Wise Giving Wednesday: Duty of Obedience on Charity Boards

Hero image for Wise Giving Wednesday: Duty of Obedience on Charity Boards
calendar icon Feb 16, 2022

This is the third in our series on addressing the three fundamental charity board responsibilities. Previously, we covered the duty of loyalty and the duty of care. This time we focus on the duty of obedience. To some, this responsibility covers just compliance with laws and regulations – but it’s more than that. It also seeks to ensure that the board is following its articles of incorporation, bylaws, and other governance documents. These documents usually identify the charity’s mission and charge the board to devote resources for this purpose. As the board makes decisions on proposed activities, it should periodically verify that they adhere to its mission and purpose. Charities can sometimes inadvertently get sidetracked even with the best of intentions. The duty of obedience, if followed, can help in making any necessary adjustments to keep the organization on track towards its goals.

In terms of following laws and regulations, it is important for charity boards to be familiar with annual financial filing requirements, such as completion of the IRS Form 990 and complying with state government registration regulations. About 40 of the 50 states require charities to register annually by completing forms, submitting financial information, and paying applicable fees. Smaller charities sometimes make the mistake of believing that they only need to register in the state where they are located. Registration, however, is generally required to be filed for each state where the charity solicits funds. So, if they solicit donors located in neighboring states, registration will be required with those neighboring states’ government agencies as well (usually a division of the state’s office of the attorney general or secretary of state.) Keep in mind that state regulations vary. While most states will require the charity to file a copy of its annual IRS Form 990 financial report, some states also require an audited financial statement when total contributions exceed a certain level. The audit threshold is different from state to state. For example, some require an audit when contributions total over $500,000, others have a $1,000,000 threshold.

If the charity hires an outside third-party company to raise funds on their behalf or to advise them about raising funds, those entities will generally also need to annually complete applicable documents with state government agencies. It would be wise for charity boards to verify that any hired outside fundraising company is adhering to these laws as well.

Regarding the voluntary BBB Standards for Charity Accountability, BBB Charity Standard 1 addresses board oversight of the charity’s operations and staff. As explained in the implementation guidance to this standard, one of its requirements is that the charity’s board should ensure that the organization complies with applicable government charity regulation. BBB Charity Standard 11 requires charities to have audited financial statements when total annual gross income exceeds $1 million.

For additional guidance on this subject see the following board responsibility publications produced by a number Attorney General offices such as IllinoisMassachusettsNew HampshireNew York, and Oregon. Additional recommendations about governance and financial issues can be found in the text and implementation descriptions of the BBB Standards for Charity Accountability.

Video of the Week

As part of our Building Trust Video Series, we are pleased to revisit a video featuring Mabel Valdivia, Executive Director of Fonkoze USA, a BBB Accredited Charity that provides funds for microfinance loans to its partners in Haiti.  The majority of loan recipients are women who use the funds to start or expand a small business that enables them to earn an income and feed their families.

Heart of Giving Podcast

In this week's Heart of Giving Podcast, BBB WGA interviews Tom Bognanno, President & CEO of CHC: Creating Healthier Communities. CHC brings communities, nonprofits, and businesses together around a shared commitment to better health and wellbeing.

Recent Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.

Stay Informed. Join Our Mailing List
This site is protected by reCAPTHA and the Google Privacy Policy and Terms of Service apply