You've agreed to serve on a charity's board. You arrive at your first meeting ready to learn how to promote the organization's mission, pitch in with fundraising, and help recruit volunteers, only to find that what the board really needs to do is set up an audit committee. Great—the closest you've ever been to an auditor was when you passed the IRS building during a trip to Washington, D.C. And your fellow board members don't know much more about auditing than you do. What's a board member to do?
For one thing, relax. Help is available.
A few months ago, we reviewed different insurance coverage issues for not-for-profits.
(Go to "Nonprofit Directors and Officers Insurance: The Good, the Bad, and the Ugly
" and "Insurance Trips and Traps for Nonprofits
" if you missed the first two installments.) How about the administrative burden insurance causes an organization? Here are some tips for making your insurance program easier to manage.
Last month we discussed the unique issues
presented by nonprofit directors and officers insurance
. There are issues lurking in other parts of your insurance program, too.
In my insurance consulting work with nonprofits, one area of coverage is a topic of constant concern—directors and officers insurance, a.k.a. D&O. There is, in many ways, an air of mystery around this kind of policy. Let's get rid of that!
June's Question of the Month asked Newsletter subscribers which resources they use to prepare their Forms 990 and report on finances. Here are the products and sites they mentioned (inclusion in this list is not an endorsement by GuideStar).
I took accounting in college—for one day. Although I have never regretted dropping the course, I have since learned that into every life a little bookkeeping must fall, both at work and at home.
About Ratios in General
We've all heard stories about financial abuses at specific charities—concern about nonprofit wrongdoing has even drawn Congressional attention. Some donors and charity watchdogs advocate using financial ratios to evaluate charities and ferret out the ones that are using their funds inappropriately. These groups and individuals argue that any organization whose ratios fall below certain levels should be regarded with suspicion.
A collaboration between BoardSource and INDEPENDENT SECTOR has produced the following report on the effects of the Sarbanes-Oxley Act on nonprofits.
BoardSource and INDEPENDENT SECTOR wish to thank Dan Moore, Vice President for Public Affairs, GuideStar; Tom Hyatt, Principal, Ober Kaler; and Paul Nelson, President, Evangelical Council for Financial Accountability for sharing their professional insights and expertise on this document.
The American Competitiveness and Corporate Accountability Act of 2002, commonly known as the Sarbanes-Oxley Act, was signed into law on July 30, 2002.
Passed in response to the corporate and accounting scandals of Enron, Arthur Andersen, and others of 2001 and 2002, the law's purpose is to rebuild public trust in America's corporate sector. The law requires that publicly traded companies adhere to significant new governance standards that increase board members' roles in overseeing financial transactions and auditing procedures.
Things to keep in mind when you are evaluating an organization's financial health: