Is Your Board Effective?

Posted on Wednesday, July 19, 2023

Your board of directors is ultimately responsible for your organization.  The board guides the organization to ensure it is meeting its goals and fulfilling its mission.

But how do you know if the board is effective?  The IRS has a Governance Checklist available on its website that EO Revenue Agents use in the examination of IRC 501(c)(3) public charities. The checklist is divided into various categories related to key governance areas.

Let’s turn this checklist into a useful tool for your organization to determine if it is effective.

Governing Body and Management

1. Does the organization have a written mission statement that articulates its current 501(c)(3) purpose(s)?
2. Do the organization’s bylaws set forth the following information for the numbers of the governing body and the organization’s officers?
   • Composition
   • Duties
   • Qualifications
   • Voting rights
3. Have copies of the most recent versions of the organization’s articles and bylaws been provided to the following
   • All board members
   • Only voting board members
   • General public (by request)
   • General public (online)
   • Not provided
4. How many board members have voting rights?
5. How often did a quorum of voting board members meet during the year?
6. Ho often did the full board meet during the year?
7. Did the number of meetings referred to in #4 and #5 meet or exceed the meeting requirements set forth in the organization’s bylaws?

Compensation

1. Are compensation agreements for all officers, directors, trustees, and key employees approved in advance by an authorized body of the organization composed of individuals with no conflict of interest with respect to the compensation arrangement?
2. Does the authorized body rely upon comparability data in making compensation determinations?
3. What comparability data is considered by the organization?
   • Exempt organizations
   • Not-profit entities not exempt from tax
   • Governmental entities
   • For-profit entities
   • Other
4. Is the basis for all compensation determinations contemporaneously documented?

Organizational Control

1. Did any of the organization’s voting board members have a family relationship and/or outside business relationship with any other voting or non-voting board member, officer, director, trustee, or key employee?
   • How many?
2. Does effective control of the organization rest with a single or select few individuals?
3. Does the organization have a written conflict of interest policy?
4. If yes, does the policy address recusals?
5. If yes, does the policy require annual written disclosures of conflicts of interest?
6. If yes, were there any potential conflicts of interest during the year and was the organization’s conflict of interest policy adhered to?

Financial Oversight

1. Are there systems or procedures in place intended to make sure assets are properly used, consistent with the organization’s mission?
2. How often does the organization provide board members with written reports of the organization’s financial activities?
3. How often does the board discuss/consider reports of the organization’s financial activities?
4. Prior to filing, was the Form 990 reviewed by the full board and/or designated committee?
5. Does the organization receive an independent accountant’s report?
6. If yes, was the accountant’s report discussed/considered by the full board and/or a designated committee?
7. Was a management letter prepared by the independent accountant?
8. If yes, was the management letter reviewed by the full board and/or a designated committee?
9. If yes, did the organization adopt any of the recommendations contained in the management letter?

Document Retention

1. Does the organization have a written policy for document retention and destruction?
2. If yes, does the organization adhere to its written policy for document retention and destruction?
3. Does the board contemporaneously document its meetings and retain this documentation?

Contributed by: Carrie Minnich, MAcct, CPA | Partner | DWD CPAs & Advisors 

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.