September 25, 2017
 
To Avoid Scandal, Just Say ‘No!’

By Carla C. Cataldo and Leigh J. Tucker

Carla Cataldo and Leigh Tucker
To maintain financial accountability for their nonprofits, and avoid potentially embarrassing newspaper stories, one of the most important things board members can do is say “no” in response to specific questions – and help properly guide their organizations.

One of the main responsibilities of a board member is to maintain financial accountability of their organization, also called fiduciary responsibility. Board members must exercise due diligence to see that the organization is well managed and that its financial situation remains sound.

Fiduciary responsibilities require board members to act in the best interest of the nonprofit at all times, and not in their own self interest. A board member must never place his or her interests ahead of the organization’s, place their organization in harm’s way, or subject it to undo risk.

Serving as a board member means you sometimes have to just say “no,” especially when it comes to compensation. Board salaries and payments can be particularly problematic because they could be perceived as a conflict of interest for a board member.

While it is not illegal for a nonprofit to compensate its board members with reasonable fees (unless expressly prohibited by the organization's bylaws), only 2% of all nonprofits compensate their board members.

Given that many boards do not receive much, if any, training, we offer a checklist – not only to help organizations avoid scandals, but also to empower and educate the many volunteers who generously give their time, expertise, and money to nonprofit organizations. All board members should answer the following questions individually:
  1. Does the nonprofit on which I serve have written board policies or procedures which are in use and followed?
  2. Do I have a good understanding of my role as a nonprofit director?
  3. Am I provided with the organization’s financial information in a timely and understandable format?
  4. Have I or members of the board reviewed the executive director’s performance and compensation within the last year?
  5. Have I made a personal monetary gift to the organization?
  6. Does the board receive any training or board development?
  7. Does the organization have a strategic plan?
  8. Am I sure that no employees or consultants are related to, or in a personal relationship with, the executive director, founder, or other board members?
  9. If I or other board members receive compensation for any services unrelated to board work, have we disclosed the amount to the entire board?
  10. Am I sure that no members of the board profit financially from service on the board?
  11. Are there any financial checks and balances for the organization (internal controls/segregation of duties/audits/financial reviews or a strong board treasurer report) done yearly?
  12. If the organization is too small for yearly audits/financial reviews, do I have a good understanding of its finances and check-signing procedures?
  13. Are compensation levels for the executive director and/or staff comparable to similar-sized nonprofits in the same sector and geographic area?
  14. Are mandatory filings with the secretary of state, IRS, and attorney general’s office current?
Now, total the number of “no” responses.

If your “no” score totals zero: Congratulations! Your board is meeting its responsibilities admirably. Keep up the good work fulfilling your nonprofit’s mission.

If your “no” score falls in the 1 – 5 range: Red flag is flying. Your board may need to review its fiduciary responsibilities and take some corrective actions to do things differently. Review industry best practices and benchmark your results to successful organizations in your sector.

If you scored “no” to questions 3, 4, 9, 10, or 11: Watch out! If the local paper finds out, your organization could receive bad publicity and a loss of goodwill and fundraising potential for years. Start mitigation procedures immediately with a board audit and review of best practices.

To better your score, begin by utilizing online resources such as the Massachusetts attorney general’s Division of Nonprofits & Charities and New York-based BoardSource, which offers some free resources online as well as publications that can be downloaded for a fee.

Carla C. Cataldo, M.P.P., principal of Proposals, Etc., can be reached on Twitter at @CarlaCataldo1. Leigh Tucker, CPA, is managing director of nonprofit solutions for Accounting Management Solutions, Inc. Contact him at LTucker@amsolutions.net or on Twitter at @NonProfitCFOs

August 2011

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