Even the best practices are no guarantee that the board will not be sued; however, good board practices can be an effective defense.

Informed and regular review of financial statements. Board members should understand the sources of income for the nonprofit and know where those resources are being expended. At least once each year, the audit committee or the entire board should meet with the organization’s independent auditor to discuss the audit findings. It is appropriate to ask nonprofit management to leave the room to allow the auditor to speak candidly to the board.

Regular attendance at board meetings. As a board member, ignorance of a problem facing the nonprofit is not a good defense. To be able to render informed decisions about the governance of an organization, board members need to thoroughly review background information and attend and participate in board meetings on a regular basis. Board members should also feel comfortable expressing disagreement and voting against proposals they don’t like.

Have a clear understanding of the board’s role in personnel situations. The Executive Director is hired by and reports to the board. The Executive Director should have the authority to hire and fire the remaining staff.

Avoid conflicts of interest. Board members who receive any compensation from the organization must fully disclose the nature of the services provided and the amount of the compensation received. The nonprofit should periodically confirm that the services it is receiving are satisfactory and that the cost of the products purchased from the “insider” is competitive with similar products purchased from other sources.

Information provided by Alliance of Nonprofits for Insurance Risk Retention Group.