The most important governance role of a nonprofit’s board of directors is a fiduciary duty to ensure that the money the organization raises is spent wisely on programs directly related to the agency’s mission. When people donate money to a charity, they want to be assured that their gift is not wasted.
By making full and accurate information about its mission, activities and finances available publicly, a patient organization demonstrates transparency. The board of directors should adopt procedures to ensure that the charity’s annual reports and financial statements are complete and accurate. All nonprofits are required by federal law to make a copy of their annual IRS filing and their tax-exemption letter available to the public upon request.
Board members must be dependable guardians of a patient organization’s financial resources. A charity should operate in accordance with an annual budget approved by the Board of Directors. The board needs need to make certain that financial resources are used to further the charitable purpose by receiving and reading up-to-date financial statements, including finance committee reports and auditor letters.
Build In Oversight
All nonprofit organizations should create a finance committee, chaired by the treasurer of the board. This committee monitors weekly or monthly financial activities of the organization. Large nonprofits are required to also establish an audit committee that will select and oversee an independent auditor, interpret the auditor’s annual report for the governing board, and make recommendations if any problems are found. This committee is independent of the finance committee, and their work is performed yearly during tax season.
Most organizations should ensure that an independent Certified Public Accountant (CPA), who is knowledgeable about nonprofit accounting requirements, conduct an annual audit. The auditor should be changed periodically to guarantee a fresh look at the financial statements. For a very small patient organization, with little annual revenue, a governing board can maintain financial integrity without additional cost by utilizing independent volunteers to review financial information and practices.
Remember, a successful patient organization pays no more than reasonable compensation for services. Charities should not compensate members of the board of directors for their service, except to reimburse direct expenses associated with their service. However, nonprofit organizations may pay reasonable compensation for services provided by staff.
A patient organization’s members and the general public expect a charity to abide by ethical standards that promote the public good. The board of directors bears the ultimate responsibility for setting ethical standards and establishing organizational practices. Governing boards may wish to consider adopting a code of ethics that describes the kind of behavior they want to encourage and the sort of behavior they want to discourage. Such a statement will communicate a strong culture of legal compliance and ethical integrity to members, donors and the community.
The governing board of a rare disease patient organization owes it an obligation of loyalty. Such allegiance requires that each and every board member act in the interest of the charity rather than in the personal interest of a director, a family, an individual patient, or some other organization. In particular, this duty of loyalty requires the board to avoid conflicts of interest that are detrimental to the charity. Therefore, the board of directors should adopt a “conflict of interest” policy that requires directors and staff to act solely in the interests of the charity without regard for personal interests. The policy should mandate a timely disclosure if a conflict may exist, and prescribe a certain course of action whenever a conflict of interest is identified.
Directors should be required to disclose any known financial interest that the individual, or a member of the individual’s immediate family, has in any commercial entity that conducts business with the organization. Furthermore, the board of a nonprofit patient organization must always exercise due diligence—requiring board members to act in good faith, and in a manner reasonably believed to be in the charity’s best interests.
Board members should make sure that policies and procedures are in place to help them meet their duties. Such policies and procedures will ensure that each director is familiar with the charity’s activities and knows whether those activities promote the organization’s mission, is fully informed about the charity’s financial status, and has full and accurate information to make informed decisions.