Every nonprofit organization has a board of directors. Every nonprofit organization also has key management personnel. The board of directors govern the organization and its management to ensure that the mission of the nonprofit is being met and it is management’s responsibility to maintain the daily operations that meet that mission and report back to the board. Unfortunately, it is way too often that the line is blurred between board responsibilities and management responsibilities, resulting in inefficiencies within organizational operations and governance. It is crucial that these roles and responsibilities remain separate and that the board remains the governing body, not management.
Who is evaluating the executive director and how often does this occur? What kind of experience do board members bring to the table and is the board of the organization well-rounded? Are board members rotated out regularly? Who determines when a new board member should be brought on and what does the on-boarding process look like? Do proper committees exist to help meet the organizations mission and are those committees regularly communicating with management? Is the organizations reporting produced by management in a timely manner and is reporting consistent with expectations? Is the Board properly assessing risk and monitoring management effectiveness?
In today’s nonprofit, having that proper balance between the Board and management, with proper checks and balances, is going to yield the best results. Remember the Board sets policy, management implements the policy, and the Board monitors the effectiveness of such policy.
There should be regular evaluations of the executive director’s performance by the Board and it is the boards responsibility to establish the ED’s compensation. Is the ED performing effectively? The organization’s mission should be consistently reviewed with respect to all organizational decisions, and operations should be regularly evaluated to determine if they are aligned with the organization’s mission. Since funding is so important for nonprofit organizations, the board should be well-versed in finances. This includes reading and understanding financial statements, understanding organizational funding, and ensuring budgets are followed. Those budgets should be received and reviewed prior to the start of the new fiscal year.
Is the budget reasonable and can it realistically be met? What happens if there are declines in revenue … have contingency budgets been created and approved by the Board so the organization can react quickly?
Budget-to-actual reports should be reviewed regularly throughout the year to ensure the organization is on track and staying within budget, with significant fluctuations explained by management so the Board can appropriately understand and modify financial goals accordingly. At the end of the year, there should be a series of financial reporting created by management and provided to the board for final approval. How did the operations look at the conclusion of the year in comparison to the forecasted budget at the beginning of the year? The board should be investigating any expectations that are not met and making adjustments as necessary to ensure it doesn’t happen again.
The board is responsible for bringing on new board members. What does the on-boarding process look like? Boards should be taking a look at the experience of each member or potential member to ensure they have knowledge of finances, regulations, and standards of the specific industry for which they are governing. These areas should be addressed at all board meetings. Board members should be rotated out every few years to ensure the board doesn’t get stale. It is refreshing to bring in new members and obtain a new perspective. Be sure that terms are staggered so that the majority of the board isn’t all changed at once. Consider a mentoring program so that more senior board members of an organization mentor newer members coming onboard.
How does the Board communicate? Is there a Board portal for free flow of information and access to key documents? Do Board members understand their responsibilities? Are they outlined in a Board agreement?
Does the board have a proper committee structure? Common board committees should include a finance committee, an executive committee, a fundraising/development committee, an audit committee, and a governance/nominating committee. Management responsibility should go hand-in-hand with the committee structure of the board so that the committees, management, and the organization can effectively meet their goals. Establishing a proper committee structure can create efficiencies at Board meetings, can allow for additional expertise within an organization (non-voting community members), and provide for deeper review into issues.
Risk management should be reviewed by the executive director or designated individual regularly and should be reported to the board committees at every meeting. Assessing, understanding, and evaluating risk are key components of risk.
At the end of the day, having a Board and management that are in tune with each other, where management provides appropriate information in a timely basis to the Board and the board asks appropriate questions and brings to the table appropriate insight, will yield the best results for the organization they manage. This requires strong communication and open dialogue and it also requires everyone to know their roles.
This article was also featured in our newsletter NFP Advisor Vol. 24.
CRYSTAL HARVEY | SENIOR ACCOUNTANT
Crystal is a member of Cerini & Associates’ audit staff where she focuses on serving organizations across a wide spectrum of industries, including nonprofit, technology, and contractor clients. She has experience performing assurance work and outsourced accounting work, as well as preparing tax returns. Crystal has extensive knowledge surrounding the operations, controls, and environment of the sectors she focuses on. She brings her expertise, diversified background, and helpful approach to all of her engagements.
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