Fiduciary Responsibilities of the Nonprofit Board of Directors

The term fiduciary refers to a relationship in which one person has a responsibility of care for the assets or rights of another person. In a nonprofit organization the board of directors, as a single body, has a fiduciary responsibility for the assets of that organization. Nonprofit boards must make decisions on a regular basis that directly affect the rights and wellbeing of the organization’s key stakeholders, including donors, partner’s program participants/beneficiaries and the public.

The fiduciary responsibilities of a nonprofit’s board members include:

1. Avoiding conflicts of interests
2. Acting in the interest of the organization rather than in the interest of board members
3. Providing oversight to assure that the organization’s business is transacted legally
4. Making decisions to protect the assets of the nonprofit organization

When it comes to nonprofit board responsibilities as they relate to accounting issues, board members must ensure that they understand the facts and circumstances of major transactions, as well as the overall financial health of the organization. This is best accomplished if board members are actively engaged in the governance process. Board engagement involves participating in meetings with the organization’s CFO or controller and maintaining frequent communication with the organization’s management.  Board members must be vigilant by asking targeted questions that are aimed at understanding the facts and circumstances surrounding a particular transaction or financial issue, to ensure that the transactions are properly reflected in the financial statements and that related or conflicted parties do not receive any excess benefit.

Nonprofit board membership is about balancing a number of different roles and responsibilities. The most effective board members simultaneously apply financial measures and business judgment to all major decisions.

How do your organization’s board members maintain proper oversight?