4 Ways Nonprofit Board Members Can Prevent Abuse Before It Happens

This article from Nonprofit Quarterly should be a warning to board members of nonprofits far and wide.

Several misuses of funds occurred at a Ventura County, California community foundation, and most should have generated red flags amongst its board.

When the local paper is saying the following, perhaps more than a wake up call is needed:

The Ventura County Star reveals that the foundation has refinanced its headquarters to start repaying the $1.8 million (plus almost $400,000 in interest) that disappeared from the funds under its stewardship.

The figures owed are based on independent audit and an investigation by the state attorney general’s office.

The report was shared with the public. According to the Star:

About $1 million is tied to investments held in low-earning money-market accounts rather than the foundation’s investment pool.

An additional $540,000 will be restored because interest was over-allocated to the agency’s operating budget, fees were wrongly figured based on the type of fund and for miscellaneous reasons.

Finally, about $160,000 will be paid to five funds because fees were charged beyond what the donors stipulated in written contracts.

Foundation trustees and former leadership were found at fault for, among other things, using $3.8 million in endowment funds to pay for the headquarters building.

Wow, how could this have been avoided? I have four ideas:

First, every nonprofit must make sure there is a proper orientation for every new board member. For instance, in the case above we would hope that a full legal explanation would have been made on the proper handling and restrictions of endowed funds!

Such a proper orientation sets the stage for what to expect, but also prepares all of the board members to demand relevant board meeting agendas. It also removes the fear of speaking up because each new member is now armed with adequate knowledge of what is going on.

Second, eliminate the “Executive Committee” so that every board member knows everything going on. Otherwise, if an executive committee exists there can be a potentially disastrous routine of rubber-stamping a consent agenda.

Once, a board is lulled into the process of merely approving what the almighty executive committee decrees followed by the typical slew of standard operational and financial reports very few strategic discussions ever take place. Worse yet, it becomes frowned upon to ask tough questions about key actions!

Third, install a board chairman who not only understands the above items, but also loves to make sure all pertinent information is shared thus spawning deep strategic discussions.

The overall board leader sets the stage of either openness and sharing or one of closed in top down mandates. Such mandates often lead to what happens in Ventura mentioned above.

Here are some tips outlining what to look for in your next board chairman.

Finally, conduct each board meeting as if both the agenda and very detailed minutes were going to be published on the front page of your local newspaper. Instill is the best word to use when talking about the attitude of openness sharing that must be present as your entire board oversees the operation of your nonprofit as well as delivering on the mission.

True open visibility and numerous strategic discussions are hallmarks of well-respected and exceptionally run nonprofit organizations.

Keeping all of the above points in mind as board members and the chairman are selected and as board meetings unfold can truly avoid the disasters we too often read about.

Are there any other key tips to keep in mind?