The Best of Boards

Chapter 1: The Risk is Real; The Time is Now Call to Action 6 Conclusion 7 Chapter 2: Roles of the Board and Management Governance in the 21st Century 10 Purpose of the Governing Board 11 Board Committees 12 Legal Responsibilities of the Board 13 Lesson Learned 14 Lesson Learned 14 Lesson Learned 15 IRS Form 990 and Governance 16 Frameworks for Good Governance 16 Panel on the Nonprofit Sector Framework Good Governance Model 18 Legal Compliance and Public Disclosure 18 Summary of Principle: Laws and Regulations 18 Summary of Principle: Code of Conduct 19 Summary of Principle: Whistleblower Policy 19 Summary of Principle: Document Retention and Destruction Policy 20 Summary of Principle: Protection Procedures 20 Summary of Principle: Public Disclosure 21 Effective Governance 21 Summary of Principle: Mission 21 Summary of Principle: Functions 21 Summary of Principle: Size and Structure 23 Summary of Principle: Construction 23 Summary of Principle: Characteristics 24 Summary of Principle: Responsibilities 25 Summary of Principle: Positions 25 Summary of Principle: Training 25 Summary of Principle: Performance Assessment 26 Summary of Principle: Loans and Transactions 27 Summary of Principle: Resources 27 Summary of Principle: Reimbursement 28 The Best of Boards: Sound Governance and Leadership for Nonprofit Organizations Summary of Principle: Solicitation 28 Summary of Principle: Privacy 30 Conclusion 30 Appendix A 31 Appendix B 34 Appendix C 37 Chapter 3: Legal and Ethical Imperatives for Leadership Legal Accountability 40 Ethical Accountability 41 Who is Accountable for Accountability? 44 How to Instill Ethical and Legal Accountability 44 Honest Communications 44 Strong Relationships 45 Internal Controls 45 Clear Expectations 45 Skilled Boards 46 Involved and Informed Boards 46 Financial, Document, and Ethics Audits 46 Compliance Officers 46 Resolving Dilemmas 47 What About WholeHealth? 49 Conclusion 50 Chapter 4: When Management and the Governing Board Disagree The Head Game 54 Communication 56 Constructive Norms 58 Negotiation 59 Assisted Resolution 62 Conclusion 62 Chapter 5: Understanding the Financial Statements of Nonprofit Organizations Characteristics of Nonprofits 66 Responsibility for Financial Information 66 Basis of Presentation for Financial Information 67 Cash Basis of Accounting Versus Accrual Basis 67 Basic Financial Statements 68 Footnotes to the Financial Statements 69 Voluntary Health and Welfare Organization 70 Fund Accounting 70 Assets 73 Cash and Cash Equivalents 74 Revenue, Receivables, and Deferred Revenue 75 In-Kind Contributions 78 Long Term Contributions 79 Conditional Promises to Give 81 Endowments 81 Split Interest Agreements 82 Agency Transactions 84 Nonprofit Serves as a Conduit for Cash or Noncash Donations 85 Nonprofit Solicits Funds for Another Nonprofit Organization (Unrelated) 85 Nonprofit Holds Funds for Another Nonprofit Organization (Unrelated) 86 Nonprofit Enters Into Transactions With Related Foundations 86 Inventories 87 Prepaid Expenses and Investments 88 Alternative Investments 88 Property and Equipment 89 Liabilities 89 Accounts Payable and Accrued Expenses 89 Mortgages and Notes Payable 90 Net Assets 90 Revenues and Expenses 91 Conclusion 91 Chapter 6: Risk Management Some Risk Can t Be Mitigated With Insurance 94 A Nonprofit s Most Important Resource 95 Risk Management Approach 97 Enterprise Risk Management 97 ERM Component One 97 ERM Component Two 98 ERM Component Three 99 ERM Component Four 99 ERM Component Five100 ERM Component Six 100 ERM Component Seven 103 Example Application of a Risk Management System to a Nonprofit Organization 104 ERM in Smaller Nonprofit Organizations 106 Risk Management Committee 107 Crisis Management 108 Revisiting Uncertainty 109 Conclusion 109 Appendix A 111 The Best of Boards: Sound Governance and Leadership for Nonprofit Organizations Chapter 7: Internal Controls: What Every Executive and Board Member Needs to Know Characteristics of Nonprofits 115 Internal Control Defined 116 Distinguishing Error From Fraud 117 Controls for Smaller Organizations 118 Categories of Internal Control 120 Control Activities 122 Designing a System of Internal Control 123 Entity Controls 123 Control Activities 126 Antifraud Programs and Controls 130 Misappropriation of Assets 131 Fraudulent Financial Reporting 131 Revenue Recognition and Management Override 132 Control Environment 133 Fraud Risk Assessment 133 Information and Communication 133 Monitoring 133 Billing Schemes, Check Tampering, and Expense Fraud 136 Use of Analytical Techniques to Identify Unusual Disbursement Transactions for Investigation 140 Skimming and Larceny 141 Payroll Fraud 144 Controls Over Noncash Items 146 When Processing is Outsourced 147 Internal Controls Evolve 148 Conclusion 149 Chapter 8: Focus on Tax Exempt Status Nonprofit Organizations and Tax Exempt Status 152 IRS Filings 153 Differences Between Nonprofit and Commercial Organizations 155 Recognition of Tax Exempt Status 159 Lobbying 162 Public Charity or Private Foundation 164 Public Support Test for Charitable Organizations 165 Test 1 (509(a)(1)) Compute the Public Support Percentage 166 Test 2 (509(a)(2)) Compute the Public Support Percentage 167 Supporting Organizations 168 Charitable Contributions 170 Filing Form 990 173 Unrelated Business Income 175 IRS Audits 177 Conclusion 178 Appendix A 179 Appendix B 182 Appendix C 185 Chapter 9: The Courage to Lead Moral Courage 188 Barriers to Ethical Action 189 Strategies for Ethical Action 193 Have a Clear Compass 193 Know Your Objective 193 Seek Advisers and Allies 194 Walk the Walk 195 Understand Change Strategies 195 Practice Considerate Communication 196 Conclusion 196 Chapter 10: Change Management Understanding Change 198 Be Clear About What You Want 200 Assess Before You Act 201 Create Awareness and Urgency 203 Create a Powerful Coalition 204 Communicate 206 Address Obstacles and Blockers 207 Create Short Term Wins 210 Give People the Tools to Succeed 210 Solidify Changes 211 Suggestions for Sonja 212 Be Clear About What You Want 212 Assess Before You Act 213 Create Awareness and Urgency 214 Create a Powerful Coalition 214 Address Obstacles 215 Communicate 215 Create Short Term Wins 216 Give People the Tools to Succeed 216 Solidify Changes 216 Conclusion 216 The Best of Boards: Sound Governance and Leadership for Nonprofit Organizations Chapter 11: Integration for Action Case One: A Woman Scorned 217 Prevent 218 Address 219 Improve 221 Case Two: The Indeterminate Sentence 222 Prevent 223 Address 226 Improve 226 Case Three: Your Turn 227 Sustained Success 228 Conclusion 229 Glossary 231 Bibliography 235 Suggested Reading 239