Once Again! What Does Nonprofit Board Oversight Mean?

Once Again! What Does Nonprofit Board Oversight Mean?

By: Eugene Fram

I have a daily subscription to Google Alerts on “Nonprofit Management” and “Nonprofit Governance.” Every week, several nonprofit case stories surface, related to inadequate oversight by nonprofit boards of directors. Many of the cases result in huge losses to the nonprofits. Following is my personal list of what I consider to be reasonable board oversight responsibilities, to attempt to help nonprofit boards of directors to avoid such losses.
Financial Related Actions
• At least half the board should be able to analyze the monthly or quarterly financial statements. Have voluntary information sessions available for those who do not have the skills.
• The board chair needs to be alert to “teachable moments” during board meetings. When a complex financial or board related legal issue arises, the chair needs to make certain that all have a basic understanding of what is involved. Otherwise some directors will sit quietly and nod their heads in agreement!
• Make certain that an external audit is conducted at least every two years, and the board is involved in the selection of the external auditor from a list of two or three suggested by board members and/or management.
• Be certain the organization has either a comprehensive assessment committee, finance committee, and/or audit committee. (Some states require nonprofits to have an audit committee once the organization has specific annual revenues.)
• Be alert to the development process for filing critical reports –Examples: IRS 990s, employee tax withholdings and both state and federal tax reports. With the recent expansion of the 990 Form, the board and/or audit committee needs to be involved with the development of the form and responding to the 28 new questions related to nonprofit governance.
• Make certain the board has developed or is developing a current strategic plan and that it becomes a useful document.
• Be especially alert when financial reports are frequently late or one or more directors perceive financial personnel are inadequately skilled.

Other Governance Actions

• Be alert to the system used for developing new programs. Be wary when new programs are described such as “mind-boggling.” However, be certain that all reasonable opportunities are examined in a robust manner. Otherwise the organization may be a candidate for long-term disruption, like Eastman Kodak.
• Although engaging the CEO is the only hiring decision the board makes, it still has a responsibility to understand the strengths and weaknesses of promotable internal staff. This will require some board interactions with these staff persons
• Make certain that the organization has a knowledgeable CFO. No board member should have to worry about the safety of the organization’s financial assets.
• Directors need to be ready to raise questions, even if they fear the questions may appear to be inadequate ones.
• Nonprofit operational transparency is critical in the 21st century. Malfeasance, in any format, must not be covered–up for the “sake of the organization’s reputation.”

“Trust But Overview &Verify.”

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2 comments

  1. Some very good points, as usual with your columns. I am a faithful reader. A couple where I would differ:
    – I don’t think any director can make good decisions without a real understanding of finances. If new directors are missing those skills, I think they should agree to training before their application for the board is accepted. Voluntary learning about this critical skill isn’t good enough, nor is just a basic understanding from time to time. Yes, I have implied a need for an application system for board positions – I think the old “nominations from the floor” process totally unacceptable given the pressures on today’s directors.

    – It’s not good enough to have a knowledgeable CFO if the Board doesn’t hear directly from the CFO at times, or at least through a Board committee, preferably at times without the CEO present. Many of the ethics queries I got when I wrote my monthly charity ethics column were about the CEO providing misleading financial data to the board. Some of those queries came from CFOs or other financial staff who weren’t allowed direct contact! Their CEO controlled all communications with the board.

    Like

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