Not-for-Profit Board Service is a Meaningful Way to Give
We are in the midst of giving season— a time when many of us pause to be grateful for what we have and to help those who are less fortunate. This is the time of year when many CPAs and finance leaders are asked to serve on not-for-profit boards, an experience which can be an incredibly rewarding way to give back. However, volunteering on a nonprofit board requires a significant time investment and comes with serious legal, fiduciary and stewardship responsibilities.
Before saying “yes” to board service, ask yourself the following questions to help you determine if the board you are considering is the right choice for you.
Do board members serve as partners in shared leadership? Governance is a shared responsibility between a not-for-profit’s managers and its board of directors. The board is ultimately responsible for the organization and its ability to fulfill its mission. Before making a commitment to join a board, ask if you can observe a board meeting. Watch closely. Is the board actively engaged, or are they passively listening to routine reports? Board members should have an opportunity to weigh in on strategy, participate in candid discussion and contribute to decision-making. Does management present both sides of an issue and seek input before board members are asked to cast their votes? Lively dialogue and healthy debate in board meetings demonstrates a willingness to be responsible for the organization. An active and engaged board is a necessary ingredient for strong governance.
Is there an orientation for new board members? Board members have responsibility for the organization, and there are potential legal consequences for directors who fail to fulfill those responsibilities. Because of this, an orientation is crucial to get them up to speed. This could be an informal visit with key staff in smaller organizations or a formal training program. During this process board members should receive the information and tools they need to successfully understand and oversee the organization, including bylaws, financial statements, audit reports, budgets, tax forms, strategic plans, organizational policies and so on. Ask if the organization carries directors and officers insurance that provides protection against actual or alleged breach of duty by board members.
Are resources used responsibly? Not-for-profits have a fiduciary obligation to act as responsible stewards in managing resources. Such resources, -whether financial, human, organizational, informational or other - are critical for successful program service delivery and, ultimately, mission achievement. Ask whether there are governance policies regarding the management of conflicts of interest, protection of private and sensitive information, approval of executive compensation and a mechanism whereby individuals can report concerns without fear of retaliation. Inquire about how the budget gets approved and reviewed by the board. Board members should have an awareness of the organization’s current financial condition, forecasted revenue and information needed to make timely adjustments in expenditures to keep the organization healthy.
How does the organization ensure compliance with laws and regulations? As a best practice, a not-for-profit’s leadership team, including its governing board, should spend time diligently reviewing the IRS Form 990 prior to filing and have an opportunity to ask their tax return preparer if anything seems amiss. In addition, most states require annual reports to be filed to maintain good standing, and some require registration to conduct fundraising solicitation. Failure to remain in compliance can result in hefty fines and penalties. As a worst case scenario, it could also lead to administrative dissolution or revocation of federal tax-exempt status, which is necessary for continued eligibility for tax-deductible contributions.
Is the organization committed to transparency? Operational transparency is vital to maintaining the public’s faith, trust and support of organizations. A not-for-profit’s reputation is its greatest asset— even more so for organizations that rely heavily on contributions from donors or members of the public. Ask how the organization is responsive to the needs of its constituents. Ideally, an organization will make its information available to the public. For example, an organization can include information in its annual report or post financial information and operational policies on its website.
Board service is a wonderful way to support important causes and make a difference in our communities. However, it takes more than just good intentions to successfully govern a not-for-profit. CPAs and finance professionals have extraordinary talents to offer, and we can add value by contributing our analytical abilities and practical experience to inform strategies and advise on business practices, financial oversight and risk management. But before joining a board, make sure you are asking the right questions to be a responsible board member and to get the most out of your volunteer experience.
Sandi Matthews, CPA, CGMA, Technical Manager- Not-for-Profit Content Development, American Institute of CPAs. Before joining the AICPA staff, Sandi was Controller of North Carolina Community Foundation. She currently serves on two not-for-profit boards.