Once Again! What Does Nonprofit Board Oversight Mean?
By: Eugene Fram
Updated & Revised
I have a daily (7 days a week) subscription to Google Alerts on “Nonprofit Management” and “Nonprofit Governance.” Every week, three or four nonprofit case stories surface, in these listings, related to inadequate oversight by nonprofit boards of directors. Many of the cases result six or seven figure dollar losses to the nonprofits. Following is my personal list of what reasonable board oversight means to attempt to help nonprofit boards of directors to avoid such losses.
- 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. 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. [i]
- Be alert to the system used for developing new programs. Be wary when new programs are described such as “mind-boggling.”
- 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 a certain annual revenue.)
- Be alert to the development process for filing critical reports –Examples: 990s, employee tax withholdings and both state and federal tax reports.[ii]
- Make certain the board has developed or is developing a current strategic plan.
- The board needs to follow the implementation of the plan carefully. Some part of each meeting needs to be devoted to implementation.
- Make certain that the organization has a knowledgeable CFO. No board member should have to worry about the safety of the organization’s assets.
- Be especially alert when financial reports are frequently late or one or more directors perceive financial personnel are inadequately skilled.
- If you don’t understand something, be ready to raise questions, even if the question appears to be “dumb.”
- Nonprofit transparency is critical in the 21st century.
- “Trust But Verify.”
[i] For guidance in this process see: Eugene Fram & Bruce Oliver, (2010)“Want to Avoid Fraud? Look to Your Board,” Nonprofit World, pp.18-19.
[ii] For more details, see the third (2011) edition of “Policy vs. Paper Clips.” Available on Amazon.com in paperback or Kindle format.
This article provides a lot of good advice, Dr Fram. In my experience, most board members are more interested in the organization’s programs, events and activities than they are in studying financial reports. I have heard it said that the CFO or Financial Controller will take care of the finances but the board will be held responsible if something goes wrong. In my view, the best way to detect financial misconduct or fraud is to conduct an annual audit of “the books” by an external auditor and for board members to keep an eye on YTD actual versus budget expenditure and question any anomalies.
Also make certain the CFO is up-to-date and competent. The CEO should also be concerned about this issue. An incompetent one can sink his/her career and the organization.