What is Fiduciary Responsibility?
A one-sentence summary of fiduciary responsibility might be “It ain’t your money!”
The ultimate authority for managing the affairs of the organization is vested in the board of directors. Because the law grants directors that authority, the law also imposes on the members of the board of directors an obligation to act in the best interests of the organization.
The law requires board members to act:
- In good faith
- With the care an ordinary prudent person in a like position would exercise under similar circumstances
- In a manner the board member reasonably believes to be in the best interests of the organization
Fiduciary Responsibility Includes
- Duty of Care—attending board meetings, keeping informed, and fulfilling responsibilities
- Duty of Obedience—following the organization’s bylaws and complying with state and federal law
- Duty of Loyalty—putting the interests of the organization first and promoting the organization’s purpose rather than any private interest
To effectively oversee the organization’s financial affairs, the duty of care requires that the board be informed about financial activities, including the adequacy of internal controls. Board members should expect the treasurer to present timely and adequate financial reports.
Another important concept under the duty of care is the distinction between delegation and abdication. At one time or another, most treasurers will need or want to delegate some of their responsibilities such as counting money, making bank deposits, presenting financial reports, and preparing IRS filings. Such delegation is legal, but delegation is not the same as abdication. Delegation does not relieve the treasurer of liability. The treasurer must make sure that any person to whom his or her responsibilities are delegated is fully trained in the appropriate procedures, and the treasurer must monitor those to whom he or she has delegated authority.
To fulfill the duty of obedience, all board members, including the treasurer, must know and understand the PTA’s bylaws and applicable state and federal law. The bylaws should be reviewed by the board at the beginning of each year, and the treasurer should keep a copy of the bylaws in the current year’s financial file. Participation in available training opportunities is crucial if board members are to understand and comply with state and federal law, including frequent changes in IRS regulation.
Under the duty of loyalty, each board member commits allegiance to the association. Actions and decisions of board members must promote the association’s purpose and well-being rather than benefit any individual. Conflicts of interest should be avoided wherever possible. When such conflicts exist, they must be fully disclosed. For more information, see Conflict of Interest Policy.
Accountability and Transparency
“Accountability” and “transparency” are two buzz words that represent important concepts in accounting and financial operations. An attitude of open and full disclosure is important for all nonprofit organizations. The more transparent and accountable the PTA unit, the better. Providing relevant, reliable information about the PTA’s activities and its financial position—through newsletters, regular treasurer’s reports, and year-end financial statements, for example—will fulfill the association’s responsibility to be accountable and transparent. Who is the PTA accountable to? To the members, sponsors, community, and government regulatory agencies. Each local PTA is also accountable for the good reputation that PTA has earned over its long history.