Being on a non-profit board means you believe in what they stand for but also make decisions that impact others and the funds of that organization.
So what do you do when money runs out, someone makes a complaint against your executive director or the government wants documentation?
There are things as a director you should know about when you cross the line into accountability.
What you’ll learn:
- Oversight Is Not The Same As Management
- Where Personal Liability Can Arise
- Financial Pressure Changes The Questions
- Governance Documents And Conflicts Need Attention
- Problems That Should Reach Directors Quickly
- A Simple Routine For Board Decisions
Oversight Is Not The Same As Management
The board helps guide an organization’s path and holds those in power accountable. Employees and volunteers fill most roles but if something seems amiss dig deeper.
If your non-profit is incorporated at the federal level, your directors must act honestly, in good faith, and in the best interests of the corporation. They should exercise the care, diligence and skill that a reasonably prudent person would, acting in similar circumstances. Provincial legislations vary as well.
Should your board want to offer service in a new location, ask how this benefits your non-profit, are funds secured, who is responsible for health and safety and hiring. If you delegate tasks, create a policy that allows your staff to make decisions on your behalf. You don’t want to hold everything up waiting for the board to approve every action.
When bylaws, charitable purposes or corporate duties are unclear, directors may need charity legal advice before voting. Charity Law Group can advise non-profits across Canada. Sometimes it may just be what you prefer as a policy, but it’s always good to know if there’s a legal aspect to it.
You want to be informed, but not run your non-profit from the board table.
Where Personal Liability Can Arise
There are certain things that could make you liable as a director, but you are not automatically held responsible for all actions and debts.
Where a non-profit is incorporated, it generally has a separate legal identity.
However, there are duties you could be responsible for as well. There are various acts that can affect non-profits and there is no blanket that fits all directors or non-profits.
Depending on the law and circumstances, directors may face liability over improper payments, employee payroll deductions not remitted to the CRA or breaches of directors’ duties. A poor program outcome alone does not necessarily make a director liable, but knowingly ignoring overdue required remittances may create exposure.
Have your management confirm that remittances are being made, if there is a shortfall find out why and take notes on what you did about it. If they are unsure, ask for documentation and set a deadline for that to be fixed.
In some circumstances, relying in good faith on appropriate professional reports or financial statements may support a legal defence.
Know what your indemnification covers, your insurance and what is excluded from it (i.e legal defence).
Financial Pressure Changes The Questions
Budgets may show positive numbers, but ask how many weeks you can operate on your current unrestricted cash balance.
According to the ONN’s latest survey, 31% of responding nonprofits did not have access to a reserve fund. This only accounts for the respondents in Ontario, so it may differ across Canada.
A grant may have been awarded, but takes months to receive. Your payroll is still expected to be met and if someone donated towards one project, it may not be able to pay for another program’s bills.
It’s important to have a cash flow, here are some items to request from your non-profit:
- Cash Flow: When is money coming in and going out
- Restricted Funds: Do you have any money that can’t be used to operate your organization
- Outstanding Obligations: Payroll, taxes, rent, bills etc…
- Contingency Plan: What will you do if that big grant doesn’t come in?
Make sure you have approvals in place and set a threshold for when you should hear about money issues. Know what funds you have, vs what you may receive. Having a good funding application doesn’t mean your bills will be paid.
Governance Documents And Conflicts Need Attention
There may be things in your governing documents that have changed over time.
In Ontario, the transition period under the Not-for-Profit Corporations Act, 2010 ended on October 18, 2024. Corporations previously governed by Ontario’s Corporations Act should check whether their documents comply. If you haven’t updated your documents, be sure to see what may apply to you or have been deemed amended by legislation.
Know what province your non-profit is incorporated in and if you are registered as a charity. Once you know that, check your bylaws to ensure you are doing things correctly. From having members meet, electing directors and how things should be approved. Just because it’s easier doesn’t mean you should skip a step.
If a director has a conflict of interest, disclose that before a decision is made. Each legislation will have rules in place, but some provinces may require more than just disclosure for charities.
Registered charities must keep proper records and file an annual T3010 return within six months after the fiscal year-end. If they choose to issue official donation receipts, those receipts must follow CRA rules.
Create a calendar and assign these to individuals to complete. Don’t assume someone else is doing it, verify it has been completed.
Problems That Should Reach Directors Quickly
If someone makes a complaint against a director, they shouldn’t be directed to that individual to resolve it. Create a confidential method for people to report and have a method to select someone to investigate if necessary.
As a charity you could be holding donors, customers, clients personal information and even payment information. Know who has access to your data, is backing it up and what steps you will take if it’s compromised.
Not all non-profits fall under privacy legislation, know if yours does. PIPEDA usually applies to business, but some organizations may be subject to it, ask a lawyer if you are unsure.
Ensure employees limit confidential information entered into AI programs, as well as any service provider you use should have steps in place to report safeguarding issues.
You don’t have to investigate each incident, but be aware of them and what is happening until it’s resolved. Create a guideline for what should be reported to you, such as it interrupts service, someone is hurt, information is exposed. There may be less serious incidents that don’t need your attention, ensure that is stated in your policy.
A Simple Routine For Board Decisions
Make sure your minutes reflect decisions and outcomes from your last meeting.
Here are some simple steps you can follow:
- Review your documents. See what information may be lacking, are there big jumps or areas that require your approval.
- Ask about risk. What could happen, how probable is it and what can the organization do to help prevent it from happening.
- Minutes. Note important reasons for the decision, conflicts of interest and action items.
- Assign an action item and date. Who will be responsible for providing that information back to you, and when.
- Follow up. Next time you meet, ensure that was taken care of and close the loop on your previous meeting minutes.
Provide new directors with your governing documents, latest financial statements, policies, what they are allowed to approve and what to do if something doesn’t seem right. Have your chair know who will take their position, in case something happens.
While you can get expert advice, it does not remove your responsibility as a director.
Wrapping It Up
These are some examples of what could occur and put your board at risk. Always be informed, know when to escalate and follow up on actions. Take these items and start adding them to your next board meeting agenda.
