The Rights and Responsibilities of the Board of Directors
Not-for-Profit organizations operate solely for the benefit of the public. Therefore, those charged with their governance have certain rights and responsibilities in making sure that their organizations operate exclusively on a charitable basis.
The two main responsibilities are the duty of care and the duty of loyalty. All actions should be taken with the same care that any prudent person would use in the same situation, and always in the best interest of the organization. In summary:
- You have the responsibility of always being aware of and informed about major activities of the organization, including being knowledgeable about the organization’s articles of organization, by-laws and mission.
- You have the responsibility of making sure that your board is diverse and open to change in order to further the organization’s charitable mission. You are responsible for hiring and periodically assessing the performance of the chief executive officer.
- You are responsible for setting executive compensation, including non-cash compensation that is reasonable. In setting compensation you must consider your donors, the organization’s mission and reputation, and available resources.
- You are responsible for avoiding conflicts of interest and for setting a policy to handle any conflicts that may arise. This should include annual board and management disclosure of any business or personal relationships that may represent a conflict of interest.
You are responsible for making sure the organization is financially accountable by reviewing and approving the annual budget, making sure the organization has adequate internal controls over financial matters, and by periodically reviewing financial reports.
- In the eyes of the Internal Revenue Service (IRS), good governance is necessary in ensuring compliance with tax laws, protecting charitable assets, and serving the best interest of the general public. The IRS considers good governance to include:
- The establishment and periodic review of the organization’s mission.
- Organizational documents that provide a structure for the organization’s governance and management.
- An active, independent board of appropriate size that includes individuals selected to serve with the organization’s needs and mission in mind.
- The development of policies that assist in the governance and management of the organization, such as conflict of interest, executive compensation, investments, fundraising, and document retention and destruction.
- Regular review of financial statements and any auditor’s reports, as well as the Form 990.
- Transparency (The IRS may require that the Form 1023 or 1024 Application for Exemption, the 990, and the 990-T, if applicable, be made available for public inspection).
Board members and management are the ambassadors for the organization. They function best when their expectations are mutual and their responsibilities are clear. In carrying out their duties, they should ask pertinent questions, expect good answers and always keep the organization’s mission in focus.
Anstiss & Co. is a Lowell- based public accounting firm serving clients throughout the United States. The firm was founded by Ray Anstiss, Sr. in 1964, and is currently listed as a Top-35 Accounting Firm in Massachusetts by the Boston Business Journal.
