Thursday, January 28, 2010

How Effective is Your Board of Directors?

Thursday, January 28, 2010 0
We've all heard about fraud and embezzlement in the nonprofit sector, especially over the last several years. It's been in the newspapers, on the radio, television and on the web. And one of the prevailing questions on our minds when we hear these stories is, “Where was the Board?”

The Board of Directors of a nonprofit organization has a fiduciary responsibility to protect the assets of the organization it serves, by being informed and actively overseeing the organization’s operations and finances. This means attending regularly scheduled board meetings and being prepared to actively engage in carrying out the mission of the organization.

What are the qualities of a good board member? A good board shares a passion for and a commitment to the nonprofit’s mission; a good board member is willing to “roll up his sleeves” when necessary to get the work done. A good board member is willing and able to help raise money for the organization. A board member is expected to contribute at some level, in order for the organization to communicate to funders that the board members are committed to the organization and its mission. A good board member has a strong connection and is influential in his or her community.

What are some useful skills to look for in a prospective board member?

• Fundraising and grant writing skills
• Accounting and bookkeeping skills (a CPA who specializes in NFP’s would be most valuable)
• Banking/financing and investment skills
• Database, website or other technical skills
• Employee and volunteer management skills
• Public speaking skills
• Marketing skills
• Legal skills (an attorney who specializes in NFP’s would be most valuable!)

What is the optimum number of board members and what should the terms be?

• Most states establish a minimum (usually one to three members)
• Odd number of members avoids tie votes
• A size range is better than a firm number (members tend to come and go)
  • Small to medium sized nonprofits – five to nine board members recommended
  •  Larger nonprofits – a range of nine to 15 board members is recommended
  • Very large nonprofits can typically accommodate more than 15 board members
• Two to three years is a common term length
• Stagger terms, and consider limiting consecutive terms
• Number of board members (size range) and term limits should be included in the organization’s bylaws

What constitutes an effective board meeting?

• Meet regularly – at least quarterly, and keep meetings to no more than two hours
• Give notice of meetings – set the meeting dates for the entire year in advance
• Provide an agenda – send agenda and minutes of the previous board meeting to the board in advance of the meeting, so board members come to the meeting prepared
• Begin the meetings on time!
• Invite staff and outsiders, when appropriate, to keep the board informed and engaged
• Know the decision making methods – should be included in the organization’s bylaws

If your organization follows the above board related guidelines, it will be able to create a Board capable of effectively overseeing the organization’s operations and finances and be in a position to prevent or detect the widely publicized improprieties. Further, the Board has the legal duty and authority to set policies, and monitor compliance with those policies. Over the next several months, we will discuss the various governance policies that your organization should implement in order for your organization to improve transparency and accountability at a time when governance issues are being widely scrutinized by Congress, the IRS, the exempt organization sector (your constituents), Attorneys general, and the media.

Tuesday, January 19, 2010

Is this the first year your organization has to file the revised Form 990?

Tuesday, January 19, 2010 0
I know what you’re thinking. You’ve already heard enough about the revised Form 990. But was your organization required to file it last year? I have had the opportunity of helping several organizations complete the revised Form 990. One thing I’ve learned is that the preparation of the revised Form 990 can certainly be a daunting task, especially if the organization did not take the time to familiarize itself with the form and the additional information that is needed. Time has come and gone. For the 2009 tax year more organizations may be required to file the revised Form 990. This year organizations will be only able to file the Form 990-EZ if their gross receipts are under $500,000 and their total assets are under $1,250,000. If this is the first year filing the revised Form 990, hopefully you have become familiar with it and you have done some planning. If not, you still have some time, but you should start now! Whether it is your first year or second year filing the revised Form 990, I hope the following tips help you:
  • Review your organization’s mission and program service accomplishments. Do your organization’s program service accomplishments truly convey the organization’s mission? Can you be more descriptive? Remember the federal and state governmental agencies are not the only ones looking at your Form 990; it will be posted on Guidestar, The Wise Giving Alliance of the Better Business Bureau, and Charity Navigator. Organizations and individuals can review the Form 990 in order to make decisions on whether or not to support your organization, so make sure your Form 990 is not only accurate, but look at it as a marketing tool for your organization.
  • Identify which of the sixteen schedules your organization will need to complete by answering the questions on Part IV of the Form 990. Unfortunately these questions will sometimes take you in a circular pattern by referring you to the following pages of the Form 990 where financial information is reported. Therefore, be prepared with your financial information in order to complete these questions.
  • Answer the questions on Page 6, Part VI Governance, Management, and Disclosure. Based on the answers to these questions decide which policies and procedures your organization should consider adopting or revising. You may notice the top of page 6 acknowledges that this section “requests information about policies not required by the Internal Revenue Code.” So you may ask yourself, do I really need to address these questions? You certainly do need to answer them, but you do not have to answer them “yes”. However, be sure to review your state laws, because state law might require such policies. Also, the IRS believes adopting some of these policies and procedures will help safeguard the organization’s assets.
  • Become familiar with the financial reporting requirements. There is much more detailed financial information required on the revised Form 990. If possible, make changes to your chart of accounts to efficiently capture the required financial information.
  • I know we all like hanging out with SALY (same as last year), but don’t get too comfortable hanging out. There are numerous questions and many of the definitions related to these questions have changed or have been rewritten to be clearer, so don’t assume all of your answers will be the same as prior years. Review the definitions at the very end of the 990 instructions to be sure you understand the question being asked.
  • Last of all, don’t hesitate to ask for help. The Form 990 requires a lot of information, so it might save you time and aggravation by asking for assistance. The IRS website has a lot of information to help preparers of the Form 990. In addition, attorneys and accountants can be a very helpful resource. Therefore, don’t hesitate to pick up the phone and call your CPA or the Elko & Asssociates non-profit team.
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