NotForProfit Board Member Orientation

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Not-For-Profit Board Member Orientation

• Understanding the Responsibilities of a
  Not-for-Profit Board Member

Revised September 2005
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• Notice to Users
• This analysis is intended to provide accurate
  and authoritative information with regard to the
  subject matter covered, and is offered with the
  understanding that the AICPA, the authors and the
  editors are not engaged in rendering legal,
  accounting or other professional advice or
  service. Every effort has been made to ensure
  the accuracy and completeness of this
  information, as of the date of its issuance.
• The specific application of any law,
  regulations, or policy to any particular fact,
  situation, or problem involving any employer
  should always first be reviewed with legal
  counsel or other consultants who practice in
  these particular areas and are knowledgeable
  about applicable federal and state laws and
  regulations and their interpretation.
• Tips for using the PCPS Not-For-Profit Board
  Member Orientation
• Getting Started
• PCPS, AICPAs community for CPA firms, designed
  this presentation to help you strengthen your
  relationship with your not-for-profit (NFP)
  clients and prospects. As the media continues to
  focus on corporate governance, many board
  members, including those on NFPs, are eager to
  learn more about their responsibilities. As a
  CPA, you are uniquely qualified to help your
  clients board members understand their role as
  directors. You are welcome to customize the
  presentation to fit your needs. However, we ask
  that if you choose to do so, you insert your firm
  name on slide 30. If you use the presentation as
  is, feel free to delete or hide slide 30.
• Customizing the Presentation
• Please note that there is a space on slide four
  and on slide 28 for you to insert your firm name.
  
• Feel free to add your expertise to any subject
  included in the presentation.
• If you would like to insert your firm logo, click
  on View in the main toolbar. This will trigger
  a drop down menu. From this, select Master,
  then Slide Master. This will bring you to the
  slide template, which controls the format of all
  content slides in the presentation. Here, click
  on Insert, then Picture, then From File.
  This will allow you to browse through your hard
  drive and select your logo file. You can then
  position your logo in the upper right corner of
  the slide, to the left of the PCPS logo. Once
  that is complete, click on View at the top once
  more and then Normal. This will bring you back
  to the presentation, where you will see your logo
  on each slide.
• You may want to consider adding a slide with
  Additional Reading, listing books or articles
  that board members may find helpful. A list of
  recent articles, in particular, will help keep
  the presentation fresh. One book that PCPS
  recommends is John Carvers Boards That Make a
  Difference (Jossey-Bass 2nd edition, May 1997).
  
• Notes for Presenting
• In addition to the content listed on each slide,
  some slides include additional important
  information in the Notes section, which you can
  incorporate into your oral presentation. When
  viewing the Power Point slides on your computer
  in Normal mode (under View), these appear in
  a window below the slide. You can print them by
  clicking on File, then Print, then selecting
  Notes page from the drop down menu entitled
  Print what.

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Not-For-Profit Board Member Orientation

• Understanding the Responsibilities of a
  Not-for-Profit Board Member

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Introduction

• This presentation is designed to help
  individuals become effective board members for
  not-for-profit organizations (NFPs). It is based
  on the expertise of CPA firms, including insert
  name of firm, that work closely with NFPs, their
  staff leadership and boards of directors.

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Outline

• How NFPs Differ from Other Organizations
• Duties of a Board Member
• Financial Literacy
• Management and Measurement Issues
• Sources for More Information

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How NFPs Differ

• Dedicated to achieving a mission or a vision
• Gather funding and support from the government,
  the general public, foundations, exchange
  transactions, and/or membership fees
• Enjoy tax exempt status, IRS section 501
• Carry an obligation to the public and donors to
  acquire, manage and allocate financial resources
  to accomplish the mission

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Philosophical Mission

• The philosophical mission that spurs the
  establishment of the entity creates
• An obligation of stewardship of financial
  resources
• A duty to keep consistent with the mission

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Keys to Success

• Clear organizational goals
• Defined performance measures
• Capable, dedicated personnel and management
• Accurate accounting control measures
• Reasonable constraints on activities
• Effective, capable board of directors
• An audit committee or other non-staff directed
  oversight body that oversees the audit

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Boards or Audit Committees

• Assure that proper financial management is in
  place
• Retain and oversee high-quality auditors
• Counsel mentor executive staff

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Board Responsibility

• A major component of the Boards responsibility
  is oversight of the financial management,
  including
• Financial Planning
• Budgeting
• Accounting
• Payroll Taxes
• If there is no Audit or Finance Committee,
  oversight may also include
• Payroll
• Taxes
• Annual Government Filings

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Membership Considerations

• Duties and Responsibilities
• The Organization
• Provisions
• Liabilities

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Duties of a Board Member

• Care
• Loyalty
• Manage Accounts
• Obedience

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Duty of Care

• The care that an ordinary prudent person would
  exercise in a like position and under similar
  circumstances
• Attending board meetings regularly
• Showing independent judgment
• Being informed about organizational resources
• Delegating only to responsible individuals
• Following up regularly

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Duty of Loyalty

• Give undivided allegiance to the organization
  when making decisions that affect the
  organization
• Personal, family or business interests cannot be
  put above the organizations interests
• Avoid conflicts of interest in fact and in
  appearance

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Duty to Manage Accounts

• Ensure financial accountability by
• Overseeing the organizations executive director
• Checking that resources are used prudently
• Implementing procedures to ensure accurate
  records
• Ensuring that no one person has sole control over
  finance
• Accurate decision making documentation using
  Board Meeting Minutes

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Duty of Obedience

• Ensure that the organization remains obedient to
  its central purpose
• Establish a System of Accountabilities. This
  might include
• Policies
• Programs
• Performance
• Process
• Value
• Outcomes Effectiveness
• Efficiency Economy
• Planning, Allocating Managing

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Integrity

• Consider establishing a publicly accessible code
  of conduct
• Ensure that the publicly held values are
  reflected by the NFPs functions
• Evaluate all major decisions to ensure that they
  agree with the core values

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Financial Literacy

• At least one member or an outside consultant
  should be considered financially literate
• Understands financial statements
• Understands financial risks
• Understands the impact of business decisions on
  the financial statements
• Identify balance sheet risks
• Understands revenue recognition issues on the
  income statement

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Ask

• Do we have a sound financial plan?
• Do we have enough cash?
• Are our reserves satisfactory?
• Are our major expenses in line?
• Are we meeting our budget?
• Are our expenditures appropriate?
• Are we insured appropriately against risks?
• Are we meeting the guidelines and requirements
  set by the IRS for NFPs?

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IRS Regulations

• Be aware of intermediate sanctions
• IRS Regulations provide a rebuttable presumption
  of reasonableness
• Unrelated Business Income Tax

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Budget and Income Analysis

• How realistic is the budget?
• How often is the budget monitored?
• Is managements compensation tied to a particular
  number on the income statement?
• How volatile are the NFPs funding sources?
• Are there any trends in the sources of funds that
  may impact income?
• Is there adequate documentation of endowments,
  grants and other donor funding?

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Financial Abnormalities

• Consistently late financial statements
  bookkeeping
• Overdue/late payroll taxes (i.e. withholding)
  remittances
• Late payment penalties and larger than typical
  bank charges
• Bank accounts always in overdraft situation
  checks are cut but not mailed immediately
• Bank accounts not reconciled or reconciled timely
• Aged payables and vendors requiring COD

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Financial Abnormalities

• Listings of receivables payables are not
  reconciled to the ledger
• Complex business arrangements
• Large last-minute transactions
• Unusual accounting policies
• Reluctance to make changes in systems
• Decline in key ratios
• Significant variances in budgets
• Multiple bank accounts
• Large fluctuations in investments

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Risk Management

• Identify financial, operational and external
  risks
• Assess insurance coverage purchased for various
  exposures
• Understand and oversee process for internal
  controls

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Management Issues

• Organizational Structure
• Compensation
• Policy Making
• Compliance

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Measurement Issues

• Establish performance measures to gauge
  achievement of the mission
• Information technology resources should
  assist/support measurement
• An appropriate cost allocation structure will aid
  in the analysis

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Performance Measures

• Effort
• Accomplishment
• Relationship of efforts to accomplishments

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insert name of firm Can

• Help the organization stay on track financially
• Proactively facilitate the implementation of
  ethics programs
• Influence ethical growth of the NFP
• Help eliminate the gap between values actions
• Create systems controls for monitoring the
  internal effectiveness of ethics programs
• Aid with performance measurement
• Orchestrate strategic planning
• Implement risk management tools assess internal
  controls

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Audit Committee Effectiveness Center

• The AICPA Audit Committee Toolkit
• Guidance and Resources
• Specific Not for Profit Resources Coming Spring
  2005
• www.aicpa.org/audcommctr/homepage.htm

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• insert name of firm created this presentation
  based on materials prepared by PCPS, The AICPAs
  Alliance for CPA Firms. It has not been approved,
  disapproved, or otherwise acted upon by any
  senior technical committee of the AICPA.

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