duty of careMost NFP members have altruistic reasons for serving their communities.  Good intentions, however, are not enough when you volunteer to serve on a board, or act in another important position such as treasurer.  As you and other board members work to serve your community, you should be aware that there are certain legal responsibilities that go along with these positions, whether or not you receive a salary for your work.

While the term ‘duty of care’ is commonly used, the Australian Charities and Not-for-Profit Commission (ACNC), has certain governance standards that set the bar for the behaviour and practices that it expects from directors, treasurers, and other board members. Their purpose is to provide greater transparency and accountability from NFPs and to ensure that NFPs,  and those that direct their activities, truly serve the public good and in the best interests of their multiple stakeholders, and that they can continue to do so on a long term basis.

Understanding Your Duty of Care

The duty of care standards can be grouped into five core areas of responsibility. It’s important for board members and other NFP agents to fully understand the legal requirements and comply with each one.

  • Use Due Diligence and Reasonable Care in All Your Actions. Members are expected to be independent, make informed decisions, stay up to date and informed of all of the NFPs activities as well as take steps to appropriately manage all aspects of the NFPs operations.
  • Practice Sound Financial Management of NFP Finances. Members should have a basic understanding of sound financial management practices and should work to ensure that controls are in place to identify and prevent fraud and abuse of the NFPs finances as well as specific resources and assets. Each member should take steps to ensure that the NFP is in compliance with all federal and state financial and reporting requirements. They also cannot allow the NFP to operate in a manner that threatens its insolvency.  If such insolvency occurs, they must take immediate steps to forgo any new debt or expenses while they work to return the NFP to sound financial footing, or dissolve it.
  • Work to Achieve the NFP’s Mission and Act in its Best Interest. Directors and other board members are required to act in the best interests of their NFP and to work towards achieving the objectives that are laid out in the NFP’s governing documents. It’s important that the board’s actions be taken to further the NFP’s specific goals, objectives and mission rather than serving personal or outside interests.
  • Be Honest and Above Board in Personal and Professional Dealings. It’s important to the reputation of the NFP, as well to protecting the interests of all stakeholders in an NFP that board members, directors and treasurers be honest and trustworthy in all of their personal and professional dealings. Members should keep private information about the NFP confidential or use their position to give an outside advantage to others. Steps should be taken to ensure that board members or other NFP agents have not been barred from serving on the board of a corporation, charity, association or other NFPs before they are appointed.
  • Avoid Actual Conflicts of Interest as Well as Their Appearance. In order to preserve the honesty and integrity of the NFP and uphold the public trust, board members and other NFP agents must make every effort to avoid and disclose even the slightest appearance of a conflict of interest. Potential conflicts should be reported to neutral members that have no stake in the outcome where a conflict could potentially exist. 

Serving as a NFP board member or other responsible party comes with a significant duty and obligation to the public. Since there is a potential for individuals to take advantage of this position there are serious consequences for members that fail to use due diligence or neglect to uphold the public’s trust. By understanding your duty of care, you can ensure that you perform your duties legally and honorably.