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Compliance Training Is Important For Nonprofit Board Members

10 Step Plan for Nonprofit Board Member Compliance Training

Good governance practices and compliance are two big issues that your nominating and recruiting committee should focus some of their discussions on as they’re vetting board member candidates. That sounds simple enough on the surface. What complicates matters is that many things outside of the boardroom are continually evolving, and that should change your approach to compliance training for current and future board members.

Economic and social changes have a major effect on how nonprofits function. Also, governance practices are continually improving. Laws and regulations are also changing to keep pace with other changes going on in the world. For these reasons, it’s not practical for your board to view compliance training as a static activity. Your board’s knowledge on the topic of compliance must grow along with the changes in the times.

With that in mind, we’ve put together a 10-step plan for nonprofit board member compliance training as a guide for your board.

10 Steps for Nonprofit Board Member Compliance Training

First, let’s define compliance. Simply put, compliance refers to the regulatory and legal requirements that governments and other regulatory bodies impose on organizations. Every board member has an individual and collective responsibility to ensure that the nonprofit they govern is in compliance with the laws and regulations that govern their entity.

Let’s take 10 areas of compliance training one by one.

  1. Review the nonprofit’s mission, vision, objectives, and goals. Mission statements guide your nonprofit’s work. The vision, objectives, and goals are in keeping with the mission. Best practices for good governance suggest that nonprofits review their mission statements periodically in light of social, economic, and community changes. A review of the mission statement will inform your board about whether the mission is still relevant and whether it’s time to revise it to meet the current needs of the people or groups your nonprofit serves.
  2. Compliance with the oversight of executive director responsibilities. Nonprofit boards have a fiduciary responsibility to ensure effective leadership at all times. Any or all of the following topics are appropriate topics for board member education in this area:
  • Recruiting top leadership talent
  • Succession planning for the executive director
  • Emergency executive director planning
  • Roles and responsibilities of the executive director
  • Setting up an appropriate executive director compensation plan
  • Developing a job description for the executive director
  • Conducting an annual evaluation for the executive director
  1. Developing a board member handbook. More goes into a nonprofit board’s work than you can cover in an orientation. Your board member handbook serves as a guide for your nonprofit’s organization and operations. Here’s a list of some things to include in your board handbook:
  • Articles of Incorporation and other charter documents
  • IRS Letter granting 501(c)3
  • Copy of the strategic plan
  • Mission, vision, and values statements
  • Bylaws and resolutions
  • Codes and policies
  • Attendance policy
  • A guide for board and executive director evaluations
  • Roles, responsibilities, and job descriptions of board, officers, and executives
  • Annual budget
  • Most recent financial and audit statements
  1. Annual self-evaluations. The performance of nonprofit boards has been under a greater degree of scrutiny than in the past. It’s essential for boards to be transparent and accountable. As part of your compliance training, board members should be educated in these specific areas of self-evaluations:
  • The importance of conducting self-evaluations
  • How to conduct them
  • How to evaluate them
  • How to implement positive changes in light of the results
  1. Qualifications for tax-exempt status. It’s not safe to assume that your nonprofit meets the guidelines for a tax-exempt organization. Prior board members may have missed something, or circumstances may have changed. It’s crucial that the current board catches mistakes and oversights. Also, board members need training on how to properly fill out Form 990 and why it’s important for them to review it before it gets filed every year.
  2. Ensuring financial stability. It’s every board member’s fiduciary responsibility to ensure the nonprofit has adequate financial resources. Compliance training in this area could include:
  • Reviewing internal financial controls (two signatories on checks, controlled access to accounts, etc.)
  • Ensuring there are checks and balances on financial accounts
  • Oversight of financial reports
  • Ensuring appropriate and reasonable safeguards for financial assets
  • Ensuring that the nonprofit has access to adequate financial resources
  • Following best practices for fundraising and grantmaking
  1. Building a competent board. Your board should develop a pipeline of quality talent to ensure that the board can fill vacant board seats at the earliest possible time. Your board self-evaluations will give you clues as to the ideal combination of characteristics (backgrounds, area of expertise, experience, demographics) that your board needs for effective oversight.
  2. Ensuring legal and ethical integrity. Your nonprofit’s reputation is of the utmost importance. Your values statement guides how your board, leaders, employees, and volunteers should act. Compliance training should include education on how to establish a code of ethics (it may also be called a statement of values or code of conduct). Your code of conduct should incorporate a commitment to values such as honesty, integrity, equity, transparency, and confidentiality.
  3. Establishing practices that encourage transparency and accountability. To earn the trust of donors and the public, nonprofits need to be willing to share information about their financial condition and other important matters with the media and supporters as necessary. Accountability measures generally fall under the executive director’s responsibility. The board’s role in this area is in oversight. Boards fulfill their responsibility by ensuring the nonprofit has the appropriate policies and procedures in place and that they’re being followed.
  4. Understanding best practices for policies and procedures. At a minimum, your board should have the following policies in place:
  • Conflict of interest
  • Whistleblower
  • Discrimination
  • Code of conduct
  • Records retention and destruction

Compliance training should incorporate education about why each of these policies is important and what they need to do to keep them updated.

As you can see, many things fall under the umbrella of compliance. A board management system by BoardEffect is a valuable tool for addressing every area. It offers you a secure platform with granular permissions to support all your board activities. With BoardEffect, your board members have access to all documents, reports, minutes, and agendas.

In summary, your board is a vital link between your organization and its donors and stakeholders. They are your nonprofit’s primary ambassadors and advocates. A comprehensive compliance training program will prepare them to be proactive and forward thinking.

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