Nonprofit Accounting Basics

Board of Directors

Avoiding Financial Risks

To avoid or diminish financial and accounting risks that might threaten the organization’s existence or decrease its effectiveness, the board needs to be aware of proper financial processes and pra

Board Accountability

The board is the accountable and liable body for the organization.

Board Member Compensation

There is no federal law that prohibits nonprofits from compensating their board members but some states may forbid compensation for board service.

D&O Insurance

Directors and Officers (D&O) liability insurance is an extension of all the other protection mechanisms for board members and the organization.

Ensuring Adequate Resources

The board must ensure adequate resources to allow the organization to carry on its mandate. Financial resources feed into the health and stability of the organization.

General Liability Insurance

The purpose of the general liability insurance is to pay for damages that the organization is liable for and to cover legal costs for its defense.

Incorporation

Through incorporation the board and the managers create a legal entity that will protect them from potential personal financial losses.

Incorporation

By incorporating your nonprofit you create a legal entity whose primary function is to provide limited personal liability protection to those managing the organization.

Indemnification

Indemnification is the organization’s direct expression of willingness to protect its board members (and its senior staff) from the financial burdens of liability.

Individual Board Member Responsibilities

Board members must realize they have personal expectations and responsibilities for their board service.

Legal Duties

To protect the organization, itself, and its members, the board must start by following the legal obligations common to all boards: duty of care, duty of loyalty, and duty of obedience.

Officers

A board officer is a board member with additional duties and responsibilities. State laws stipulate which officer positions a nonprofit must have.

Oversight: Fiduciary Duty

As the fiduciary of the organization, the board as a body and each individual board member must always act for the good of the nonprofit.

Personal Liability Exposure from Serving on a Nonprofit Board

Serving on the board of directors of a nonprofit organization can be a rewarding experience that offers the chance to contribute to a meaningful cause and deepen one’s connections and stature withi

Protection

Satisfactory protection against liability (and loss) starts with rigorous risk management.

Risk Management Plan

The board bears the responsibility for the safety of the organization.

Role in All Volunteer Organizations

Most nonprofits start as all-volunteer organizations (AVO), without a paid staff. The organization operates with the support of its board and maybe additional volunteers.

Setting Organizational Direction

The board is responsible for defining and guarding its mission, setting the direction for the organization, and ensuring clearly-set values guide every decision.

Volunteer Protection Act

The Volunteer Protection Act of 1997 provides personal immunity to individuals who act on behalf of an organization in a volunteer capacity.

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