Happy New Year!
With every New Year come New Year's Resolutions or promises that we make to ourselves to improve or better ourselves. One of my resolutions is to improve my overall health by eating better, exercising and taking time to decompress by engaging in activities that spark my creativity.
Just like your body experiences warning signs that something isn't right with aches, pains or other symptoms, so does your organization.
Here are a few indicators or symptoms that may point to areas of concern for your nonprofit organization.
1. Lack of Quorum at regular board meetings. Over the years, as I have worked with various nonprofit organizations, I have heard from executive directors and board chairs, "I can't get board members to attend board meetings." Or, " Its difficult to get quorum at board meetings in order to make decisions."
Lack of attendance by the majority of board members could be a symptom of a larger problem. This not only means that you aren't able to make policy decisions to move the organization forward. It also means that the financials are not being monitored, reviewed and approved. There is also lack of oversight to your programmatic activities. A board that does not make quorum on a regular basis is on a slippery slope in neglecting their fiduciary duties of the organization.
Options such as conference calling and video conferencing, should reduce the number of board members that are not able to be present in person.
Some funders will ask about regular board meetings and attendance as a factor in determining the "health" of the organization.
2. Lack of policies and procedures for conflicts of interest. Charity regulators require that board members and staff disclose any interest in a transaction or action that could be viewed as affecting their objectivity. First, any potential conflicts should be disclosed. Then there should be policies to deal with them transparently. If a board member has a material conflict of interest, it requires that he/she not discuss or vote on the issue.
The National Council of Nonprofits has some excellent examples of conflict of interest policy statements.
I suggest that annually, your Conflict of Interest forms be signed by your board members. This can be done at your Annual Board Meeting or your first meeting of the year.
3. Not complying with all applicable laws and regulations—federal, state, local, and international. Check this website www.stayexempt.org for guidance from the IRS about what is required. While laws and regulations vary from state to state, most states have an office within the Department of Commerce that deals with charity solicitation permits and other requirements. If you aren't sure what requirements your organization must meet in your state, check with your local Nonprofit Association. This association can assist you in identifying all necessary laws and regulations as well as, reputable consultants who can help you.
4. The CEO/ Executive Director has not received a performance evaluation since coming onboard. The Board is responsible to hire, oversee, and evaluate the performance of the CEO on an annual basis and conduct an evaluation prior to any change in compensation. This is the board's responsibility, and the IRS guidance is clear:
- Set compensation in advance using appropriate comparability data.
- Make sure no one involved in setting the salary has a conflict of interest.
- Document decisions on compensation.
The IRS regulations call for "reasonable" compensation—the amount that would be paid for "like services" by "like enterprises" (could be taxable or tax-exempt), under "like circumstances." Small organizations should have at least three comparables, and the IRS implies that larger organizations should have more than three.
Even the Executive Director needs feedback on his performance. The board should set aside time to thoughtfully conduct the performance evaluation and provide an opportunity for goal setting.
5. It’s not clear whether our financial documents are current. All nonprofit organization must keep complete, current, and accurate financial records, preferably audited or reviewed by a qualified independent financial expert. State laws vary on the sizes and types of organizations that are required to have audits or reviews by an outside accountant. Creating an audit committee of board members (including some with financial expertise) helps reduce a possible conflict of interest between the paid staff and the outside auditors.
These are just a few symptoms that should cause some concern for any board of director or Executive Director in a nonprofit organization. Don't be afraid to ask questions.
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