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 firstname.lastname@example.org and email@example.com.