Nonprofit Accounting Basics

Fiduciary Responsibility - Board Governance for Charitable Non-Profit Organizations

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.

Author: 

Robin Slater

FIRST CITIZENS BANK | FIRST CITIZENS INVESTOR SERVICES, INC.

Fiduciary obligations require charitable non-profit organizations to adhere to the highest ethical and legal standards. In every decision made and action taken, a charitable non-profit must:

  • Act in good faith
  • Place the best interests of the organization and its beneficiaries first
  • Exercise the care a prudent person in a like position under similar circumstances would use

In pursuit of these objectives, a charitable non-profit organization’s board of directors is subject to a multitude of federal and state regulations.

Understand Changing Donor and Board Demographics

Charitable non-profit leaders must recognize and better understand the changing needs and expectations of donor populations. Technology now enables direct engagement at every giving level. Donors expect a seamless contribution process. More private data is available and must be protected. Traditional sources of funds are changing. That’s why charitable non-profits must develop transitional skills and adapt to change in an evolving environment.

Drive Donor Development at Every Level

Creating and executing a strategy to identify, approach and move potential donors from initial contact to giving is critical to your success. From small one-time gifts to generational multi-year giving, you must match valued resources that are appropriate to the opportunity.

Build and Enrich Donor Relationships

A donation represents a contributor’s investment in your organization’s vision and mission. To nurture and build this relationship, you need to add value at every opportunity. From efficiently processing smaller gifts to providing access to investment, taxation and estate planning support for large donors, you need expert assistance.

Avoid Conflicts of Interest

Even with the best board oversight, conflicts of interest can occur. These instances typically involve a board member with a direct or indirect personal interest in a transaction by the organization.

Invest Appropriately

Board members must be educated on their fiduciary duties associated with investing your organization’s assets.

Enhance Committee Structure and Functionality

Your board defines your strategic direction and champions your vision. To reach these goals, the board must ensure your organization is well-managed and compliant regarding assets, fundraising, legal obligations and accountability.

That’s why every board’s framework should be established in organizational documents – and the framework’s efficiency and individual character should be reviewed on a regular basis.

Incorporate Risk Management

In their fiduciary roles, charitable non-profit board members often depend on facts and opinions from individuals they perceive as reliable and competent. In doing so, they could have liability exposure based on their decisions. You can protect your board – and attract competent members – by reallocating personal liability risk through indemnification and insurance. While regulations vary by state, indemnification may be granted when the board member(s) acts in good faith and in the best interest of the organization with no reasonable cause to believe actions were unlawful.