Fiduciary Duties and Oversight in Nonprofit Governance

By June 19, 2020 Nonprofit
Fiduciary Duties and Oversight in Nonprofit Governance

Our attorneys here at Provident Law field quite a few questions regarding the nature of nonprofit governance. Among the higher-order of these questions are issues of management of nonprofits.

Volunteering to serve a nonprofit as an officer or director is a serious decision comprising a number of very real responsibilities. Among these are duties of loyalty, good faith, and due care—and the possibility that the person serving in this managerial capacity may be liable if they do not fulfill these duties. These duties are known as “fiduciary duties.” A fiduciary duty is defined by Black’s Law Dictionary online as:

“When one party must act for another. They are entrusted with the care of property or funds.”

Often fiduciary duties run counter to the natural tendency for human beings to look out for their own self interests, including their desire for time off or to ignore responsibilities that do not seemingly affect them directly. But when one adopts a fiduciary duty, one is taking that other entity’s interests on as their own, from a legal standpoint.

So while a board member or director may delegate their tasks to others in the organization, such as staff members or committees, or even to people outside of the organization, such as professionals, they must do so with a proper amount of oversight. This oversight can take various forms. Often it will be handled via standardized procedures. These may include mechanisms such as reviewing financial statements and putting in place discrete governance policies, such as:

  • executive compensation policies;
  • reimbursement policies for travel and expenses;
  • conflict of interest policies;
  • and whistleblower policies, among others.

For such policies and procedures to suffice as oversight, and thereby to amount to fulfilling the fiduciary duty, the board or director must do due diligence to ensure that the policies or procedures are being followed in fact.

If you need help dealing with determining the IRS’s classifications for relief, Provident Law’s church and nonprofit attorneys are here to help. We recognize how essential these organizations are to society, how important it is that they maintain tax exempt status for their ongoing existence. We stand ready to counsel and serve by providing broad transactional and general counsel services. Contact us to learn more.