The business of boards

Individuals serving as nonprofit board
members are not mere placeholders. The
board of directors is the backbone and governing body of the nonprofit organization.
Your responsibilities extend far beyond regular attendance at meetings. Not-for-profit
organizations succeed only when they are
run by dedicated board members who treat
these organizations like corporations.

“Executives that accept board positions are
responsible to ensure the organization is
being run efficiently and effectively in order
to accomplish its mission,” says Janet Ramey,
manager of the not-for-profit practice at
Brown Smith Wallace LLC.

“The board has a tough job,” adds Don
Mitchell, a member in the audit practice at
Brown Smith Wallace LLC. “The IRS is asking nonprofits: How involved is the board?
Who are its members? How often do they
meet? Do they have written policies and satisfactory internal controls?”

Smart Business spoke with Ramey and
Mitchell to learn how nonprofit boards are
structured and what expectations executives
should understand before agreeing to serve.

What changes are we seeing in the way nonprofits are governed today?

In the past, board members placed more
reliance on the management of the organization to do the decision-making. In today’s
post-Sarbanes-Oxley world, higher expectations are being placed on board members to
pay greater attention to compliance and corporate governance. The board of directors
runs the organization. It is responsible for
accomplishing the mission and providing
direction to management — not vice-versa.
More attention is being paid to board activity,
fiduciary responsibility, auditing practices
and the overall management of the funds
granted to nonprofits. If you consider the fact
that large nonprofits may have assets in the
billions, it only makes sense that they should
be run like for-profit corporations.

Executives working for large, public companies are certainly aware of Sarbanes-Oxley, and they are wisely adopting the same
corporate governance practices to the nonprofit boards they serve. This includes policies to outline internal controls such as segregation of duties, dealing with audit financials and just overall fiscal responsibility. For
example, boards should have separate
finance/audit committees.

Could you describe the structure of a nonprofit organization?

Many nonprofits operate with a committee
structure. The board of directors divides their
talents among committees, such as finance,
fund-raising, bylaws, programs, etc. One
committee will liaise with auditors on an
annual basis to ensure systems are in place
and communications are effective. Ideally,
each committee is staffed with at least one or
two board members that possess skill sets
necessary to accomplish each committee’s
objectives. The organization’s management
(which carries out daily duties and tasks
directed by the board) reports to the board
and may attend regular meetings. When it is
necessary, board members are expected to
step in and provide specific functions for the
organization when sufficient experienced
staff or other resources are lacking.

What activities must the board engage in to
properly govern the organization?

Ultimately, the board is accountable for the
organization meeting its mission. It ensures
that the money provided from donors’ discretionary income and government grants is
spent appropriately. Board members set

benchmarks for the organization in keeping
with the mission. They hold regular meetings
and compile and review monthly financial
results. That financial information should be
scrutinized, and the board should compare
the budget with actual results, noting any disparities and determining the cause.

What can happen when the board does not
fulfill its fiduciary responsibilities?

When an organization receives a grant, the
grantor expects the nonprofit to spend the
money to support the mission. This means
making good financial decisions as well as
managing the money along the way. Recently,
we have seen organizations lose funding
from grant authorities because they are not
in compliance with grant requirements.

Board members need to oversee the operation to make sure the organization is in compliance. If it isn’t, it’s their responsibility to
work with management to help resolve any
issues. If the board does not ensure policies
are being carried out and does not question
management on procedures and control
processes, the government certainly will.
When a board does not fulfill its governing
responsibilities, the nonprofit could potentially lose its tax-exempt status.

What should executives ask before joining a
nonprofit board?

Strategic planning and direction are critical
to the organization’s success. Before joining a
board, ask other members how they fulfill
the organization’s mission. Find out what
programs the nonprofit sponsors and understand any expansion plans. Know what funding sources the organization is seeking to
fund its goals. All of these responsibilities fall
on the board of directors. Be aware of the
time needed to fulfill any required committee
work. Ask if they offer a board member orientation. When you take a board position,
ask yourself what you are really getting into.
Be sure you understand the seriousness of
the role. Today, nonprofit boards are being
held to similar governance standards as for-profit corporations.

JANET RAMEY is the manager of the not-for-profit practice and DON MITCHELL is a member of the audit practice at Brown Smith
Wallace LLC. Reach them at (888) 279-2792 or [email protected] and [email protected].