Board members have a fiduciary duty as stewards of public trust to act in the best interests of the organization that they serve. They lay aside personal interests to focus on ethical oversight of the organization’s mission accomplishments, results of operations and financial position.
Nonprofit board members may monitor support and other funding to ensure that it is used in accordance with the nonprofit’s mission. They are concerned that the nonprofit is abiding by all applicable laws and regulations and preserving its nonprofit status. They should be able to read and understand nonprofit financial reports and be willing to question unusual expenditures, budget variances and other transactions of interest. They are typically part of strategic planning with management to help achieve the organization’s short-term and long-term goals.
If you do not have a nominating committee to help you identify and recruit future board members, consider establishing an independent group to help you maintain a diverse, objective and informed board of directors. Some nonprofits designate past board members to serve on the nominating committee once they finish their term of board service. Here are three other tips for helping board members succeed in their fiduciary role.
1. Establish a Nonprofit Board Onboarding Process
A process for introducing board members to their duties for your nonprofit organization is important, even if some individuals have previous board director experience. Your nonprofit may have unique processes, varieties of funding or programs that your board should become familiar with in order to govern well.
In addition, introduce new board member to your advisors and partners to help them understand the role each team plays in the nonprofit’s operations and oversight. Introductions may include your CPA and audit team, attorney, insurance providers and other vendors, but also any organizations that partner with your organization on key initiatives.
Board members should review important legal or operational documents relating to their fiduciary duty, such as bylaws, mission statements, staff organizational charts and job descriptions, budgets and financial statements. They should understand the type and frequency of board meetings as well as how to prepare for those meetings.
In addition, they should understand expectations regarding what they do outside of meetings, whether that is networking, fundraising, supporting talent recruitment or volunteering at events. These expectations should be clear for each member from the outset to help everyone measure board effectiveness.
Create and share an up-to-date board contact list along with other relevant contact information for management. You may also consider creating a separate level of onboarding for directors appointed to officer and chair positions or other special roles on the board, such as serving on the audit committee.
2. Offer Training on Nonprofit Financial Reporting
Professionals with accounting, legal or risk management backgrounds are valuable to boards because these individuals bring unique insights to nonprofit governance. However, a clear understanding of your nonprofit financial reporting is helpful to get board members on the same page. This may include discussions about how your organization establishes budgets, your approaches for revenue and expense recognition, implementation of the new leasing standards or other areas of complexity.
Sometimes the CFO or management can handle this training, but other times it may be helpful to have your CPA or audit team leader walk board members through the audited financial statements. This third-party training can help board members feel more at ease with the current financial state of the organization.
Schedule this training prior to any budgeting discussions or presentation of your annual audited financial statements in order to identify and answer board member questions.
3. Apprise Board Members of the Audit Process
Another important aspect of supporting board member success is apprising them of the annual audit process. In some cases, new nonprofit board members may have questions about the audit team or they may wonder about their role with the audit.
The best approach in most organizations is for management to arrange an entrance meeting with the board in order to introduce the audit team, share their credentials and field questions prior to the start of an audit.
Making time for introductions and summarizing the audit process will familiarize board members with the audit team and their purpose. When it is time for the presentation of the audited financial statements, the board (or its audit committee) will have already met the audit team and will likely be more receptive to insights about the audit. They will be more comfortable asking questions in order to accept the auditor’s report and internal control findings, if any.
Board members should pay special attention to the meaning of the auditor’s opinion, the portrayal of organizational health in the financial statements as well as the footnotes. The footnotes provide additional context and details not found in the financial statements.
These three tips are just some of the ways to help board members succeed in their role on behalf of the nonprofit organization. For more ideas, read our blog post about board fiduciary duties.
Contact your engagement lead member or email us at info@lvhj.com for assistance with board member onboarding, training or audit preparation.