There’s no reason to consult a manual of best practices in nonprofit governance, if anyone’s even thought to write one.
Being a fine board member just isn’t that hard.
In the spectacular cases of nonprofit mismanagement in the news this year, such as with Community Action of Minneapolis, there wasn’t anything clever going on that would have needed any special skill to sniff out.
How hard can it be, really, to figure out that lending more than $36,000 to the executive director to buy a car maybe isn’t a good idea?
Melissa Stone, a professor of nonprofit management at the at the University of Minnesota, said she doesn’t much like the term best practices either, in part because serving on a nonprofit board can be such a different experience depending on the size of the organization or its mission.
But when it comes to what she called “the basic legal responsibilities,” including financial oversight, the job is really the same whether you’re a trustee for a big hospital or a director for a community food shelf.
That legal responsibility comes with terms that may sound technical the first time a person hears them, such as “duty of care.” All that really means in practice, though, is that the director puts in the effort to look after the best interests of the organization.
That probably also means, of course, showing up on time when the board meets.
“It’s really pretty hard to provide oversight if you don’t attend meetings,” Stone said, observing that many nonprofits don’t have an attendance requirement in their bylaws.
The recent scandals may give the impression that the nonprofit community is out of control, but the basic financial oversight of nonprofits seems to be improving. Many more nonprofit boards, for example, have a formal conflict of interest policy than was the case 10 years ago.
“With the clients we deal with, the boards are getting more active,” said Marc Kotsonas, senior manager and auditor with the St. Paul accounting firm Mahoney Ulbrich Christiansen & Russ. “I was kind of surprised by the couple of items [of mismanagement] that popped up in recent weeks in the paper.”
The reality for a lot of nonprofits, particularly smaller ones, is that keeping a full complement of board members isn’t easy, let along recruiting enough legal and financial experts. There’s no reason to be concerned, though, because a board mostly made up of well-intentioned financial novices can be plenty effective at basic oversight.
They just need some encouragement, from the nominating committee, the board chair or the executive director. There’s no reason for a new director to be embarrassed about having to ask why a not-for-profit has to file a tax return or what the outside auditor actually does before deciding the financial statements accurately reflect what’s been going on.
A good director isn’t necessarily a whiz with financial statements. Rather, it’s someone with a willingness to ask questions.
One idea of hers is to have candidates ask about the relationship between the board and executive director, particularly the executive director and whoever chairs the board. It’s possible for the board chair and the executive director to be too chummy, for example, with the rest of the directors struggling to have any influence.
Another common sense thing Stone suggested was making sure any candidate asks why he or she is being recruited. If it’s a personal friend doing the asking, and friendship seems to be the primary qualification, then maybe say no.
A couple of well-timed questions from a board member might have been all it took to change the direction at a school technology nonprofit called TIES. The Falcon Heights-based nonprofit was one of the cases of mismanagement in the news this year, and the forensic accounting report disclosed this fall, by the accounting firm Kern DeWenter Viere, is two dozen pages of sobering reading.
One small section that stands out is when KDV discusses a letter TIES received from Malloy, Montague, Karnowski, Radosevich & Co., TIES’s outside audit firm. This firm was letting TIES know it didn’t want to bid for the audit work anymore, citing a bunch of concerns about the accounting at TIES.
The Malloy firm’s letter was received May 15, 2002.
More than 12 years of board meetings came and went since TIES got that letter, and then TIES landed on the front page when KDV detailed some of the very failings that the former auditor had pointed out 12 years ago.
Back in 2002 somebody on the board needed to speak up. Apply some common sense. We need an auditor, right? And our auditor doesn’t want to do it anymore? Why?
If any nominee to a nonprofit board doesn’t think she can be the one to ask questions like that, then she really ought to think about contributing in another way. Maybe sign up for some volunteer shifts or make a donation.
Stay out of the boardroom.