Effective NFP Board Mambers Understand Responsibility and Risks

Effective NFP Board Mambers Understand Responsibility and Risks

By Jeffrey H. Tucker, CPA and Mark Van Benschoten, CPA

Volunteers choose to become involved with not-for-profit organizations and professional trade associations for any number of reasons. But most of the time, emotions play a part in the decision. Whether the organization helps the youth, the elderly, the sick or the less fortunate or the association's mission is something you strongly believe in, it's easy to get drawn in to lending a hand.

Following your heart - committing to something you believe in - is important. But before you choose to sit on a board because it makes you feel good, you should listen to the logical side of your brain, too.

Effective not-for-profit organizations and associations need effective boards of directors. If the board isn't effective, sadly, the execution of its cause probably won't be either. And it's a struggle for many of these groups to attract volunteers - it can be particularly hard to fill the coveted board seats. So when you assess your volunteering options, what should you know about the organization before you make a decision?

Who holds the leadership positions? How long have they been involved? How old are they - how much longer will they be active in the organizations?

These questions are important because their answers probably indicate whether the organization is well-run. Quality management usually leads to a quality organization. If the management is leaving during your term, you will be faced with a problem that faces many organizations today - where will you find the replacement? Many quality employees of these organizations want to be leaders but have concerns about work-life balance, long term earning potential, lack of mentorship and overwhelming fundraising responsibilities.

Many,management personnel are baby boomers approaching retirement age. The organizations for which they work do not generally have extra money to hire the successor to top management. Since the knowledge of the organization and management skills are not passed on, board members could be at risk for errors and omissions if the replacement is not carefully evaluated before hiring.

The financial stability of an organization is an important factor to look at before you accept a board position. If an organization is in poor financial condition, the chances of your term on the board being a pleasant experience are greatly reduced. There are a number of questions that you should ask about the organization's finances:

• Is there a budget for operations and capital expenditures?
• Does the organization have sufficient net assets (reserves or assets in excess of liabilities) to continue to meet its exempt purpose?
• Is there sufficient cash to meet current obligations?
• Are revenues greater than expenses? If not, is there a plan that will reverse the deficits in a short period?
• Does the not-for-profit have an external audit? If so, has the auditor provided a letter addressing internal control system deficiencies? Is there a required report on compliance included in the audit?
• Is there an investment policy in place and is it monitored?
• Does the financial staff provide accurate and timely financial statements so that management and the board can use them to make informed decisions?

Although all these items do not need to be in place for you do decide to join an organization's board, many of these items should be in place to reduce there risk to you as a board member.

Accepting a position on a board should include additional questions about operating policies. Consider the following when determining if you want to serve on a board:

• Does the organization have a conflict of interest policy to prevent self-serving transactions by board members?
• Does the organization have a directors and officers omission insurance policy?
• Are the personnel policies written and enforced by management?

Volunteering for a not-for-profit organization or professional trade association is a great way to return value to your community or profession. Do your homework first. You may be able to reduce some headaches if you know exactly what you are getting into before you agree to volunteer.