As a nonprofit board member, you should understand the following concepts around oversight.

  • An organization’s internal controls monitor, measure, and direct against risk and fraud. Internal controls should include policies and procedures that address the following.
    • Compliance with applicable laws and regulations as well as adherence to policies
    • Safeguarding assets against loss and unauthorized use or disposition
    • Reliability of financial reporting
    • Effectiveness and efficiency of operations
  • Clarify who has access to what and when through clear separation of duties and specific delegation of authority. Key areas of access include bank accounts, organizational credit cards, blank check stock, cash/checks received, accounting system, donor database, payroll system, and approval authority.
  • Establish policies and procedures to guide behaviors and outcomes. Written policies and procedures represent an organization’s detailed list of what needs to be done, who is responsible, how roles and duties are separated, and steps to achieve completion.
  • To ensure everything is in order, complete a periodic review of the nonprofit’s financial policies and procedures.
  • Avoiding fraud and maintaining a positive financial reputation is important for the nonprofit’s integrity and continued success. The organization should have safeguards in place to identify possibilities of fraud and ways to keep the organization and its participants from committing fraud.

There are oversight-related actions you can take to instill a strong nonprofit finance culture within your organization.

  • Monitor the organization’s finances and internal controls. Consider completing internal mini-audits or reviews of both the financial numbers and controls including policies and procedures. Ask questions and examine details of a few specific accounts or financial statement line-items on a rotating basis and report back to the board.
  • Develop a routine risk assessment program that is appropriate for the organization’s size and complexity. Completed at least annually, the assessment should consider the following risk types: fraud, legal, financial, operational, regulatory, program, and other items identified by the organization.
  • After the organization’s written accounting policies and procedures are in place and a regular review process is setup, begin thinking about crisis planning. Consider backup procedures, disaster recovery planning, and situations that could derail the nonprofit’s plans.

Board member fiduciary responsibilities

In Washington, board members have three duties related to fiduciary responsibilities. The board should review these duties annually.

  • Duty of Care: Board members will take reasonable care when making decisions, using diligence and independent judgement. Board members are expected to have a level of competence described as exercising the “care of an ordinarily prudent person in the like position” under similar circumstances.
  • Duty of Loyalty: Board members should act in the best interest of the organization, putting the organization before self-interest. This is particularly important when the potential for personal gain exists and often arises when there is a conflict of interest.
  • Duty of Obedience: Board members must make sure the organization is in compliance with local, state, and federal laws. Board members will stay true to the organization’s mission and governing documents.

As of January 1, 2022, with the new Nonprofit Corporation Act, there is an additional duty for board members and officers to share information to the board if a board member or officer has information important to the operations or relates to a violation or probable violation of law involving the organization.

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