Should a nonprofit board allow its CEO to borrow money?
By: Eugene Fram
Yes. However the CEO has complete discretion as long as he or she works within the budget and budgetary policies. But if any major changes are needed, the board must approve them. For example, if the president/CEO finds resources budgeted for capital improvements are not needed, he or she cannot simply move these funds to the salary account without board approval.
Most organizations need to borrow money on as short-term basis to meet cash-flow requirements. The CEO needs to have complete discretion to act in such situations. Consequently, the board needs to pass a formal resolution authorizing a fiscal limit for borrowing. In practice, this limit is typically dependent upon the organization needs and the level of confidence the board has in the CEO.
I have seen borrowing limits as low as $5,000 and as high as $100,000. However, the audit or assessment committee has an obligation to continually overview the short=term borrowing patterns and the situations requiring them. Trust but verify, as Ronald Regan would say!
Source: Policy vs. Paper Clips, Third Edition, 2011, pp.225-226. Available on Amazon.