Mistakes happen. That’s why they put erasers on the end of pencils. But some mistakes are harder to erase than others. These include common mistakes that nonprofit boards make in their governance. And while there are certainly more than three possible mistakes to be made, the following list includes the ones most consultants see—and the ones that are the most easily corrected. If you see yourself and your board in this list, take steps now to correct mistakes before they turn into big problems.
- Failing to Comply with Legal Statues and Laws
All corporations must work within a legal framework, and nonprofits are no exception. Laws pertaining to employment, taxes, fundraising, and reporting are just some of the legal issues nonprofits must navigate in their daily operations.
Failing to comply with these laws is more than just a headache. It can lead to financial penalties, lost reputation, and lost confidence in the organization. Board members may also be held liable, if only in the court of public opinion, for failing to follow the law.
Your nonprofit board must fully understand the laws governing nonprofit operations and comply with them. Take time to ensure that board members are fully briefed on any discussions pertaining to legal hot button issues: employment, fundraising, human resources, payroll, and more. And, when in doubt, consult with a professional to ensure you are following best practices and the letter of the law.
- Ignoring Fiduciary Duties
Board members have an obligation to perform their fiduciary duties with care. This means ensuring that financial reporting and possible conflicts of interest are handled ethically and legally. Ignoring these duties may expose a nonprofit organization to significant risks.
When board members lack a comprehensive understanding of their fiduciary duties or don’t take them seriously, it can lead to mismanagement of financial resources, conflicts of interest, and decisions that deviate from the organization’s mission and harm its long-term viability. Neglecting fiduciary duties has the potential to erode trust among stakeholders, jeopardize funding opportunities, and may even result in legal repercussions for both the organization and its board members.
Take time to fully brief the board on their fiduciary duties. Establish training that covers both the legal duties (#1) and fiduciary duties (#2) to ensure that the entire board is aware of what’s required of them and the seriousness of failing in their duties.
It may be helpful to establish an ethics code, one that clearly spells out what is considered a conflict of interest. This can ward off many potential problems within the board.
- Lack of Financial Oversight and Controls
Financial oversight and control refer to the day-to-day handling of the organization’s finances. While such matters are typically left to a controller, CPA, or accountant or department, the board has ultimate responsibility for the organization’s money. Without proper oversight and controls, fraud may result, leading to legal action, lost reputation, and even the demise of the organization.
To ensure your board is carefully watching the organization’s finances, consider appointing a finance committee. Under their leadership, establish financial policies and procedures. Regularly review financial statements and engage an independent auditor. Consider providing additional financial literacy training to board members to ensure everyone has shared knowledge of what it means to properly develop and monitor a budget and the finances for a nonprofit organization.
Nonprofit Board Governance Success: It’s in Your Hands
Boards make mistakes, but with the right approach and mindset, you can prevent many of them. Education, training, and adequate knowledge offset many possible problems. Communication and collaboration also help prevent mistakes. Your board’s success is in your hands, so take steps now to help them do their job to the best of their ability.
Welter Consulting
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.
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