Accounting Today - October 2011

By DouglAS W. ofchArSky
Strong governance:
A nonprofit’s recipe for successs

The concepT of qualiTy governance practices within nonprofit organizations is not revolutionary. historically, however, the role of those charged with the governance of nonprofit organizations — the board of directors — has not always been clearly defined.

Many have viewed the board member role as self-promotion, a résumé-builder. a hands-off approach taken by these board members can lead to a lack of focus when it comes to the mission of the organization, and create a breeding ground for abuse.

Due to the nature of nonprofit organizations and their existence for serving the greater public good, when abuse does arise there is almost a disbelief that such activity could occur. There is a public expectation that boards will be responsible for upholding the integrity of their organization, and by extension the nonprofit sector as a whole.

economic downturns drastically highlight that there truly is a limited number of “ donation dollars” available for charitable contribution. Donors and grantors have become more selective about their contributions. Boards have recognized this. They understand that exhibiting strong governance practices, a strong focus on their mission, and transparency can result in gaining an edge in the competition to receive much-needed funds.

probably the most influential stimulus for stronger governance in recent years was the overhaul of form 990 by the irS, effective in 2008. This significant modification created waves among nonprofit boards. concepts such as whistleblowers, conflicts of interest, and record retention demanded the institution of previously nonexistent policies. an extensive questionnaire on governance, management, and compensation methods caused boards to review their organizations as a whole and revamp their structure and operations. The requirement that form 990

be presented to the board for its review prior to filing created deeper analysis, and thus a better understanding of the organization by all board members. This review requirement also created an inability for individual members to claim ignorance of information reported in the 990. The irS emphasizes that compliance with the revised form 990 represents minimum requirements, and that exemplary governance practices would go above and beyond form 990.

ROLE OF THE BOARD understanding the role of the board within an organization may seem to be a basic concept. Too often, however, there has been only an informal recognition of its purpose. Strategic planning, oversight of mission-driven programs, fundraising and risk assessment should be the key focus. Management and operational functions sometimes consume the precious time needed for these goals. The details of these management and operational functions should be the responsibility of an executive director. Board involvement should be called on only when necessary.

Board members should also serve the role of “cheerleaders” for the organization, promoting its mission wherever possible. This requires responsibility on each member’s behalf, as their actions can be construed as being representative of the organization. a code of ethics for each member to follow will help promote exemplary behavior.

members. a mix of experience and youth will instill time-tested ideals combined with fresh concepts. for new and younger members, an effective training system and a manual outlining responsibilities will help them become active and contributory participants. Diversity among the members could mean innovative approaches due to differing backgrounds.

lastly, and perhaps the most important from a governance aspect, is to reduce or eliminate interrelationships among board members. having employees serve as board members creates a conflict of interest. The executive director serves the board: This person should not be on the board. in this case, governance and operational lines would become clouded. ensuring independence between

individual board members, employees of the organization, and related vendors used by the organization eliminates the potential for decisions and transactions that do not have the organization’s concerns first and foremost.

SIZE OF THE BOARD

The number of board members should be in direct proportion to the size of the organization. an oversized board can breed inefficiency, as decision-making will become cumbersome. conversely, a de minimus board can lack the depth necessary for effective oversight. using external partners (accountants, lawyers and insurance agents) can reduce board size and provide expertise for smaller

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Douglas W. Ofcharsky, CPA, is a senior manager of WeiserMazars LLP in Horsham, Pa. Reach him at douglas.ofcharsky@weiserma- zars.com. Reprinted with permission from The Pennsylvania CPA Journal, a publication of the Pennsylvania Institute of CPAs.

MAKEUP OF THE BOARD

Most nonprofits are started by an individual or group with a vision. in the early years, the governance group tends to consist of like-minded individuals. This may be sufficient during the genesis period, but sustaining viability will require expansion beyond that core group.

There are several factors to consider regarding the structure of the board. first is the experience of the individual. Knowledge of the mission of the organization is an important factor, but business acumen, strong social skills, or a well-connected network can rate even higher. Second is the age of the