10 Ways Nonprofit Boards Get in Trouble

While the vast majority of charitable nonprofits are led by board members who want to do the right thing and see their organizations flourish in advancing their mission, we too often read about nonprofit boards that fail to lead their organizations out of trouble. Here are 10 ways nonprofit boards get in trouble.

  1. Allowing a fellow board member to be overcompensated by the nonprofit for what she or he is providing in return.
  2. Neglecting to require strong internal controls to prevent the misappropriation or misuse of charitable assets.
  3. Failing to track and respond to the nonprofit’s declining financial condition, resulting in its insolvency and inability to pay off its debts and liabilities (including payroll taxes) as they become due.
  4. Tolerating, wittingly or unwittingly, a hostile, noninclusive, and/or unsafe work environment.
  5. Permitting charitable solicitations that include misrepresentations or otherwise misleading information about the nonprofit or how it will use the contributions it receives.
  6. Ignoring cybersecurity risks that jeopardize private and/or confidential information.
  7. Delegating authority to unqualified individuals, particularly without policies to ensure appropriate oversight, including with respect to approving contracts or making major expenditures.
  8. Making highly speculative investments (including, for example, in its own unrelated business) without regard to maintaining a prudent portfolio of investments factoring in the charity’s needs.
  9. Engaging in activities without adequate risk management policies and practices, including the maintenance of proper insurance.
  10. Adopting and then failing to follow key provisions in the nonprofit’s governance documents, including its articles of incorporation, bylaws, and conflict of interest policy, providing a reason for internal disputes and possible litigation.