While the overall responsibilities of a nonprofit director have remained the same over the years, the increasing complexity of the business environment makes fulfilling those responsibilities more challenging and time-consuming. The degree and quality of board engagement impacts the risk associated with auditing the financial statements of a nonprofit organization and preparing Form 990, as well as the risk to an individual taking on the role of board member.
CPAs are involved with nonprofit boards of directors from several different perspectives. The independent auditor provides the board with the results of the independent audit of the organization’s financial statements, as well as a management letter describing areas in which the organization can improve. The tax preparer assists the nonprofit in complying with tax regulations and maintaining its exempt status. The controller or CFO is responsible for the day-to-day financial operations and reporting results to the board. Accountants are also sought after as members of nonprofit boards, bringing much-needed financial expertise to the table.
Basic Responsibilities to the Organization
The three overarching duties of individual directors serving on nonprofit boards are:
- Duty of care. The duty of care requires directors to be familiar with the financial position of the organization and to act prudently in using and protecting its assets. Exercising good judgment in making decisions is part of this responsibility.
- Duty of loyalty. The duty of loyalty requires directors to understand and advance the mission of the organization. It includes identifying and disclosing conflicts of interest, and ensuring that decisions are made in the best interests of the organization rather than the individual.
- Duty of obedience. The board’s role is to make sure that the organization is in compliance with rules and regulations, including its own internal governance documents. It includes keeping the organization focused on its mission.
These duties sound straightforward, but how the organization operationalizes them is key. The better informed board members are, the better equipped they are to make a positive contribution.
Beyond the Basics
Best practices for boards.
One of the most important things to remember when thinking about board governance is that each nonprofit organization has its own unique characteristics. There is no “one size fits all” model for good governance, but there are many practices that should be considered by organizations looking to have strong boards. Those practices include the following:
- Implement a formal board orientation process that includes a discussion of the mission and goals of the organization.
- Set a meeting attendance policy. Board members need to be present to be engaged. Joining a board is a commitment, and expectations need to be clear.
- Establish a board development committee or process that addresses board diversity, including ethnicity, skills, and community representation.
- Provide written clarification of the roles of the board and the management/staff of the organization.
- Establish term limits based on the needs and composition of the organization.
- Maintain a strong system of financial oversight, including safeguarding of assets.
- Set the process for evaluating the chief executive officer or executive director, and perform the duty annually.
Common mistakes made by boards and their members include failing to ask questions and challenge the status quo, attempting to micromanage the organization, and failure to develop and follow a strategic plan. In addition to these mistakes, BoardSource, an organization whose mission is inspiring and supporting excellence in nonprofit governance, lists veering off mission, complacency, misguided motivations, and lack of self-assessment as other common board problems.
Audit committees, conflict of interest policies, and whistle-blower policies are topics most nonprofits and their boards have addressed. The policies should be revisited annually to make sure that new and returning board members are clear on what they are and why they are necessary.
Boards should consider performing a self-assessment on a regular basis. The results of the self-assessment can be used to help evaluate where improvements are needed and refocus efforts to support the organization’s mission. Scheduling an annual board retreat is another practice that contributes to good governance, as it gives board members a chance to come together to recharge and share ideas. Utilizing a web portal to store documents, such as minutes of meetings, and to communicate with other board members is another practice that helps boards function more effectively and efficiently.
Think outside the box.
Nonprofit boards are not exempt from change. As resources become scarce or are redirected, organizations must be able to adapt and come up with new and creative ways to provide services and promote their mission. Board members should be encouraged to ask questions and seek clarification before making decisions. The tendency to go along with the majority or remain silent even with concerns violates the essence of fiduciary duty.
Looking to Join a Board or Find a Board Member?
Boardnetusa is a free, nationwide digital platform nonprofit board recruitment and matching platform. http://www.boardnetusa.org/public/home.aspcharitySTRONG is the e-learning and digital matching program division of Governance Matters, serving board candidates and nonprofits throughout New York State. Two free programs, Directors U and onboard, are offered. https://www.charitystrong.org/ (Note: Both are part of the NYCON family of organizations.)
Useful Websites
- Boardsource: www.boardsource.org
- New York Council of Nonprofits (NYCON): www.nycon.org
- New York State Charities Bureau Guides and Publications:
- https://www.charitiesnys.com/guides_advice_new.html
- Nonprofit Quarterly: https://nonprofitquarterly.org/
- AICPA Nonprofit Section:
- https://www.aicpa.org/interestareas/notforprofit/resources.html
- Nonprofit Coordinating Council of New York, Inc.: https://www.npccny.org/
- Guidestar: www.guidestar.org
Other Resources
- Recommended Governance Practices, BoardSource:
- https://boardsource.org/wp-content/uploads/2016/10/Recommended-Gov-Practices.pdf
- “Strategies for Maintaining an Effective Board,” Ken Tysiac, Journal of Accountancy, November 1, 2018;
- https://www.journalofaccountancy.com/issues/2018/nov/effective-not-for-profit-boards.html
- Common Nonprofit Board Problems, BoardSource:
- https://boardsource.org/resources/common-nonprofit-board-problems/
- “What is Governance?”: Nonprofit Quarterly, June 9, 2017: https://nonprofitquarterly.org/2017/06/09/what-is-governance-definition/
Identify and address new challenges and risks.
As technology continues to expand and change the way information is processed, stored, and shared, new challenges present themselves to all businesses. Nonprofits, with their main focus on mission, often lag behind in strengthening their information technology function. Many organizations are data rich, but they have not successfully used the available information to drive decision making and move the organization forward. The external threats that are a concern for all organizations make cybersecurity an issue that nonprofits and their boards need to proactively address. Board members need to understand how the nonprofit is dealing with these issues and take any steps they feel are necessary to carry out their fiduciary responsibility.
The increased burden of legislation can also stretch a nonprofit to its limit. Compliance with employment law, government reporting, and tax law changes are a few examples of areas in which problems might arise without having the appropriate level of expertise within the organization.
Thinking about Joining a Board?
CPAs are much sought after by boards because financial expertise is something every nonprofit needs. Before signing on to serve, however, there are a few things CPAs should consider:
- Are you committed to the mission of the organization? Don’t join a board just because you were asked. Be sure that the mission and activities of the organization are ones that you are passionate about and can support.
- How familiar are you with the operations of the organization? Many nonprofits are complex and vary in the way they deploy resources. Conduct due diligence before agreeing to join the board. Consider joining a committee if possible before joining the board, as it gives both parties a chance to make sure there’s a good fit.
- What do you want to be involved with as a board member? Remember, CPAs don’t always need to be the treasurer. They still bring financial expertise to the board.
- What is the board expecting from you in terms of time and financial support? When does the board meet? Can you commit to attending meetings on a regular basis? Is there a financial expectation for board members? If so, are you willing and able to comply?
- Does the board have a formal onboarding process? Getting up to speed early is important so that you can exercise your fiduciary duty and other responsibilities of a board member.
- Are board policies and procedures current and reviewed on a regular basis? Who is responsible for ensuring compliance? Who is responsible for the review process?
- What is the current financial position and outlook for the organization? Review the most recent Form 990 filings and financial statements, if available.
Whether approaching board governance from the perspective of an auditor or potential member, it is good practice to understand the dynamics and strength of the organization’s board. An effective, engaged board helps mitigate risk. As an individual, personal reputation and time are too precious to risk getting involved without appropriate due diligence.
Nonprofit Sector Statistics
- Approximately 1.56 million nonprofits were registered with the IRS in 2015.
- The nonprofit sector contributed an estimated $985.4 billion to the U.S. economy in 2015, composing 5.4% of the country’s gross domestic product (GDP).
- Of the nonprofit organizations registered with the IRS, 501(c)(3) public charities accounted for just over three-quarters of revenue and expenses for the nonprofit sector as a whole ($1.98 trillion and $1.84 trillion, respectively) and just under two-thirds of the nonprofit sector’s total assets ($3.67 trillion).
- An estimated 25.1% of U.S. adults volunteered in 2017, contributing an estimated 8.8 billion hours. This is a 1.6% increase from 2016. The value of these hours is approximately $195.0 billion.
Source: Brice McKeever, The Nonprofit Sector in Brief, 2018: Public Charities, Giving and Volunteering, Urban Institute, National Center for Charitable Statistics,, November 2018, https://urbn.is/2CeHXjF
