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The Best of Boards: Sound Governance and Leadership for Nonprofit Organizations

The Best of Boards: Sound Governance and Leadership for Nonprofit Organizations

Marci S. Thomas, Kim Strom-Gottfried

ISBN: 978-0-870-51965-9

Nov 2016

256 pages

Select type: Paperback

In Stock



Nonprofit organizations’ boards are justifiably passionate about their causes and eager to help their organizations. However, in today’s increasingly regulated climate, board members, who come from diverse backgrounds and may have little financial expertise, can feel overwhelmed by the regulations that are their duty to follow.

The Best of Boards: Sound Governance and Leadership for Nonprofit Organizations provides not-for-profit board members and financial managers with the essential fiduciary knowledge and indispensable leadership guidance that they need to meet the challenges of the current not-for-profit environment. This book contains:

  • Financial and ethical guidance for real-life situations
  • Practical leadership advice for novice and experienced board members
  • Assistance for not-for-profit managers tasked with governance challenges
  • Tools, checklists, and templates based on common sense management techniques

This publication will build ethically sound management knowledge in not-for-profit board members so that they can ensure the compliance and, ultimately, the success of their organization.

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