Recent failures of public companies and nonprofits have put both sets of board members in the spotlight. Before accepting a nonprofit board position, consider what is expected of you in terms of responsibility, legal obligations and accountability.
In Georgia, as in many states, the unpaid board member has protection for simple negligence. However, that protection does not cover behavior considered gross negligence or willful misconduct. If board members do not take their responsibility seriously, they could face negative public exposure and financial liability as a board member of a failed entity.
How does a nonprofit board member ensure the experience is meaningful to the individual and to the community?
The fundamental concept for the nonprofit board member is to make sure that the organization's resources are used as intended to fulfill its mission. This requires an understanding of the measurement mechanisms for financial and mission accomplishment. Frequently, the only tool utilized by the board member is the financial information produced by management.
Evaluating performance properly requires knowledge of the entity's operations, financial condition, the normal operating ratios and what financial resources must be available to ensure the organization will be able to continue to fulfill its mission in future years.
Further, the nonprofit's mission must be fully understood. Who is to be served and why, and what are the demands for the services in the community? From this baseline of information, the board member must understand how those needs are converted into goals and objectives that can be measured.
The professional management team of the nonprofit is the mechanism by which the goals and objectives are transformed into the desired results. The board member, in his or her oversight role, is responsible for governing, not for managing the organization. To govern, the board member must understand the qualifications of management, approve their compensation and evaluate the efficiency and effectiveness of their performance.
Board members must be satisfied that information used in the evaluation process is produced in an effective internal control environment. In addition, the information must be prepared in accordance with a set of rules that are clear and concise as to how transactions and mission statistics are to be recorded and reported. Preferably, for accounting reporting, generally accepted accounting principles promulgated by the Financial Accounting Standards Board will be used, as they are comprehensive, available and used by most nonprofit organizations for external reporting.
The board member should also understand what good financial health means for the nonprofit. One useful tool is comparable financial information for similar organizations. Comparable information is sometimes difficult to obtain; however, with some hard work, it can be done. For example, by law, most nonprofit organizations must provide their federal reporting forms on demand unless they have arranged to have them available through the Internet.
Using the site www.guidestar.org, a board member or management, under a request from the board, can obtain copies of the federal forms for similar organizations. Also, many nonprofit organizations are members of national or state associations.
Such associations may provide peer group information, which can be used to create benchmarks. And in Georgia, the secretary of state provides useful fund-raising statistics online.
Analysis of peer group information means information from a group that is similar in mission and size is developed, studied and compared. Operating and financial ratios of interest can be developed, and trends over a reasonable time period can be examined. Once information is produced, management can respond to questions concerning deviations or anomalies in any of the items chosen for evaluation.
As a board member or a prospective board member, make sure you understand the protections offered by state law and the nonprofit you are considering. You should know if the nonprofit carries director and officer liability insurance and if it provides indemnity for actions taken as a board member.
We Americans are unique in our volunteering efforts. Our communities have been well served over the years by our nonprofit organizations.
The future of our nonprofit mechanisms depends upon lay board members educating themselves and fulfilling their oversight responsibilities with dedication and enthusiasm.
Mark Murovitz (email@example.com) is CEO of Tauber & Balser P.C. With more than 30 years of professional experience, he has advised on initial public offerings, business and asset valuations and financial investigations. He has served a number of substantial nonprofit clients in the community including Emory University, Theatre Gael, Atlanta Jewish Federation and the Marcus Jewish Community Center. Reach him at (404) 814-4940 or www.tbcpa.com