This article originally appeared in the Journal of Accountancy ©2019 Association of International Certified Professional Accountants.
In a way, board oversight has the same impact on a not-for-profit organization that parenting has on a child. Performed effectively, board oversight provides the framework for the organization to grow and prosper. But when the board is dysfunctional or performs poorly, the organization’s chances of serious troubles multiply exponentially.
Cheryl R. Olson, CPA, CGMA, not-for-profit solutions strategist at Clark Nuber in Bellevue, Wash., and a member of the AICPA Not-for-Profit Advisory Council, recently shared her five most important tips for not-for-profit governance during a JofA podcast:
Recruit board members with the time and skill sets that contribute to a well-rounded board.
Board recruitment needs to start with a matrix of qualities and abilities that the organization needs. Age, gender, race, ethnicity, and location should be considered in this plan. So should basic knowledge competencies such as accounting, human resources, legal, and real estate skills. It’s not enough just to find people who are willing and able to serve on a board or raise money. Collectively, those people must possess the various areas of expertise needed for appropriate governance.
Train members on their roles and responsibilities.
There is a strong need to educate board members in both their legal and financial basics. Of course, all board members need to understand the core duties of care, loyalty, and obedience, as well as the concepts of conflicts of interest and oversight responsibilities. But it appears that boards too often don’t understand the financial position of an organization until it’s too late. That’s why members who don’t have a finance background need to be educated on finance so they will have the confidence to ask questions and gain a basic understanding.
Take good minutes.
This sounds easy because you’re just reporting what happens at a meeting. But it’s often a challenge. You want to make sure you don’t provide too much detail because too much minutiae in the minutes can obscure the meeting’s important points showing that the board performed its oversight duties. But you also want to faithfully capture the important points. Whenever a decision is made, it’s especially important to record the names of the board members who voted against the decision.
Set the yearly board calendar appropriately.
The board meetings should be scheduled so that key decisions can be made at the appropriate times. If the board needs to review the yearly financial report before it is issued in February, it makes little sense to schedule quarterly board meetings in December and March. There are normal things that happen on a cycle, such as approving the audit, that should be considered when setting the board calendar. Also be sure to consider the potential need to align full board meetings with certain committee meetings.
Address board members who aren’t performing or contributing.
Board members should not be allowed to stay in their role if they do not show up for meetings, fail to prepare for meetings, or don’t possess expertise that contributes to the board’s effectiveness. It takes some courage to ask a board member to resign, but the core duties of care, loyalty, and obedience to the organization require replacement of those who don’t or can’t perform appropriately.
Visit the AICPA Not-for-Profit Section webpage for more information and resources on not-for-profit governance, accounting, and financial reporting topics.