The new year provides the perfect opportunity to reflect on how your organization has been governed and, if necessary, to make changes. One of the challenges organizations face is that board members do not fully understand their roles and responsibilities. Board members legally have a duty of care, duty of loyalty, and duty of obedience. Duty of care means the board must act prudently when making decision for the nonprofit organization. Duty of loyalty means that the board members must operate in the best interest of the organization. Duty of obedience refers to board members being knowledgeable and complying with applicable laws and regulations. 

You might be asking how board members master these roles and responsibilities, especially when they are part-time volunteers. The new year is the perfect opportunity to look at some of the best practices in board governance and compare them with your organization’s current practices. Below are seven of the most critical board-governance practices.

Appropriate board recruitment. Good board governance starts with the recruitment process. Each board needs the right people in the right positions to ensure success. To do this, your nominating committee should be constantly reviewing the needs of the organization. Ask yourself questions such as does the board have the talent required to understand the various components of the organization including the program, legal, and financial side? Are the people the nonprofit serves represented on the board? It is a significant challenge to obtain board diversity, especially with several boards focusing on equity, inclusion, and diversity in the larger community. With all the responsibilities of being part of a board, it has become increasingly difficult to find those with the skills your organization requires and who are willing to take on the challenge. 

It is vital that you are upfront and honest with potential board members. Consider developing job descriptions for board members. You are probably thinking this isn’t really a job, but I would disagree. There are significant responsibilities people take on when they agree to become a board member. Clearly outline what those responsibilities are as well as your expectations of the time, attendance at meetings, and monetary support each board member is required to give.

Best practices state your organization should have a board-recruitment packet that includes necessary information about your not-for-profit, such as your mission and vision statements, history and key accomplishments, most recent audited financial statements, and fiduciary responsibilities. Some organizations also have a mandatory board orientation to get your board members on the right page from the start. 

Develop mission and vision statements. For an organization to be managed effectively, it must have a clear and concise mission that defines its purpose and objectives. Vision statements are an essential part of nonprofit board governance. A vision statement looks to the future and provides the framework for where the organization is headed. Fully developed mission and vision statements provide a framework for management to carry out the day-to-day operations.

Ensure appropriate board training. It’s not fair to expect board members to understand their roles and responsibilities without providing the proper training. Consider providing training on items such as oversight and accountability, compliance program, conflicts of interest, and board policies. One area that is often overlooked is training on acronyms. Nonprofits use an extraordinary number of acronyms, which can make it difficult to follow the conversation if proper training is not provided. If your board uses Robert’s Rules of Order to facilitate its meetings, it is crucial for board members to understand the proper rules and order for motions. Another area where training should be provided includes reading financial statements. Best practices and in some cases, the regulatory requirements of funding sources, dictate that training should be provided annually. Is your organization providing the proper training for its board? 

Ensure effective organizational planning. Strategic planning is a significant challenge for most nonprofit boards, especially in today’s rapidly changing environment. The days of three-to-five-year updates of strategic plans are behind us. For a strategic plan to be effective, it must become a living document that is updated regularly. Strategic planning outlines the future course and drives the actions of the organization forward. Management of the organization should report back to the board on the status of the objectives outlined in the strategic plan at every board meeting.

Assess effectiveness of board meetings. Board members’ time is limited, so use it wisely. Hold effective meetings with a focused agenda to keep you on track. Remember Robert’s Rules of Order, in which training was provided on and use them. Meetings should not last more than two hours, or you will lose members’ attention. One way to cut down the meeting time is to review the written reports provided by committees prior to the board meeting as part of a consent agenda. Board members can review the committee’s reports prior to the meeting and the head of each committee can provide an abbreviated report during the board meeting. Having and reviewing the written reports ahead of time will allow board members to ask the appropriate questions and provide a better use of everyone’s time. 

Review financial reporting. The board’s financial responsibility includes the oversight of financial statements and fiscal controls. To do this, board members should be reviewing the internal financial statements and questioning management about them. The internal financial statements should be timely, usually within 15-30 days of month’s end.

In addition, your nonprofit should be meeting with your auditors twice a year. The first should be at the time of audit planning where board members can provide insight on where you see the organization’s risks. The second meeting is when your organization meets with the auditors to review the audit results. Make the most of this meeting by asking your auditor about the number and reasons for any adjustments. This will give you an idea if the information you are using throughout the year to make financial decisions for the organization can be reasonably relied upon. A board cannot make informed decisions if the internal financial reporting is not accurate. Auditors can also be a great source of information and advice outside of the audit cycle.

Budgeting is key to reviewing financial reporting. Board members should review and approve the budget prior to the start of the fiscal year. At each meeting, management should report on how the organization is doing compared to the budget. If it is not on budget, why? A budget is just that, a budget, but you need to understand why the original thoughts were different than what occurred.

Review the organization’s IRS Form 990. The form should be made available to the full board prior to filing and is often reviewed in detail by the audit and/or finance committee prior to distribution to the full board. Given that the Form 990 may be over 50 pages, a focused and informed review may be effective. This is a public document, so you want to understand what is in it.

I understand not everyone is an accountant, which is why it’s critical for board members to attend meetings and ask questions. 

Assess your own performance. Last, but certainly not least, is the need for self-evaluation and assessment. To do this, a board can use an anonymous written survey. Encourage board members to complete the survey and to be candid and honest. Ask questions such as:

• Are meetings being properly facilitated and do they stay on target?

• Does the board have the right mix of skills and experience? What skills and experience need to be better represented?

• Do board members have sufficient understanding of the organization’s programs and the operating environment to provide the critical oversight needed? 

• Is the board providing appropriate oversight without micromanaging? 

• Do board members ask appropriate questions of management?

• What are the board’s greatest strengths? Where could the board improve?

The challenges facing nonprofits are many, but there are significant opportunities as well. Those with proper board governance are the ones that will be the most successful in these uncertain times.

Bettina Lipphardt is a partner and the team leader in The Bonadio Group’s Healthcare/Tax-Exempt Syracuse/Utica Division. She provides consulting and auditing services for a variety of tax-exempt clients. Contact her at blipphardt@bonadio.com.