New nonprofit boards of directors are forming for next year, and the business community is a logical place to draft volunteers. What does it mean to serve on a nonprofit board? What does one do? What are the attendant responsibilities?
The National Center for Nonprofit Boards (NCNB) publishes a booklet, Financial Responsibilities of the Nonprofit Board, that can help new, and old, board members understand their role in overseeing the organization’s finances.
Structurally speaking, the board sets policy and hires officers to implement the policies. The officers then hire employees to assist in carrying out the mission of the organization.
A sound, carefully developed strategic plan lays out the organization’s mission, goals, objectives, resources and obstacles. The board, with the assistance of the staff, is responsible for creating and maintaining the strategic plan. The plan can be either detailed and fancy or sketchy and simple, depending on the whims of the organization.
All board members should understand the organization’s strategic plan in order to serve effectively. Once the subjective areas of mission, objectives, etc. are established, financial data becomes the primary tool of plan monitoring.
According to the NCNB booklet, “a sound strategic plan linked with a realistic financial plan will ensure that the organization is using its resources effectively.” The planning process should include an evaluation of the (1) financial resources available, (2) internal and external forces which are likely to impact the organization, (3) existing and planned future programs and (4) alternatives.
Budget projections should be comprehensive and include the assumptions used in preparing the projections. The board should review the budget to determine if it is achievable. Other budget-related questions include the adequacy of cash flow to meet financial obligations and maintenance of satisfactory reserves.
Scrutinizing expenditures for propriety is also an important board function. According to the NCNB, “the appearance of propriety extends not only to fulfilling the organization’s exempt purpose, but also to how efficiently it is perceived to be achieving its ends.” Operating and fund-raising costs should be reviewed and compared with similar organizations. All contracts and compensation packages should be reviewed for appropriateness. The accounting system should provide adequate controls for insure financial integrity.
Board members should make sure that the organization is managing risks, either by insurance or otherwise. Significant assets need to be insured, and everyone involved with cash and securities ought to be bonded.
The IRS has stringent guidelines governing dealings between tax-exempt organizations and board members. There should be no room for conflict of interest, actual or perceived, between the organization and its board members.
Serving on nonprofit boards is an excellent way to give back to the community. Business people have the backgrounds to provide great service by sharing their experience. The community expects the board to conduct the nonprofit’s affairs with integrity. It is a heavy responsibility, but a very worthwhile undertaking.
THOUGHT FOR THE MOMENT
We believe that we are, in fact, the image of our Creator. Our response must be to live up to that amazing potential – to give God glory by reflecting His beauty and His love. That is why we are here and that is the purpose of our lives.
– Desmond Tutu,
South African civil rights leader
and Nobel Peace prize winner
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. His e-mail address is firstname.lastname@example.org.