Financial Responsibilities of Nonprofit Board Members

Every nonprofit board member, regardless of their specific role on the board, has shared duties to fulfill. One area that sometimes gets overlooked is the financial responsibilities of board members, which applies to every board member even if they’re not in a specific finance role.

Three duties of nonprofit board members

Every nonprofit board member is subject to three duties when they accept a role on a nonprofit board. These include:

· Duty of care: Making good faith, informed decisions on behalf of the organization

· Duty of obedience: Making sure the organization uses its assets in line with its mission and purpose

· Duty of loyalty: Acting in the best interest of the organization and avoiding personal conflicts of interest

Fulfilling these duties includes basic things like preparing for meetings, attending meetings, and following up on assigned tasks. It also includes bigger things like ensuring the organization stays in compliance with regulations that govern tax-exempt organizations, which is where financial responsibilities come into play.  

Financial responsibilities of nonprofit board members

The financial responsibilities of nonprofit board members fall within the three duties. Nonprofit board members have a responsibility to ensure that any federal grant funds and private donations are properly managed by the organization and used in line with the donor or grantor’s intended purpose for the funds. When board members don’t fulfill this part of their role, it can create significant challenges for the organization and the individual board member.

Every board member should be involved in the financial accountability of the organization, not just those named as treasurer or those who serve on the finance committee. That includes reviewing monthly financial reports and the annual Form 990 filing, plus asking questions to ensure donations and grant funds are used as intended with appropriate tracking and reporting.

How these responsibilities interact with Oklahoma state law

Oklahoma state law (Title 18, § 866-867) provides immunity from liability for nonprofit board members within certain parameters, but that doesn’t mean board members are immune from liability in every situation.

The law states: “No member of the board of directors shall be held liable for:

· any negligent act or omission of an employee of the nonprofit corporation; or

· any negligent act or omission of another director.”

While that language appears to provide broad protection for board members, the law also says:

“… no member of the board of directors of a nonprofit corporation shall be personally liable to the corporation, or members thereof, for monetary damages for breach of fiduciary duty as a director, provided that such immunity from liability shall not extend to:

1. any breach of the director’s duty of loyalty to the corporation; or

2. any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law; or

3. any transaction from which the director derived an improper personal benefit.”

In other words, nonprofit board members are protected under Oklahoma state law provided they are acting in good faith and adhering to the duty of loyalty and the organization’s policies. But, if they are not regularly attending board meetings, not reviewing financial documents, doing business with the nonprofit while a board member, and not asking questions about how tax-exempt dollars are being used in the organization, they are not acting in good faith and not fulfilling their duties to the organization. Thus, they may be held liable for the actions of the organization or another board member and be subject to penalties or lawsuits.

It’s important for every organization to understand the financial responsibilities of nonprofit board members and where conflicts of interest may arise between the organization and a board member. It is critical to have the right policies and procedures in place for financial accountability and to guide the organization as conflicts arise. Likewise, it’s critical for each board member to understand the three duties, the board’s financial responsibilities, and what Oklahoma state law says about liability for nonprofit board members. Doing so helps protect the board member and ensures a strong foundation for the organization.

If your organization needs help with board training on nonprofit governance or putting the right policies and procedures in place, reach out to the Nonprofit Solutions Law team.