boards to Stay on the Up and Up

08 28 15Here’s a run-down of ten practices and policies good for every nonprofit board. Ten is a nice round number but, really, there are more than ten things your board might need to know. For more complete information:

1. Communicate

Maybe you don't call it "training". Whatever you call it, establish a regular process for communicating to board members their responsibilities. One idea is to take advantage of the Ohio Attorney General's monthly phone trainings for charity boards.

2. Insurance

"Does a nonprofit really need to carry Directors and Officers (D&O) Liability Insurance? The short answer is YES." So says the latest issue of Nonprofit Quarterly. Many organizations secure general liability insurance.

Your coverage must be individualized to your nonprofit's circumstances, so consult with a broker. If you're investigating this topic, here's more from the Nonprofit Insurance Alliance Group. Detailed explanation can be found in this booklet, A Nonprofit's Guide to Risk Management and Insurance (pdf).

3. Conflict of Interest Policy

Boards should adopt a conflict of interest policy, regularly discuss it, and be comfortable disclosing any potential conflicts of interest.

If your nonprofit claims it's never had a conflict arise, that might be real cause for concern. Conflicts of interest will arise. It's life. We're talking about any situation where a board member’s private interests might come into play. Private interests extend to that board member’s business associates, friends and family.

Remember, each board member is bound by Duty of Loyalty to the interests of the nonprofit. Some conflicts of interest can be more obvious than others.

4. Internal Controls

There’s three attributes of good internal control policies, according to Board Members Easier Than You Think Guide to Nonprofit Finances:

    • They ensure safe care of your assets: For example, blank checks are locked away and computer files are kept behind a password.
    • They divide financial responsibilities among several people. There is separation of duties at every step: when receiving money, when authorizing expenses, and when preparing financial statements.
    • They make the entire financial process transparent.

To perform a check-up for your nonprofit, here’s a great article for board treasurers from Blue Avocado. You’ll find many good resources on financial management at Nonprofit Assistance Fund.

5. Record Keeping

Minutes of meetings should show who attended, who didn't attend, and whether a quorum was met. The minutes should explain the decisions and actions taken by the board. You don’t need a transcript of every word, but the minutes should sufficiently document how the decision was reached.

Nonprofit boards should determine how long records are kept, especially sensitive records like the articles of incorporation, by-laws, minutes and financial reports. Here is a sample Records Retention Policy.

6. Required Filings

Many nonprofits must file with three government agencies: The State Attorney General, Secretary of State, and the IRS.

Nonprofits that solicit any donations are legally required to register each year with the Attorney General in that state. Monthly free webinars about the charitable registration requirement are available from the Attorney General's website. You may need to consider multi-state filing, for example, if you solicit online donations. For now, this website can help. Eventually, “single portal” registration is coming.

Every five years, your nonprofit must file a Statement of Continued Existence with the Secretary of State. Whenever you have a change of contact information for your nonprofit’s statutory agent, you must update the Secretary of State.

Every charitable organization that has 501(c)(3) status must file annually with the IRS: either the full 990, 990-EZ or 990-N. The Urban Institute offers a 990 filing tool online - free for organizations under $100,000 in revenues.

7. Compensation Policy

If your nonprofit hires a CEO, the board must annually document how their compensation was decided.

8. Affordable Care Act

If your nonprofit employs, on average, at least 50 full-time equivalent employees, it must provide health insurance coverage or face penalties, under the ACA's Employer Shared Responsibility provisions. Here’s some health care FAQs for nonprofits.

9. Gift Acceptance Policy

This can protect your nonprofit from accepting donations that might prove to be a liability (real estate comes to mind). It can help guard against mission drift. Every nonprofit that solicits donations is encouraged to adopt a gift acceptance policy.

10. 100% Board Giving

Board members are bound by the Duty to Maintain Accounts to set an annual budget for the organization. That budget probably includes setting an expectation for gifts or donations. Before agreeing to that budget, boards will want to ensure the right ingredients are in place to achieve those expectations.

One of those ingredients seems to be 100% board giving. A growing number of nonprofits are making this a board responsibility. According to BoardSource’s annual survey (pdf), 80% of nonprofits have a board giving requirement.

What does this requirement mean, exactly? For BoardSource, "Participation in the goal, not a specified minimum donation." BoardSource recommends that nonprofits have direct conversations with board members about how they can support the fundraising process. Board members need to be well-supported in this role and thoughtfully matched to tasks that suit their strengths.

Thanks to Clark Schaefer Hackett's Not-for-Profit Group, whose presentation earlier this summer inspired this resource. This article is for your information only and does not offer any legal advice.

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