Effective Board Governance Webinar: Presented by Kevin P. Martin & Associates
Join the webinar on effective board governance presented by Kevin P. Martin & Associates. Learn about board responsibilities, governance processes, decision-making, and board composition for nonprofit organizations.
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Effective Board Governance August 2nd Webinar Presented by Kevin P. Martin & Associates Thanks for joining us! A few instructions before we begin: You may join the audio by selecting the radio button for either Telephone or Mic & Speakers. If you are using telephone, please dial in with the conference line and audio pin provided. Marta Hodgkins-Sumner Director of Membership and Programs If you are having any technical issues, please let us know in the chat box. We will have time for Q&A. Please enter your questions in the chat box at any time. This webinar is being recorded, and we will distribute the recording after the webinar. www.massnonprofitnet.org
About the Speakers Karen Kent, CPA James Matzdorff, CPA Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Kevin P. Martin & Associates, P.C. Board of Directors General Information Roles and Responsibilities Principles of Effective Governance Barriers to Effective Governance Federal Form 990 Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Board Definition Nonprofit board members are responsible for the organization s mission and policies, seeing that the organization is run legally and ethically. To do their work most effectively, boards must have leadership and a qualified executive and staff. Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
What is Governance? Processes and decisions that seek to define actions, grant power and verify performance through: Decision making processes in the administration of the organization Works for the benefit of the public Set of relationships and processes to direct and control the organization in order to achieve goals and objectives of the organization Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Board Composition Board members are elected or appointed Board size Board members Diversity in experience and skill Possess community connections Diverse perspective Employees as advisors Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Characteristics of Effective Boards Understands mission, tradition and history Passionate about the mission Share a clear vision for the future Understands roles and responsibilities Does not micro-manage Strategic focus and results-oriented Strong relationship with executive Appropriate structure, size and composition Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Board Committees Delegate to committees (i.e. audit/finance, investment ) Report to the Board Policy and expectations set by the Board Typically 3-8 members Typically a chairperson Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Board Terms Term length Term limitation Staggered terms Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Polling Question Does your organization have term limits? Yes or No Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y 10
Roles & Responsibilities Duty of Care and Loyalty Attend board and committee meetings Ensure you receive detailed information beforehand You should read all the material presented and be prepared to ask questions Use your judgment and don t just take the word of the executive or fellow board member Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Right to Information You have the right to reasonable access to: management internal information organization s principal advisors (i.e. auditors, attorneys ) books and records, and you have the right to engage the services of outside advisors at the organization s expense to assist with a particular matter Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Board is Vital and Diverse Determine and periodically review organization s mission Diversity of view points Rotation of board members and officers Board nominating process Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Select and Oversee the Executive Director Form a search committee at the beginning of the hiring process Develop a written job description for the position prior to hiring Majority of the search committee should be board members, but it may be beneficial to include staff members Interview process, if possible, may involve the entire board for the final candidates and participate in contacting references The entire board should make the final decision After the CEO is hired, the board should periodically review and assess the executive s performance Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Set Executive Compensation The board is responsible for setting the compensation of the organization s CEO and other senior managers Be mindful that this information is provided to the public through different vehicles Both the IRS and Non-Profit Organizations and other regulatory agencies may scrutinize the reasonableness of executive compensation and the board s process in making that determination Every board member should know what the CEO and other senior managers are paid, including any non-salary compensation, such as automobile, et al Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Set Executive Compensation Continued In setting compensation you should consider the performance of the CEO and your senior managers and the compensation provided to other similar executives in the field Board members are responsible for determining reasonableness of compensation Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Conflicts of Interest The circumstance of a board member, public office holder, or the like, whose personal interests might benefit from his or her official actions or influence. Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Conflicts of Interest Any potential conflict transaction should be scrutinized very closely by the board Should be a conflict of interest policy Policy should include a procedure for the annual written disclosure by all board members and senior managers and key decision makers Policy should address any financial interests of a board member Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Conflicts of Interest - Continued Policy should address the withdrawals from discussion and voting by the board member or senior manager with a conflict Board should consider the pros and cons of entering into relationships with board members and/or senior managers (i.e. related party transactions) May wish to require that related party transactions require a greater- than-majority vote Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Financial Matters Every board member has a fiduciary responsibility to ensure that assets are not used inappropriately, that there is financial accountability, that the organization has mechanisms in place to stay fiscally sound and that restricted funds are used for their intended purpose. Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Financial Matters Continued The board should ensure the following: Realistic annual budget Budget is developed early enough allowing involvement in the review the fiscal year Internal accounting controls are in place and operational including procedures to detect misappropriation of assets the entire board and approval prior to the beginning of Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Financial Matters Continued The board should ensure the following: Should require periodic confirmation from management that all filings are up-to-date (i.e. tax returns, employee withholding taxes, etc.) Consider having an independent audit conducted Consider establishing an audit/finance committee, however the full board should still receive and act on the report of the auditor, receive periodic financial reports and approve the budget Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Financial Matters Continued The board should ensure the following: Fundraising is done with honesty and with integrity Confirm that any restricted gift to the organization is separately accounted for, and that funds are being used in accordance with the terms of the restriction Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Roles & Responsibilities Educate Yourself Know the mission statement Be familiar with the articles of organization and by-laws Review what training and education the governing board may need on a regular basis Provide orientation to new board members Draw on the expertise of specialists in the field Consider a board training manual that contains governing documents, copy of most recent audit, budget, and other orientation materials Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Principles of Effective Governance Build a Competent Board Mission and Strategy Risk Management Organization Performance Culture Tone from the Top Enhance the Organization s Public Standing Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Barriers to Effective Governance Tendency to micro-manage Nominating committee either none or ineffective No plan for board member rotation Failure to take action regarding unproductive board members Board size too small or too large No committee structure No training/orientation for new and seasoned board members No strategic plan in place Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Polling Question What is the role of a board member? a. To set executive compensation b. To run the day-to-day operations c. To oversee financial matters d. Both a and c Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y 27
Federal Form 990 The Federal Form 990 was completely redesigned in 2008 One of the reasons for the redesign was to promote greater transparency of Exempt Organizations The redesigned Form 990 devotes an entire section to governance: Part VI Governance, Management, and Disclosure Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Governing Body, Policies and Disclosure This section the IRS considers the crown jewel of the redesigned 990 Part VI requests policies that are not required by the Internal Revenue Code consider them to be strong suggestions IRS sees tax compliance as being directly correlated with good governance Good governance practices improve the organization s ability to: Comply with tax laws Safeguard their assets Accomplish their mission Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Governing Body, Policies and Disclosure Continued Answers in this section are based on what was in effect as of the last day of the tax year (unless indicated otherwise). Even if organization doesn t have policies and must answer no , Schedule O provides an opportunity to explain themselves. Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Governing Body, Policies and Disclosure Continued Number of voting members who are independent. Independent = a member (1) not compensated by organization or a related organization as an officer or employee, (2) not receiving more than $10,000 from the organization or a related organization as an independent contractor, and (3) not involved (and no family members involved) in a transaction with the organization or related organization required to be disclosed on Schedule L For purposes of this question, organizations must make a reasonable effort to determine whether board members are independent (i.e. annual questionnaire to solicit relevant info) Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Governing Body, Policies and Disclosure Continued Did any officer, director, trustee or key employee (TDOKE) have a family or business relationship with any other TDOKE? The organization must make a reasonable effort, such as through a questionnaire to determine this. (Explanation required if yes) Did the organization delegate management control to management company? (Explanation required if yes) Do members, stockholders, or others have power to elect members of the governing body; are any governance decisions reserved to members, stockholders or persons other than the governing body? Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Governing Body, Policies and Disclosure Continued Did the organization contemporaneously document meetings held by the governing body and each committee acting on behalf of governing body? (Explanation required if no) Does the organization have written policies and procedures governing chapters, affiliates, and branches to ensure consistency with those of the org.? (Explanation required if no) Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Governing Body, Policies and Disclosure Continued Exempt Organizations are required under Section 6104 to make its Forms 1023, 990, and 990-T available for public inspection. This section asks the organization to indicate whether these are made available via their own website, another s website, upon request, or through some other means. The organization also must indicate if and how the organization makes its governing documents, conflict of interest policy, and financial statements available to the public. (Not required to be disclosed, however all organizations must explain policy) Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Policies: Conflict of Interest Whistleblower Document Retention/Destruction Executive Compensation Joint Venture 990 Review Minutes of Meetings Gift Acceptance Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Written Conflict of Interest Policy? If yes , are TDOKE s required to disclose annually and does the organization regularly and consistently monitor and enforce compliance? Explanation required of monitoring and enforcement. A Conflict of Interest Policy should: Define conflict of interest Identify the classes of individuals covered by the policy Facilitate disclosure of information that might help identify conflicts of interest Specify procedures for managing a conflict of interest Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Written Whistleblower Policy? A whistleblower policy: Encourages staff to come forward with credible information about illegal practices or violations of adopted policies Identifies staff, board members, or outside parties to whom such information can be reported in confidence Obligates the organization to protect the whistleblower from retaliation Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Written Document Retention and Destruction Policy? A document retention and destruction policy identifies the record retention responsibilities of staff, volunteers, board members, and outsiders for maintaining and documenting the storage and destruction of the organization s documents and records. Policy should include wording that no records should be destroyed with the intent to obstruct a federal investigation. (Sarbanes-Oxley legislation imposes criminal liability) Permanent retention of Forms 1023, 990 and 990-T Policy should include guidelines for handling electronic files. Policy should cover backup procedures, archival of documents and regular checkups of the reliability of the system. Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Polling Question Does your organization have a document retention and destruction policy? Yes or No Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y 39
Federal Form 990 Executive Compensation Did process for determining compensation include a review and approval by independent persons, comparability data and contemporaneous substantiation of the deliberation and decision for CEO, ED, or top management official and other officers or key employees? All organizations must describe the process. Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Executive Compensation Continued Compensation is presumed reasonable if: The compensation arrangement is approved in advance by an authorized body, none of whose members have a conflict of interest in the arrangement The authorized body obtains and uses comparable compensation data for similarly qualified persons in functionally comparable positions at similarly situated organizations The authorized body adequately documents the basis for its determination at the time it is made Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Joint Venture If participated in joint venture, is there a written policy or procedure to evaluate the joint venture and has the organization taken steps to safeguard exempt status, such as requiring that: All contracts with the organization be on arm s-length terms Exempt purposes be given priority over investors profits The venture does not engage in activities that would jeopardize the organization s exempt status Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 990 Review Was a copy of Form 990 provided to governing body before it was filed? All organizations must provide an explanation of the process the organization uses to review the Form 990 Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Meeting Minutes Prepared within 60 days, but not later than the next meeting Includes all committees with power to act for the board Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Gift Acceptance (Schedule M) Does your organization have a gift acceptance policy that requires review of any non-standard contributions, for example a building, land, etc.? unexpected costs related to a non-standard contribution Preserve donor relationships Protect the organization from incurring Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Important Things to Consider: Where was policy obtained (boilerplate or customized)? May need legal review for compliance with laws. How often is the policy reviewed? Has the organization or any laws changed since implementation? Does the organization have the capacity to follow the policy? Is the policy understood? Those who are expected to follow policy need to understand the policy. Are the policies actually being followed? Have any issues occurred in the past? Did the policy help? Does it need to be further amended to work for the organization? Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Federal Form 990 Audit/Finance Committee (Part XII) Audit requirements Committee responsible for oversight Roles of an audit and finance committee Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Polling Question Does your organization have an audit committee? Yes or No Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y 48
Federal Form 990 What's The Difference? Audit Committee vs. Finance Committee AUDIT COMMITTEE The audit committee is authorized to consider matters related to (a) the financial statements of the organization and other official financial information provided to the public; SHARED ROLES The finance committee ensures that budgets and financial statements are prepared; the audit committee has oversight for ensuring that reports are received, monitored, and disseminated appropriately. FINANCE COMMITTEE The finance committee shall oversee the preparation of the annual budget and financial statements. The finance committee shall oversee the administration, collection, and disbursement of the financial resources of the organization. (b) the systems of internal controls, including overseeing compliance by management with applicable policies and procedures and risk management ; and The finance committee shall advise the board with respect to making significant financial decisions. The finance committee monitors financial transactions; the audit committee makes sure things are done according to policy and with adequate controls. (c) the annual independent audit process, including the recommended engagement of and receiving of all reports from the independent certified public accountants. The audit committee shall have such other duties as may be designated to it by the board. The finance committee provides guidance about what can be done; the audit committee ensures that independent oversight occurs. Source: Nonprofit Risk Management Center Website www.nonprofitrisk.org Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
Questions?? Kevin P. Martin & Associates, P.C. A S S U R A N C E | T A X | R I S K M A N A G E M E N T | I T A D V I S O R Y
