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Board Member Checklist: How to Manage Nonprofit Compliance

Nonprofits play important roles in the communities they serve, which is why organization oversight is crucial. That’s where board members come in—their responsibilities directly impact the performance and success of nonprofit initiatives.

Recognizing the contributions of those who help your organization achieve its goals is just the first step in making sure they do their jobs the right way. Let’s look at the three fundamental duties of nonprofit board members and the important roles that help them manage nonprofit compliance.

1. Duty of care

From the start of your nonprofit, board members are bound to the duty of care, meaning they must ensure that the organization’s operations support its mission. Using their best judgment, board members must make decisions on behalf of the nonprofit, including:

– Determining the mission and purpose: The nonprofit’s official mission statement should be constructed by the board. It should articulate the nonprofit’s goals and the desired outcomes of accomplishing those goals.

– Selecting the chief executive: The board will choose a chief executive, or CEO, to help lead the organization. This involves assessing the nonprofit’s needs to select and hire a leader to enhance performance and growth.

– Set compensation levels: The IRS mandates that nonprofit compensation must be “reasonable,” but it’s up to the board to determine the salaries or salary ranges for staff positions. 

Ultimately, a nonprofit’s board cares for the organization by making plans that help it to fulfill its purpose. Everything from the marketing plan to the official, annual strategic plan must point back to the nonprofit’s mission and constituents.

2. Duty of loyalty

When supervising a nonprofit’s operations, the key rule to keep in mind is simple: the nonprofit comes first! Board members must be loyal to the nonprofit, putting the organization’s needs before their own as they hold leaders accountable. This requires them to:

– Assess board performance: Self-assessments can help your board evaluate its performance and adjust its approach accordingly. Since your board members are the ones looking at the big picture, they should be able to objectively determine if their efforts are effective in fulfilling the organization’s mission.

– Evaluate the chief executive: The board should hold the chief executive accountable, evaluating their performance in relation to the nonprofit’s mission. This annual evaluation should be standardized and might be delegated to certain members to be conducted on behalf of the board as a whole.

– Monitor the organization’s performance: Overall, board members should ensure the nonprofit’s programs and activities support its mission. This means comparing the organization’s goals to the actual outcome of its efforts and determining what needs to be adjusted to succeed.

These evaluations should be transparently shared throughout your organization. Transparency is not only important for healthy organizational leadership but it can also help you plan your board member appreciation efforts. When you know exactly what your board members accomplished throughout the year, you’ll be able to appropriately thank them, which will ultimately strengthen their loyalty to your nonprofit.

3. Duty of compliance

Nonprofit leaders know that compliance is no joke, and board members should treat it with the attention it deserves. Your board should familiarize themselves with the laws and regulations that govern nonprofits so that they can contribute to the organization’s corporate governance. 

Primarily, the duty of obedience involves supervising the nonprofit’s financial operations, including:

– Bookkeeping: To adhere to nonprofit legal requirements, every dollar that enters and leaves your organization should be accounted for. From major gifts to in-kind donations, your board should ensure that all your nonprofit’s financial activities are being accurately reported by the right people.

– The nonprofit’s budget: Your nonprofit may develop a financial committee or simply ask the board to review the budget for approval, but in some capacity, nonprofit boards set the organization’s budget each year.

– Financial reporting: According to Foundation Group’s guide to filing Form 990, failure to track your finances is “a violation of state and federal regulations that require tax-exempt organizations to maintain accurate books.”

Not only should the organization comply with federal and state laws, but it should also maintain internal compliance. The bylaws created when you started your nonprofit should be followed strictly (and adjusted as necessary). These guidelines will help your board stay on the right track as your nonprofit moves forward with its objectives.