Nonprofit boards, regardless of an organization’s size and scope, play a vital role in the overall success of a nonprofit. With overwhelming economic uncertainty and increased scrutiny, boards are required now more than ever to effectively govern their nonprofits.
There are several key factors that nonprofit boards should be keenly aware of in 2013:
For several years now, expanded disclosures about nonprofit executive compensation practices have been publicly available through the filing of the Form 990. Best practices dictate that an organization have a process in place for determining the compensation of the CEO, officers and key employees that includes review and approval by an individual independent of the process, comparing salary and benefits to data available from comparable organizations, and documentation of the deliberations and decisions that are made to substantiate the compensation provided.
As a board member, you should know how the organization answers the questions about executive compensation on its Form 990. More importantly, you should understand the process that the organization has in place to assess executive compensation, and be confident that the organization is doing more than just “checking the box” to answer “yes” to these questions.
How comfortable are you that management has critically assessed the risks the organization faces? If management has never shared its assessment of the financial and reputational risks that threaten the organization with the board or a committee of the board then you should ask about it.
A comprehensive risk assessment includes identifying risks, evaluating the likelihood and severity of the risk and the steps taken to mitigate the risk. Ideally the assessment should be updated annually. Identifying risks should be done broadly and should include financial and compliance risks, as well as reputational risks.
Some of the risks that nonprofits face include fraud or misuse of assets, violations of laws and compliance requirements, economic risks that could impact revenue streams or the sustainability of the organization’s programs, risks associated with chapters or affiliated organizations and risks associated with the use of volunteers or protecting the individuals who benefit from the organization’s programs such as youths, the elderly or the mentally ill. Once the risks are identified and an assessment is made of the likelihood and severity, the board should ensure that
management has a plan for addressing the high threat/high impact risks to the degree possible within the organization’s means.
U.S. Debt Reduction Debate
Although the “fiscal cliff” issue was addressed at the last minute when Congress passed “The American Taxpayer Relief Act of 2012,” the uncertainty over reducing the size of the U.S. debt and the impact upon government spending and tax reform still looms. One thing is certain: the debate is far from over and its impact on the nonprofit sector will be far reaching and difficult to measure.
There are two areas where nonprofits are likely to be impacted: decreased government spending on discretionary programs, which could increase demand on the nonprofit sector’s resources and programs; and tax reform that impacts charitable deductions, which could reduce contribution revenue.
As a board member, you should ensure that management is focused on the impact these possibilities pose to the organization, and is considering ways to mitigate these risks. What key focal areas will your board be focusing on this year?
This article was written by Laurie Arena Rocha, partner, BDO.
This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Spring 2013). Copyright Ã‚© 2013 BDO USA, LLP. All rights reserved. www.bdo.com