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2012-06-13 Educating Boards 061312
This document provides an overview and outline for a presentation on educating board members about their financial oversight responsibilities. It covers fiduciary responsibilities of boards, financial reporting standards, roles of boards and management, and specific financial oversight tasks like approving budgets, reviewing financial statements, and overseeing audits. The goal is to help board members understand their legal and core responsibilities to ensure proper financial management and oversight of the nonprofit organization.
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2012-06-13 Educating Boards 061312
- 1. Educating and Presenting Financial Information to Board Members Bob Bloom, Senior Manager, Audit June 13, 2012 Thrive. Grow. Achieve.
- 2. Educating and PresentingFinancial Information to Board Members OVERVIEW • Introductions • Fiduciary Responsibilities (10) • Financial Oversight Responsibilities (10) • Reporting Standards of Nonprofit Organizations (10) • Roles of the Board, CEO and CFO (15) • Reporting To Your Board (30) • Audit & the 990 (15) • Q&A (15) Educating Board Members/ Page 2
- 3. Educating and PresentingFinancial Information to Board Members FIDUCIARY RESPONSIBILITIES Legal and Compliance Requirements ̵ Nonprofit Organizations (NPOs) must have a governing body overseeing affairs of organization ̵ All states require NPOs incorporated in their state to have a board of directors ̵ IRS Form 990 contains a series of questions concerning the board and its governance practice Educating Board Members/ Page 3
- 4. Educating and PresentingFinancial Information to Board Members FIDUCIARY RESPONSIBILITIES Core Concepts ̵ Bears the primary responsibilities for ensuring that organizations fulfills it obligations to the law, its members, it donors, its staff and the public ̵ Mission, strategic directions and broad policies are set by the board in conjunction with the CEO and senior staff ̵ Must protect the assets of the organization and provide oversight to ensure its financial, human and material resources are used appropriately to further the organization‟s mission Educating Board Members/ Page 4
- 5. Educating and PresentingFinancial Information to Board Members FIDUCIARY RESPONSIBILITIES Board Member Responsibilities ̵ Display loyalty and exercise prudence ̵ Act in good faith and be responsible ̵ Keep informed in order to make appropriate decisions ̵ Monitor the organization‟s financial health ̵ Ensure the appropriate checks and balances are in place ̵ Monitor the organization‟s risk management ̵ Avoid micro-management- be governors, not managers Educating Board Members/ Page 5
- 6. Educating and PresentingFinancial Information to Board Members FINANCIAL OVERSIGHT RESPONSIBILITIES • Sound financial management is among the most important responsibilities of the board • Financial Oversight Responsibilities: ̵ Review and approve annual budget ̵ Review timely financial reports at least quarterly ̵ Monitor actual financial results against approved budget ̵ Oversee annual audit process and review audited financial statements ̵ Review Form 990 Educating Board Members/ Page 6
- 7. Educating and PresentingFinancial Information to Board Members FINANCIAL OVERSIGHT RESPONSIBILITIES • Ensure current written financial policies exist and staff are adhering to the board approved policies • Ensure adequate internal controls are in place to deter and detect fraud and misappropriation of assets and financial reports ̵ Separation of duties – no one person should perform duties of receiving, depositing and spending its funds ̵ Physical security of assets ̵ CEO/CFO are responsible for internal controls Educating Board Members/ Page 7
- 8. Educating and PresentingFinancial Information to Board Members FINANCIAL OVERSIGHT RESPONSIBILITIES • Systems that Protect NPOs ̵ Internal Controls o Goal = protection of assets and deter fraud • Accounting policies and procedures ̵ 3rd Accounting manual ̵ Investment policies ̵ Reserve/board designated endowment policies • External Audits Educating Board Members/ Page 8
- 9. Educating and PresentingFinancial Information to Board Members FINANCIAL OVERSIGHT RESPONSIBILITIES To assess and improve financial oversight practices ̵ How well do we review financial reports and monitor financial performance? ̵ Are we making relevant comparisons – e.g., performance against budget and prior year’s information? ̵ Do we need to upgrade the board’s financial expertise? ̵ Has the organization established a reserve fund and related policies and guidelines? Educating Board Members/ Page 9
- 10. Educating and PresentingFinancial Information to Board Members REPORTING STANDARDS OF NONPROFIT ORGANIZATIONS In order for Board members to make educated decisions – must be: ̵ Accurate and Complete o Enable management & board to make informed decisions ̵ Timely o Keep current on financial status ̵ In Context o Presented in relationship to the history- Goals & Programs of your nonprofit ̵ Appropriate o Include financial information deemed important to management & board Educating Board Members/ Page 10
- 11. REPORTING STANDARDS OFNONPROFIT ORGANIZATIONS PRINCIPAL FINANCIAL DOCUMENTS ANNUAL AUDITED FINANCIAL STATEMENTS MONTHLY/QUARTERLY UNAUDITED FINANCIAL STATEMENTS PREPARED BY STAFF, IN ACCORDANCE WITH GAAP, OR CASH BASIS ANNUAL BUDGET OTHER AD HOC OR UNIQUE FINANCIAL REPORTS Budget vs. actual reports (vs. prior year to date) Cash flow projections Departmental financial statements Educating Board Members/ Page 11
- 12. REPORTING STANDARDS OFNONPROFIT ORGANIZATIONS OTHER IMPORTANT FINANCIAL REPORTS IRS FORM 990 MAJOR FINANCIAL COMMITMENTS Loans, Purchases, Acquisitions INVESTMENT STATEMENTS & POLICIES RESERVE POLICIES Operating Capital Program initiatives Educating Board Members/ Page 12
- 13. ROLES - EFFECTIVEBOARD LEADERSHIP A SHARED UNDERSTANDING OF THE ORGANIZATION‟S MISSION AND VISION A CLEAR SENSE OF ROLES AND RESPONSIBILITIES TRUST Educating Board Members/ Page 13
- 14. ROLES - SHAREDMISSION ESTABLISH GUIDING PRINCIPLES, POLICIES AND MISSION FOR THE ORGANIZATION REGULAR REVIEW OF THE STRATEGIC PLAN AND MISSION (KEEP THEM FRESH AND RELEVANT) ESTABLISH METRICS FOR SUCCESS Educating Board Members/ Page 14
- 15. ROLES – GOVERNMORE/MANAGE LESS More On Less On 1. Policy issues 1. Policy language 2. Components of 2. Specifications of a corporate strategy particular program or 3. Relationship service between budgets 3. Terms and conditions of and priorities services or contracts 4. Being a strategic 4. An operational overseer asset and evaluator 5. Governing the 5. Monitoring the organization management Educating Board Members/ Page 15
- 16. ROLES BUDGETING: PREPARATION, PROPOSAL, APPROVAL? MEETINGS: SETTING AGENDA, FACILITATES THE MEETING? COMMITTEE WORK: STRUCTURE, OVERSEES, SUPPORT? BOARD DEVELOPMENT: LEAD ROLE, DEFINE NEED, SUPPORTING PROGRAMS? BOARD EVALUATION: SET METRICS, REQUIRE EVALUATION, CREATE AND FACILITATE PROCESS? STAFF EVALUATIONS: HIRE, EVALUATE, COMPENSATE CEO, ALL OTHERS? PR, COMMUNICATIONS: PROMOTE THE ORGANIZATION, OFFICIAL SPOKESPERSON? FUNDRAISING: GUIDE BOARD, DEVELOP POLICIES, SUPPORT EFFORTS, COORDINATES ALL EFFORTS? Educating Board Members/ Page 16
- 17. GOVERNING BOARD RESPONSIBILITIES HAS OVERALL RESPONSIBILITY FOR DETERMINING ORGANIZATION MISSION, AND POLICY SETTING HIRES AND EVALUATES THE EXECUTIVE ENSURES THAT ADEQUATE RESOURCES ARE AVAILABLE APPROVES BUDGET; MONITORS FINANCIAL RESULTS SETS INVESTMENT POLICY; MONITORS RESULTS SET OPERATING POLICIES; MONITORS PROGRESS; EVALUATES OUTCOMES RESPONDS TO EXECUTIVE‟S INFORMATION MONITORS COMPLIANCE ESTABLISHES STRONG INTERNAL CONTROL ENVIRONMENT; MONITORS ADEQUACY OF CONTROLS (AUDITOR INVOLVED); FOLLOWS UP IMPLEMENTATION OF RECOMMENDATIONS Educating Board Members/ Page 17
- 18. EXECUTIVE OFFICER RESPONSIBILITIES EXECUTIVE BOARD POLICY, INCLUDING DETAIL PLANNING, ESTABLISHES MEASUREMENT STANDARDS HIRES, MONITORS, AND EVALUATES STAFF & VOLUNTEERS (INCLUDING FINANCE); DELEGATES AS APPROPRIATE USES RESOURCES AS DIRECTED BY BOARD; PARTICIPATES IN RESOURCE DEVELOPMENT CREATES BUDGET TO IMPLEMENT BOARD POLICY; PROVIDES ADEQUATE AND TIMELY FINANCIAL INFORMATION TO BOARD MANAGES INVESTMENTS AND OTHER ASSETS AS DIRECTED (MAY DELEGATE TO SOME EXTENT); SAFEGUARDS ASSETS (INCLUDING ADEQUATE INSURANCE) IMPLEMENTS OPERATING POLICIES KEEPS BOARD INFORMED, ESPECIALLY WHEN PROBLEMS IMPEND ENSURES COMPLIANCE WITH LAWS & REGULATIONS (INCLUDING TAX, DONOR RESTRICTIONS, OMB) OPERATES STRONG INTERNAL CONTROL SYSTEM; ADMINISTERS ETHICAL STANDARDS; IMPLEMENTS AUDITOR RECOMMENDATIONS Educating Board Members/ Page 18
- 19. FINANCIAL OFFICER RESPONSIBILITIES IS AWARE OF ORGANIZATION MISSION AND POLICIES HIRES AND MONITORS FINANCIAL STAFF ASSISTS EXECUTIVE AS REQUESTED ASSISTS EXECUTIVE IN CREATION OF BUDGET; MONITORS PROGRESS; ALERTS EXECUTIVE TO IMPENDING PROBLEMS KEEPS DETAILED INVESTMENT RECORDS; MONITORS PERFORMANCE ASSISTS EXECUTIVE AS REQUESTED; KEEPS FINANCIAL RECORDS KEEPS EXECUTIVE INFORMED (ALSO BOARD, AS REQUESTED BY EXECUTIVE) MONITORS COMPLIANCE WITH LAWS AND REGULATIONS DESIGNS AND OPERATES INTERNAL CONTROL SYSTEM; IMPLEMENTS AUDITOR RECOMMENDATIONS Educating Board Members/ Page 19
- 20. PITFALLS OR OPPORTUNITIES CHOSE MEMBERS FOR VALUES AND SKILLS RATHER THAN FRIENDSHIP OR CONNECTIONS AVOID CONFLICTS AND PERSONAL AGENDAS PERFORM SELF ASSESSMENTS REWARD MOTIVATION; RECOGNIZED ENTHUSIASM AND OUTSTANDING PERFORMANCE Educating Board Members/ Page 20
- 21. IDEAS FOR PRODUCTIVEMEETINGS MISSION-BASED MEETINGS HAVE THE RIGHT PRESIDING OFFICER FREQUENCY/CYCLES PREPARATION: AGENDA/CONSENT AGENDA/REPORTS MINUTES EVALUATION/FEEDBACK ENJOY! Educating Board Members/ Page 21
- 22. REPORTING TO YOURBOARD B a s ic F in a n c ia l S ta te m e n ts : R ep or t i n g on Bu si n ess Act i v i t i es Statement of Financial Position Statement of Financial Position At a Point in Time At a Point in Time Statement of Activities For a Period of Time Statement of Cash Flows For a Period of Time Beg i n n i n g of t h e Yea r En d of t h e Yea r J a nua ry 1 D ecem b er 31 Beginning of the Fiscal Year End of the Fiscal Year (July 1) (June 30) Educating Board Members/ Page 22
- 23. REPORTING TO YOURBOARD STATEMENT OF FINANCIAL POSITION AKA - BALANCE SHEET SNAPSHOT AS OF A SPECIFIC DATE SUMMARIES OF ORGANIZATION‟S RESOURCES, OBLIGATIONS AND NET WORTH THREE COMPONENTS: Assets = resources Liabilities = obligations/debt Net Assets = net worth (from inception to date) TYPICALLY ARRANGED IN ORDER OF LIQUIDITY Current: 1 year or less Long-term: greater than 1 year Educating Board Members/ Page 23
- 24. REPORTING TO YOURBOARD STATEMENT OF FINANCIAL POSITION- ASSETS CASH AND CASH EQUIVALENTS Sufficient to meet current obligations? Inadequate or excessive? Increasing or decreasing? ACCOUNTS RECEIVABLE Composition? Age? Allowance for doubtful accounts? Educating Board Members/ Page 24
- 25. REPORTING TO YOURBOARD STATEMENT OF FINANCIAL POSITION- LIABILITIES ACCOUNTS PAYABLE AND ACCRUED EXPENSES Invoices received for goods and services not yet paid Proper cut-off – completed, included as expenses as of the current period DEFERRED REVENUE (NOT TRNA) Future obligations to members Included in cash balance Typically recognize 1/12 of dues for each month as revenue DEBT Purpose, terms, policies and covenants In compliance with any covenants? Educating Board Members/ Page 25
- 26. REPORTING TO YOURBOARD STATEMENT OF FINANCIAL POSITION- NET ASSETS 3 CLASSES OF NET ASSETS: –Unrestricted – available for general operations • Board designated • Undesignated –Temporarily restricted—donor restriction for specific purpose or time period –Permanently restricted—donor restriction that never expires COMPLIANCE WITH RESTRICTIONS? IF NET ASSETS ARE IN A DEFICIT SITUATION, IS THIS A “GOING CONCERN” ISSUE? Educating Board Members/ Page 26
- 27. REPORTING TO YOURBOARD GAAP VS. CASH NO DONOR - IMPOSED RESTRICTIONS – Unrestricted Support GAAP: Recognize revenue when received or promised DONOR-IMPOSED RESTRICTION – Temporary – Donor-specified use is satisfied by fulfillment of purpose or passage of time – Permanent – Donor imposed restriction cannot be removed by the NPO GAAP: Recognize revenue when received or promised DONOR - IMPOSED CONDITIONS – Specifies a future or uncertain event – Contribution depends on overcoming a barrier GAAP: Recognize revenue as condition is met Vs. NON-GAAP: CASH: When received Educating Board Members/ Page 27
- 28. REPORTING TO YOURBOARD STATEMENT OF ACTIVITIES: THE BASIC FORMULA Educating Board Members/ Page 28
- 29. REPORTING TO YOURBOARD WHAT DO THESE REPORTS MEAN? STATEMENT OF ACTIVITIES • AKA - Income Statement • Financial information over a period of time • Summarizes sources of funds (revenue), uses of funds (expenses) and net income or loss (change in net assets) • Expenses are classified by function into programmatic and supporting (management and general / fundraising) Educating Board Members/ Page 29
- 30. REPORTING TO YOURBOARD STATEMENT OF ACTIVITIES • Revenue and expenses • Increase or decrease? • How do results compare to budget and prior year amounts? • Expenses- percentage of program expenses compared to supporting services (no more than 25%)? • Change in net assets • Net income (surplus) or net loss (deficit)? • If a net loss, is it a real deficit or timing issue? • What is causing the net loss? Educating Board Members/ Page 30
- 31. REPORTING TO YOURBOARD STATEMENT OF CASH FLOWS • Summarizes sources and uses of cash into three categories: ̵Operating Activities- day to day general operations ̵Investing Activities- purchases/sales of capital assets, investments, etc. ̵Financing Activities- proceed from loans, line of credit • This Statement Can Give the Reader Information on Historic Cash Flow (as opposed to the accrual basis which is required for GAAP financial statements) Educating Board Members/ Page 31
- 32. REPORTING TO YOURBOARD STATEMENT OF FUNCTIONAL EXPENSES • Provides analysis of non-profit‟s service efforts, including total costs and allocation of resources • More detailed line items of expenditures • Separates program from supporting services • Multiple program services may be reported • Supporting services = Management and General expenses as well as Fundraising • How are various expense items allocated between programs, M&G and fundraising? • Does resource allocation appear to be reasonable based on – Nature of program? – Revenue generated from program? Educating Board Members/ Page 32
- 33. REPORTING TO YOURBOARD FOOTNOTES TO FINANCIAL STATEMENTS • Summarizes: – Organizational structure, mission and sources of funding – Significant Accounting Policies effecting the presentation of financial statements – Explanations of key items on the Statement of Financial Position and Statement of Activities – Concentrations of business credit risk, commitments, contingencies, related party transactions Educating Board Members/ Page 33
- 34. REPORTING TO YOURBOARD SUPPLEMENTAL SCHEDULES • Not required part of basic financial statements • Additional schedules that support key items • Examples include: – Schedule of functional expense summaries by category by location – Consolidation schedules of a parent and affiliated organizations Educating Board Members/ Page 34
- 35. REPORTING TO YOURBOARD CASH FLOW PROJECTION • Monthly changes in cash for operations • Receipts – Grants – Contributions – Membership fees • Disbursements – Salary – Rent – Operating expenses – Debt service – Capital expenditures Educating Board Members/ Page 35
- 36. REPORTING TO YOURBOARD OPERATING REVENUE AND EXPENSES (VS. BUDGET) • Unrestricted revenue • Plus: Release from restricted net assets to unrestricted net assets • Detailed expenses (in comparison to budget) DEPARTMENTAL REVENUE AND EXPENSES • Details by Department (or Groups) for Budget Purposes – Revenues by department – Expenses by department • Direct expenses • Indirect allocated expenses • Allocation of depreciation Educating Board Members/ Page 36
- 37. REPORTING TO YOURBOARD PROJECTIONS – 1, 3 OR 5 YEAR PLANS • Enrollments / memberships / registrants /students /performances • Contracts, proposals, pipeline, booked business in future • Contributions / capital campaign / annual funds METRICS • Current ratio, investment returns , investment policy, spending • Program % of total expenses • Enrollments / memberships / registrants / students / performances / average cc contribution / average contribution • Employees • Square footage • Departments Educating Board Members/ Page 37
- 38. SECTION IV: GUIDELINESFOR WORKING WITH YOUR BOARD KEEP IT SIMPLE Educating Board Members/ Page 38
- 39. SECTION IV: GUIDELINESFOR WORKING WITH YOUR BOARD ENRON! Swartz, Mimi, and Sherron Watkins. Power Failure: The Inside Story of the Collapse of Enron. New York: Doubleday, 2003. Educating Board Members/ Page 39
- 40. REPORTING TO YOURBOARD BE TRANSPARENT BE CONSISTENT FROM PERIOD TO PERIOD RECONCILE CASH TO GAAP CHECK YOUR WORK BEFORE YOU DISTRIBUTE BE A GOOD MESSENGER – SEND MATERIALS OUT WELL BEFORE THE BOARD MEETING, NEVER LAST MINUTE TELL THE WHOLE STORY BE DIRECT Educating Board Members/ Page 40
- 41. REPORTING TO YOURBOARD CHARACTERISTICS OF FINANCIALLY HEALTHY NONPROFITS • Ready source of cash (good liquidity) • Sufficient resources to ensure stable programming • Good revenue mix (earned income vs. contributions) • Positive net asset balances that continue to grow each year • If there is a deficit, surplus of prior years cover it • Reasonable “overhead” • Timely reporting (mgm‟t and board hold themselves accountable for financial stability) • Operating reserves or a working plan to establish one • Committed to income-based spending Educating Board Members/ Page 41
- 42. REPORTING TO YOURBOARD SIGNS OF FINANCIAL TROUBLE • Spends more money than received or earned • Payables are growing faster than operations • Old accounts receivables • Poor cash flow – consistently asking for grant advances • Poor or late financial reporting • Growing or unreasonable overhead or costs of fundraising • Restricted net assets are in excess of liquid assets • Mgm‟t and Board focus is lack of funds • Net asset balances continue to decrease each year Educating Board Members/ Page 42
- 43. REPORTING TO YOURBOARD THE AUDIT AND THE 990 Educating Board Members/ Page 43
- 44. THE AUDIT AUDIT COMMITTEE ROLES AND RESPONSIBILITIES – THE AUDIT COMMITTEE CHARTER DO WE CHANGE AUDITORS? PARTNER ROTATION DEALING WITH NEW AUDITORS Educating Board Members/ Page 44
- 45. AUDIT COMMITTEE CHARTER PURPOSE AUTHORITY COMPOSITION MEETINGS RESPONSIBILITIES FINANCIAL REPORTING INTERNAL CONTROLS INTERNAL AUDIT EXTERNAL AUDIT COMPLIANCE REPORTING RESPONSIBILITIES OTHER RESPONSIBILITIES Educating Board Members/ Page 45
- 46. DO WE CHANGEAUDITORS? NPOS CHANGE AUDITORS FOR 3 REASONS: • Services • Fees • Policy COMMON MISCONCEPTION – SARBANES OXLEY DOES NOT MANDATE CHANGE OF AUDITORS HOW DO SERVICES BREAK DOWN: • Not enough partner/manager involvement • Too much turnover at ALL levels • Lack of responsiveness to your needs • Not experienced with NPOs Educating Board Members/ Page 46
- 47. DO WE CHANGEAUDITORS (CONTINUED) NOT ENOUGH PARTNER/MANAGER INVOLVEMENT – LACK OF RESPONSIVENESS FIRM IS NOT EXPERIENCED WITH NPOS FIRM CAN NOT MAKE DECISIONS TOO MUCH TURNOVER TOO MANY SURPRISES FEES Educating Board Members/ Page 47
- 48. PARTNER ROTATION SARBANES OXLEY: 203 REQUIRES (FOR PUBLIC COMPANIES) THAT THE LEAD AUDIT PARTNER AND AUDIT PARTNER RESPONSIBLE FOR REVIEWING THE AUDIT (CONCURRING PARTNER) TO ROTATE OFF THE AUDIT EVERY FIVE YEARS OTHER PARTNERS WILL BE PERMITTED TO SERVE A MAXIMUM OF SEVEN CONSECUTIVE YEARS WITH A TWO YEAR TIME OUT PERIOD. SUCH AUDIT PARTNERS INCLUDE PARTNERS OF REGISTRANT COMPANY, PARENT COMPANY AND THOSE WHO LEAD AUDIT OF A SUBSIDIARY WHOSE ASSETS AND REVENUE CONSTITUTE 20% OR MORE OF THE CONSOLIDATED TOTAL Educating Board Members/ Page 48
- 49. CHANGING AUDITORS AUDIT COMMITTEE SHOULD ADOPT A POLICY TO EVALUATE AUDITOR POLICY COULD MIRROR SARBANES OXLEY AND MANDATE PARTNER OR MANAGER ROTATION COULD EVALUATE AUDITORS EVERY 5 TO 10 YEARS COULD MANDATE CHANGE OF AUDITORS EVERY 5 YEARS, OR 10 YEARS BE FLEXIBLE Educating Board Members/ Page 49
- 50. NEW AUDITORS – WHAT WILL BE REQUIRED AT PRELIMINARY - RISK ASSESSMENT • Understanding the entity and environment • General applications IT controls • Process memos or flowcharts: – Cash receipts cycle – Cash disbursement cycle – Payroll cycle – Investment cycle – Fixed asset cycle – Financial statement preparation and closing cycle WALKTHROUGHS OF EACH CYCLE – SAMPLE TRANSACTIONS CRADLE TO GRAVE Educating Board Members/ Page 50
- 51. NEW AUDITORS – WHAT WILL BE REQUIRED CONTROL TESTING OF: • Cash receipts • Cash disbursements • Payroll AT YEAR END – • Substantiation of Accounts • Evaluation • Analytical and Reasonableness • Disclosure REVIEW OF FINANCIAL STATEMENTS AND DISCLOSURES SAS 115 SAS 114 Educating Board Members/ Page 51
- 52. NEW AUDITORS* –RECOMMENDATIONS BE PREPARED ON TIME – ESTABLISH A TIME LINE GOOD COMMUNICATION WITH AUDITOR THROUGHOUT THE YEAR GOOD COMMUNICATION WITH AUDIT COMMITTEE CLOSE YOUR BOOKS AND PREPARE INTERIM GAAP FS, ON A MONTHLY/QUARTERLY BASIS KEEP YOUR KEY SCHEDULES CURRENT – CASH, AR, INVESTMENTS, FIXED ASSETS, AP/AE, OTHER LIABILITIES AND NET ASSETS. PERFORM A PRE-AUDIT DISCUSS FEES AND CHANGE ORDERS IN ADVANCE * or with your current auditors Educating Board Members/ Page 52
- 53. FEDERAL FORM 990 GENERAL FILING REQUIREMENTS FORM 990-N – FILED WHEN GROSS RECEIPTS ARE NORMALLY LESS THAN OR EQUAL TO $50,000, „NORMALLY‟ DEFINED AS THREE YEAR AVERAGE. FORM 990-EZ – FILED IF GROSS RECEIPTS ARE LESS THAN $200K AND TOTAL ASSETS ARE LESS THAN $500K. FORM 990 – IF THE FORMER TWO CANNOT BE FILED, THIS IS REQUIRED UNLESS ALLOWABLE EXCLUSION APPLY. FORM 990-T – FILED IF THE ORGANIZATION HAS UNRELATED BUSINESS TAXABLE INCOME EXCEEDING $1,000. Educating Board Members/ Page 53
- 54. FEDERAL FORM 990 GOVERNANCE AND RELATED TOPICS – 501(C)(3) ORG. MISSION ORGANIZATION DOCUMENTS GOVERNING BODY GOVERNANCE AND MANAGEMENT POLICIES FINANCIAL STATEMENTS AND FORM 990 REPORTING TRANSPARENCY AND ACCOUNTABILITY Educating Board Members/ Page 54
- 55. FEDERAL FORM 990 GOVERNANCE, MANAGEMENT & DISCLOSURE SECTION A – GOVERNING BODY AND MANAGEMENT • Minutes - governing body and committees SECTION B – POLICIES • Review by the Board before Filing, and policy • Written conflict of interest policy • Written whistleblower policy • Written document retention and destruction policy • Process determining compensation Educating Board Members/ Page 55
- 56. QUESTIONS & ANSWERS EducatingBoard Members/ Page 56
- 57. APPENDICES Appendix I – Sample Whistleblower Policy (RAFFA) WB Toolkit (AICPA)/WB Firms (RAFFA) Sample Conflict of Interest Policy (excerpt from Board Source) Appendix II – Tips for Creating and Elements of a Good Document Retention Policy (Unknown) Appendix III – Best Practices Checklist (Independent Sector) Appendix IV – Checklist for Accountability (Independent Sector) Appendix V – Executive Summary of the US Senate Finance Committee Report (The Panel on the Nonprofit Sector) Appendix VI – State Governance Proposals and Bills (National Council of Nonprofit Associations) Appendix VII – CA Nonprofit Integrity Act (Chronicle of Philanthropy) Appendix VIII– Parts of Audit Committee Toolkit (RAFFA) Educating Board Members/ Page 57
- 58. APPENDICES Appendix IX - Trust is not an internal control, By Olson, Cheryl R, October 1, 2003, Publication: The CPA Journal, Wednesday, October 1 2003 Source: http://www.allbusiness.com/professional- scientific/accounting-tax/1157058-1.html#ixzz1XAHNyuew Appendix X – Committee of Sponsoring Organizations of the Treadway Commission – Internal Control Integrated Framework, Guidance on Monitoring Internal Control Systems Appendix XI – Not-for-Profit/Exempt Organizations Blog: Non-Profit Lawyers & Attorneys: Proskauer Rose Law Firm: Tax & Corporate Law for 501c(3) Organizations – Is the Foreign Corrupt Practices Act on your Radar Screen, By Emily Stern, posted August 18, 2010 http://www.irs.gov/pub/irs-tege/governance_practices.pdf Educating Board Members/ Page 58
- 59. CONTACT INFORMATION A. Robert Bloom Phone: 202-822-5000 Raffa, P.C. Fax: 202-822-0669 1899 L Street, NW, Suite 900 Direct: 202-955-6709 Washington, DC 20036 e-mail: bbloom@raffa.com Visit our Web Site at: www.raffa.com Educating Board Members/ Page 59
- 60. THANK YOU! Educating BoardMembers/ Page 60
Editor's Notes
- #14 -Perhaps more than anything else, board leadership is about achieving a common sense among board members and staff of where the organization is going. Without a shared understanding and a passion for the mission, vision and values of the organization, the members of the board can not purposefully set, accomplish or oversee organization goals. Even members of the board that have served together for years may have very different ideas about the organization and its desired future. Take the time to convene mission-focused board retreats and engage in activities to develop consensus- The board and top management need a shared understanding of the very different roles they play in leading the organization. What is policy and what is process? Or what is governance and what is management. Carver model…. And shift since Sarbanes That line – c-3 boards go below it to policy – WHY --- c-6 management tends to go above it, usurping the board’s critical role. -TRUST Lack of trust often means a lack of transparency that is no more than ever necessary to fulfill fiduciary responsibilities. You build trust through open communications. If you are a CEO it means keeping your chair informed on a regular basis about opportunities, challenges and problems but you must feel that the board is there to cooperate and advise and then to set policies that are in the best interest of the organization.
- #15 13 -The Board chair in cooperation with the CEO should work with the board to establish this overall strategic plan.- The CEO and the staff should be the ones carrying it out on a day to day basis employing at time detailed planning to do so. In addition, they need to provide the administrative support for the board’s policy making activities… providing drafts or guidelines for consideration by the board works.
- #22 Board decisions should be made in response to this basic question– will doing this help to fulfill our mission better than an alternative that may be available? Consistently remind the board about mission Must be a leader who is respected by the members and the staff – assertive enough to keep the meetings focused on the agenda yet accommodating enough to make everyone feel welcome and to ensure everyone is involvedThe number of meetings each year will depend on many factors including geography and function. Board structure – through committee , exec committee --- Do you need to keep a close eye on the organization. Don’t simply follow tradition fewer board meetings means more communications (written reports, proposals for actions, info on upcoming matters, general updates on program). [Explain IRS new 990 form first draft and what happened to “how many board meetings a year do you have” CYCLES – routine functions can be spread throughout the year and time allocated accordingly. Budget approval or operating plan, audit report are obvious ones. Review of insurance, report from nominating committee may be less obvious. Annual meeting may be to form new committees or vote on new officers. Bring in a speaker once a year – bring in a representative from the constituency you serve. Anyone know what a consent agenda is? Written set of proposals identified by the chair that required board action but not discussion or debate – minutes, financial reports, resolutions thanking supporter, dates of future meetings. Send it out in advance, put in as one of the first items on the agenda, chair should ask if there are any items that will need discussion, remove these items and vote and move onAGENDA – Important items – keep to the front of the meeting. – give them appropriate timeReports (finance, committee, CEO, staff, program, legal, etc) should be circulated in advance. Be careful not to have all these written reports be then given orally. Summarize and give your board time to ask questions and to discuss them. Remember the board has a right to be informed and to ask pertinent questions --- and you as the CEO or the Board Chair have the obligation to ensure they do so Another great idea is to provide Dashboards – a synopsis of vital signs of the org (often in graphic form) – include historic comparisons and/or industry benchmarksCreate a compendium of Board approved policies -- good orientation for new members – Board book Minutes should report what was done – not what was said. Their purpose is to provide an official record of board actions. Once approved, they become a legal documents and any policies approved become the official policies. As such wording of any motion is critical. Stay away from very detailed minutes quoting what everyone has said. Be concise but accurate.Evaluations Best way to ensure quality meetings is to evaluate them and determine the ways to improve them. Have the board spend a few minutes at the end of each meeting reviewing the meeting to identify what went well and what din not. If no one speaks have them submit written evaluations. Be certain to clarify that the evaluations are not to be personal or critical but constructiveENJOY THE PROCESS – respect, humor -- schedule time for social to build relationships and friendships
- #56 Compensation process include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberations and decision, for CEO, ED or top management official, and other key officers
- #58 AGENDA – Important items – keep to the front of the meeting. – give them appropriate timeReports (finance, committee, CEO, staff, program, legal, etc) should be circulated in advance. Be careful not to have all these written reports be then given orally. Summarize and give your board time to ask questions and to discuss them. Remember the board has a right to be informed and to ask pertinent questions --- and you as the CEO or the Board Chair have the obligation to ensure they do so Another great idea is to provide Dashboards – a synopsis of vital signs of the org (often in graphic form) – include historic comparisons and/or industry benchmarksCreate a compendium of Board approved policies -- good orientation for new members – Board book Minutes should report what was done – not what was said. Their purpose is to provide an official record of board actions. Once approved, they become a legal documents and any policies approved become the official policies. As such wording of any motion is critical. Stay away from very detailed minutes quoting what everyone has said. Be concise but accurate.Evaluations Best way to ensure quality meetings is to evaluate them and determine the ways to improve them. Have the board spend a few minutes at the end of each meeting reviewing the meeting to identify what went well and what din not. If no one speaks have them submit written evaluations. Be certain to clarify that the evaluations are not to be personal or critical but constructiveENJOY THE PROCESS – respect, humor -- schedule time for social to build relationships and friendships