Insight

Fiduciary duties: What your board members need to know

Not-for-profit board members — whether compensated or not — have a fiduciary duty to the organization. Some states have laws governing the activities of nonprofit boards and other fiduciaries. But not all board members are aware of their responsibilities. To protect your nonprofit’s financial health and integrity, it’s important that you help them understand.

Primary responsibilities

In general, a fiduciary has three primary responsibilities:

Duty of care. Board members must exercise reasonable care in overseeing the organization’s financial and operational activities. Although disengaged from day-to-day affairs, they should understand its mission, programs and structure, make informed decisions, and consult others — including outside experts — when appropriate.

Duty of loyalty. Board members must act solely in the best interests of the organization and its constituents, and not for personal gain.

Duty of obedience. Board members must act in accordance with the organization’s mission, charter and bylaws, and any applicable state or federal laws.

Board members who violate these duties may be held personally liable for any financial harm the organization suffers as a result.

Avoiding conflicts

One of the most challenging — but critical — components of fiduciary duty is the obligation to avoid conflicts of interest. In general, a conflict of interest exists when an organization does business with a board member, an entity in which a board member has a financial interest, or another company or organization for which a board member serves as a director or trustee. To avoid even the appearance of impropriety, your nonprofit should also treat a transaction as a conflict of interest if it involves a board member’s spouse or other family member, or an entity in which a spouse or family member has a financial interest.

The key to dealing with conflicts of interest, whether real or perceived, is disclosure. The board member involved should disclose the relevant facts to the board and abstain from any discussion or vote on the issue — unless the board determines that he or she may participate.

Meet obligations

Your donors, clients, employees and other stakeholders depend on the honesty and good faith of your board members. To ensure they’ll make informed decisions and disclose any conflicts of interest, provide new members with a list of fiduciary duties. And regularly remind long-serving members, as appropriate. Contact us if you have any questions about fiduciary responsibilities.

© 2019

Related Insights

4 common accounting errors for nonprofits to avoid | cpa in bel air md | Weyrich, Cronin & Sorra

Non-Profits

4 common accounting errors for nonprofits to avoid

It may be tempting to try to save money and perform your nonprofit’s accounting tasks internally. But if your staff isn’t experienced and…
What taxpayers need to know about the IRS ending paper checks | tax preparation in baltimore md | Weyrich, Cronin & Sorra

Tax Prep, Planning & Strategy

What taxpayers need to know about the IRS ending paper checks

The federal government has announced a major change that will affect how numerous Americans receive their tax refunds and federal benefit payments.…
Significant business tax provisions in the One, Big, Beautiful Bill Act | quickbooks consulting in alexandria va | Weyrich, Cronin & Sorra

Quickbooks Consulting, Training & Configuration

Significant business tax provisions in the One, Big, Beautiful Bill Act

The One, Big, Beautiful Bill Act (OBBBA) was signed into law on July 4. The new law includes a number of favorable changes that will affect small…

Connect with us

Use the form below to send us an email. WCS responds directly to all inquiries and general questions within 24 hours of posting.

This contact form is deactivated because you refused to accept Google reCaptcha service which is necessary to validate any messages sent by the form.