Are the Members of the Board of Directors held to some level of responsibility? Yes, because if Board Members have failed to act in the highest level of integrity, by “Blessing” themselves, friends or family members, they have foolishly opened the door to the IRS to establish harsh judgement regarding “Intermediate Sanctions.”[See the article on Maintaining The 501(c)(3)] This article is intended to provide guidelines regarding the roles and fiduciary responsibilities of Trustees and Board Members. And hopefully avoid some of the many snares and traps.
Trustee / Director
A Trustee or Director is a “Fiduciary,” entrusted with assets to be managed for the benefit of those individuals relational to the local church on whose Board he serves, whether or not the membership has voting rights. It is the duty of the Trustee/Director to carry out the “Specific Purposes” clause of the church’s Articles of Incorporation. The trustee has a range of duties, including investment and management of assets, and general administrative duties.The trustee must manage and invest the entity’s assets. This requires careful oversight of the church property and assets.
The Personal Inurnment Clause found in the Articles of Incorporation of every non-profit organization, specifically prohibits any individual from benefiting from the assets of the organization beyond receiving a reasonable salary and benefits. To violate this strict ‘charge,’ will lead to the church losing it’s tax exempt status. And any Trustee found guilty of financially benefiting, or allowing others to unreasonably benefit, will suffer sever penalties as well.
Investments and expenditures of fiduciary assets and funds, must be prudent; and in accordance with the “Specific Purposes” Clause in the Articles of Incorporation. They should not be speculative. A fiduciary should communicate with those [Church members] who have a beneficial interest in the fiduciary assets.
Administration of the entity [the church] involves careful record keeping, including identifying all receipts expenditures, payroll, and listing all investments and assets. And when required, the preparation and filing of appropriate tax returns.
In the handling of money, and when one acts as a corporate trustee, there is a fiduciary responsibility owed to the church and it’s membership. It is defined as a relationship imposed by law where someone has voluntarily agreed to act in the capacity of a “caretaker” of another’s rights, assets and/or well being. The fiduciary owes an obligation to carry out the responsibilities with the utmost degree of “good faith, honesty, integrity, loyalty and undivided service” of the churches interests.
Good faith has been interpreted to impose an obligation to act reasonably in order to avoid negligent handling of the entity’s interests, as well the duty not to favor the interest of anyone else (including the trustees own interest) over that of the church. Further, if the Trustee should find him/herself in a position of conflicting interests, he/she must disclose the dual agency (acting for two parties at the same time, and it should be so noted in the Minutes) or risk being accused of constructive fraud in regards to both or either principals.
Anyone who accepts the role of trustee, should be fully aware of the legal responsibilities of this role. By acting as a fiduciary, a person is assuming responsibility for assets that belong to others, and is required to carry out his duties with the utmost care. The fiduciary must always act in the best interests of the church. Failure to fulfill these duties may result in civil or criminal penalties for the fiduciary, and a person should only accept the role of fiduciary after a careful consideration of the serious responsibilities.
The above information is provided as a service to the Body of Christ by ADMINISTRATIVE ASSISTANCE
If you would like more information about similar issues, please consider “The Church Administration ‘How To’ Manual.” This Manual, endorsed by three CPA’s, an EA and two attorneys, was updated again in January, 2011, for the 12th time, since its original publication in 1991.
Copyright © 2006 by Administrative Assistance
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