FAQs - Governance - Duties of Board Members
Q. Does a board member have a right to inspect corporation's financial records of the corporation?
A. A board member is entitled to inspect the corporation's books and records and may ask to see its financial reports.
Q. Does the board of directors of the corporation have to approve the compensation of the corporation's officers? How can the board determine what their compensation should be?
A. The board of directors must approve the compensation of officers by the affirmative vote of a majority of the entire board, unless the corporation's by-laws provide that it may be approved by a committee of the board. A charity is authorized to pay reasonable compensation commensurate with the services performed. While there is no set process which boards must follow in approving compensation, the best practice is for compensation to be determined by an authorized body, such as a compensation committee, composed entirely of people who are impartial and do not have a financial stake in the outcome. The authorized body should obtain and rely on information as to comparability of the officer's salary to salaries paid to officers in similar positions at comparable charities, and the authorized body should document the process and basis for its determination. Compensation includes all forms of benefit provided by corporation, not just salary, and the board should be sure to look at the officer's entire compensation package. The Internal Revenue Service encourages charities to follow the procedures set out in section 4958 of the Internal Revenue Code and Treasury Regulation section 53.4958-6. They are described generally on the IRS website at www.irs.gov/pub/irs-tege/governance_practices.pdf
Q. How many board members does a charitable corporation have to have?
A. A corporation formed in New York must have at least three board members.
Q. Are the directors of a corporation responsible for ensuring that the corporation files its financial reports?
A. New York law provides that willful failure of the corporation to file a report required by law shall constitute a breach of the director's duty to the corporation. The board should make sure that the corporation is filing all its required reports including its filings with the Attorney General's Charities Bureau, the Internal Revenue Service, including both its Forms 990 and employee-related reporting.
Q. Does the board have to keep minutes of its meetings?
A. A corporation is obligated to keep, at the office of the corporation, correct and complete minutes of all meetings, including those conducted face to face and over the telephone, of its members, board and executive committee, if any.
Q. An officer of the charity has asked for a loan. Can a charity lend money to one of its officers?
A. Charities, other than those established as education corporations, are not permitted to lend money to their officers and directors, even if they have good business reasons for wanting to make the loan.
Q. Our board has just learned that an employee embezzled money from our charity? What should we do now?
A. Now that you have learned about the embezzlement, you are obligated as fiduciaries to make reasonable efforts to recover money from the embezzler and to refer the matter to the criminal authorities for possible criminal prosecution. If the corporation has insurance, you should report the loss to your carrier. As fiduciaries responsible for the fiscal administration of your charity, the board should review its internal controls and investigate how the embezzler was got away with the embezzlement. You may need to institute changes to ensure that the charity will not be a victim of embezzlement in the future. You are also encouraged to report the embezzlement to the Attorney General's Charities Bureau.
Q. Our corporation has just received a large gift that is restricted as to its use. What are the board's oversight responsibilities with respect to the gift?
A. The board must apply all assets received in accordance with the provisions set out in the gift instrument. The board must ensure that accurate accounts are kept of such assets, separate and apart from the accounts of other assets of the corporation. Unless, the gift instrument provides otherwise, the corporation's treasurer must make an annual report to the board, or to the members of the corporation, if there are members, concerning the restricted, the use made of such assets and of the income thereof. The board should also ensure that the assets are invested in a manner that is appropriate to the purposes of the gift taking into consideration that corporation's overall investment policies and financial situation.