Nonprofits have faced a litany of changes, risks, and challenges over the last three and a half years due to the onset of the COVID-19 pandemic. The trials nonprofits have dealt with include staffing shortages, forced decisions to end programs, expanding programs, and more restrictive use of funds, to name a few. In answer to the call of these unique challenges, many nonprofit boards have stepped out of their typical role of oversight and into day-to-day decision-making and rapid policy-setting. Now that the world is moving out of the pandemic phase, it may be time for governing boards to take a step back and realign.
The Role of Nonprofit Boards
All nonprofit organizations are required to have a governing board. The board is responsible for setting and overseeing the implementation of strategic objectives, ensuring the maintenance of nonprofit status, and compliance with laws and regulations. The governing board holds some liability for their respective organization and has the final authority for that reason. Board members have legal responsibilities for the duties of care, loyalty, and obedience. There is a requirement that board members are faithful to the organization’s mission and do not take actions that are inconsistent with that mission.
Board roles should be defined and will vary from organization to organization, depending on size, mission, and needs. The board should also serve as a balance for management, adding oversight, checks and balances, and avoiding duplication of roles. Ideally, the board will provide the strategic direction of the organization, and management will handle the day-to-day operations and implementation of the strategies set by the board. The board’s roles should include, at a minimum:
- Assuming fiduciary responsibility for compliance
- Setting strategic objectives for the organization
- Creating policies to guide the organization toward meeting those objectives
- Serve as content matter experts for the organization
- Hire and monitor the leader of the organization (such as a CEO, executive director, etc.)
- Filing the annual IRS Form 990 and other state-required filings (if applicable)
Board Best Practices
The laws and rules regulating boards and nonprofits differ from state to state. However, there are some best practices that all boards can follow.
Boards should meet at least three times per year, and minutes of those meetings should be documented and maintained. Experts recommend a minimum of five board members, but the number of members needed for each organization will differ depending on size and mission. Boards should establish proper segregation of duties – not just between board members, but also between management and the board. Boards can delegate to committees. Committees can be formed for one-time projects, such as a capital campaign, or on an ongoing basis, such as a Finance or Audit Committee. Boards should maintain oversight of the committees, usually by having a member of the committee report at board meetings. Boards can also have non-voting advisory board members. These members provide specific content expertise and can provide recommendations to the board.
Critical Areas for Board Governance
As boards realign to move back to governance and oversight post-pandemic, creating a checklist or roadmap of items that may not have received much attention over the last few years may prove helpful. Some individuals may have only served on a board during the pandemic and may need to become acquainted with standard board practices. Some of the more significant items that a board may want to refocus on include:
- Have a robust conflict of interest policy. All related-party transactions should be reviewed by the board and must be reported on IRS Form 990. This includes reviewing board independence.
- Establish a code of ethics. Ensure the code addresses any applicable laws and regulations. It may be necessary to establish a separate code of conduct. Ensure staff and the board are trained in these codes early on in establishing their roles.
- Review or establish a whistle-blower policy. The IRS Form 990 requires nonprofit organizations to disclose if they have a whistle-blower policy, and it is considered a best practice to have one.
- Review board member term limits and role definitions.
- Ensure the board is involved with the annual budget and regular review of financial performance, including investment policies.
- Review or establish a document retention policy. Nonprofit organizations are often held to a higher standard because of the public support they receive. An appropriate document retention policy can limit potential damages from lawsuits or other inquisitions.
- Safeguard the organization’s assets, ensuring proper insurance coverage is in place, as well as establishing appropriate financial and investment policies. Keep in mind that while it is not an asset found in accounting records, one of the most important assets any nonprofit has is its reputation.
- Review the nonprofit’s bylaws and Articles of Incorporation. The bylaws should include essential governance matters, such as the size of the board, how often it will meet, and the roles of directors and officers. The Articles of Incorporation contain the basic structure information of the nonprofit.
- Focus on team building. Team building among board members encourages participation from everyone and prevents burnout.
Though the pandemic may be over, the challenges that nonprofit organizations face will continue to evolve. Establishing a strong board with a penchant for oversight and consistent policy-setting will help organizations tackle those challenges head-on. If you have any questions on board governance, feel free to reach out to us, and we will be pleased to be of service.
This article was written by Windes Audit & Assurance Services Manager, Alicia Manning.
Alicia Manning, CPA
Audit & Assurance Services Manager
amanning@windes.com
949.676.2662
For more information or questions about this article, or to find out how Windes can assist, please contact our Nonprofit Team at nonprofit@windes.com or 844.4WINDES (844.494.6337).