There are generally two types of committees; committees of the Board and committees of the organization. Committees of the Board have the ability to take action on behalf of the Board, while committees of the organization cannot. In deciding how to structure your committees, remember that a committee of the Board can only be made up of Board members (must have at least three) while a committee of the organization does not need to made up exclusively of Board members.
Committees of the Board are an important extension of the Board of Directors and carry out specific functions that are vital to the organization. The organization’s bylaws include the committees to be held by the organization and can include a provision for the establishment of additional committees as needed. As with Board of Directors’ meetings, each committee must maintain minutes for each meeting held by the committee and should hold meetings as often as stated in the organization’s bylaws. The committees report to the Board and typically do not have the authority to exercise any powers of the Board, unless stated otherwise. The New York State Nonprofit Revitalization Act (“NPRA”) focused on certain Board committees to improve overall corporate governance of nonprofit organizations. The most common committees of the Board are summarized below.
Finance Committee
Typically, the Board Treasurer is the Chair of the finance committee.
Purpose – To take responsibility and oversee the financial performance and reporting of the organization.
Powers – The committee reviews and recommends the annual proposed budget, budget modifications, and financial/accounting policies and procedures. The committee also monitors the actual-to-budget operations.
In addition, the finance committee should be responsible for ensuring the organization’s tax filings are filed timely and reviewing the internal controls that are in place at the organization.
An extension of the finance committee is the audit committee. This committee’s responsibility is to select an independent audit firm to conduct the audit, oversee the audit process, accept the audited financial statements, and report findings to the Board of Directors. According to the NPRA, there are additional requirements for an audit committee of organizations that have over $1 million in annual revenue. These requirements are to have discussions with the auditor prior to and after the audit. Prior to the start of the audit, the discussion should focus on the scope and planning of the audit, and upon completion of the audit, the results of the audit. Results of the audit include identification of material weaknesses in internal controls, any restrictions on the scope of the auditors’ activities or access to requested information, any significant disagreements with management, and the adequacy of the accounting and financial reporting process of the organization. This is applicable for financial statement audits, government audits, and pension audits. To the extent that an organization has an internal audit function, this process should also be monitored and directed by the audit committee.
An investment committee can also be an extension of the finance committee. For those organizations that have significant amounts of investments, whether for general operations or an endowment, this committee can be responsible for developing an investment policy that conforms to the goals of theorganization and ensures compliance with the New York Prudent Management of Institutional Funds Act (“NYPMIFA”).
Compensation Committee
Purpose – To establish a compensation policy for determining compensation amounts for the organization’s executive employees.
Powers – The committee can recommend and/or approve compensation amounts for the executive employees. The directors can use a compensation consultant or benchmark compensation amounts for executives of other similar organizations to help determine compensation amounts.
The NPRA prohibits the involvement of the person that will receive the compensation from being present, or from participating in the deliberation and voting on said compensation.
Nominating Committee
Purpose – To ensure vacant positions on the Board are filled and to develop Board succession plans.
Powers – This committee is responsible for seeking candidates for recommendations to fill vacant seats on the Board, as they occur. This is an important function for the organization, as new Board members have a significant impact in the future of the organization.
Executive Committee
This committee usually consists of the Board officers (President, Vice President, Treasurer, or Secretary) and can include members of the Board.
Purpose – To manage the direction of the Board and assist in creating the agenda for Board meetings.
Powers – This committee can meet and make decisions on urgent matters that come up between scheduled Board meetings. The bylaws will include the authority that this committee has over decision-making on behalf of the Board.
Compliance Committee
This committee is highly recommended for health and welfare organizations. Such organizations that receive federal and state funding are subject to more regulations over the programs that receive such funding. This committee is made up of directors and meets with the Corporate Compliance Officer.
Purpose – To oversee the organization’s corporate compliance program and related policies and procedures. The committee also ensures sufficient resources are available to carry out the corporate compliance plan.
Powers – The committee reviews the policies and procedures that involve the code of conduct, corporate compliance plan, and the process for reporting concerns by employees and vendors. The committee also reviews and evaluates the results of compliance audits, as well as management’s plan of action to respond to the audit findings.
Development Committee
Purpose – To establish a plan for fundraising activities so that sufficient financial resources are available for the organization.
Powers – The committee can develop and recommend fundraising plans for approval by the Board. Fundraising plans can include establishment of Board-designated funds, determine the need to raise capital for a specific project, or create a new fundraising event. The committee can monitor the fundraising plan to ensure activities are progressing in the direction intended.
In addition to the above committees, the Board of Directors can also create ad-hoc committees. These committees are created for a special purpose for a certain period of time (i.e. committee established to organize a major fundraising event or capital campaign project). When the purpose or goal has been met, the committee will then dissolve. Having a few committees creates the opportunity for recruitment of new Board members. As committees typically meet fewer times during the year than the Board, individuals can first serve on a committee before making the commitment to serve on the full Board.
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