Boards and Their Fiduciary Responsibility
Larry Sophian, CPA
Most organizations strive to recruit members for their Boards that have a variety of skills that can be put to use for the benefit of the organization. No matter the skill set of the individual members of your Board, they all have one thing in common – they bear a fiduciary responsibility to your organization. To fulfill this responsibility, they must act in good faith and with the care that an ordinarily prudent person in a like position would exercise under similar circumstances.
Regarding the oversight of your organization’s finances, this can be a difficult area for your Board members who do not have a financial background to wrap their arms around. However, Board members do not have to be financial experts in order to effectively exercise this responsibility. In exercising their fiduciary responsibility, they are entitled to rely on opinions and information presented by others who have this expertise. Thus, they simply need a combination of common sense, some basic training and a willingness to ask questions of those who do have financial backgrounds.
Even the most non-financially oriented of your Board members have a basic understanding of finance simply from managing their personal finances. All of us understand the basic idea of whether we have sufficient cash to pay our upcoming bills. While the finances of any business are going to be more complicated than those of most individuals, the concepts we each use in managing our personal finances are easily applied to the organizations’ Boards of which we are members.
However, for those members who do not have experience with business finances, a little training, as early as possible in their Board service, will certainly be helpful. A review of your organization’s most recent financial statements and 990 is often a good place to start. While this review does not have to get into the fine detail of every line item, understanding what is included in receivables, payables and various accruals can give your Board member an idea of what, if any, concerns the organization faces and what some possible solutions to those issues may be. The financial statements will also include information about the types of programs the organization runs, the significant sources of revenue and the major categories of expenses and the overall financial health of the organization.
The 990 contains much of the same information and also includes information about the governance of the organization, some of the fiscal and other policies the organization has in place, and the accomplishments of the organization. It may also contain explanations of other aspects of the organization that you want to highlight for the public.
No matter the subject at hand, your Board members should always be comfortable asking questions of others who have expertise in the topic. This certainly holds true when the topic is finance. Those members who do not have expertise should never hesitate to ask questions of those on the Board who do, as well as asking other advisors to your organization, such as attorneys, outside CPA’s, or investment advisors.
Everyone on your Board does not have to be a financial expert for the Board to fulfill the financial aspect of exercising its’ fiduciary responsibility. Using common sense, asking questions, and receiving some basic financial training will give your Board the tools they need to prudently help manage your organization’s finances.
Newsbits: Summer 2017
Charlie Burke, CPA
New Tool Makes It Easier to See Non-Profit Tax Records
Charity Navigator has released a new digital tool for researchers, data scientists and enthusiasts to use to explore non-profits’ public tax records. The Digitized Form 990 Decoder features a database of more than 1.7 million tax records. Of these, more than 900,000 have been processed, ranging from more than 33,000 2009 Form 990 filings to nearly 216,000 2014 Form 990 filings.
The project is ongoing and open-source. Charity Navigator, which aims to inform donors of their contribution choices, hopes other developers will design improvements to make the tool even more robust and comprehensive. Go to http://990.charitynavigator.org/ to find the Decoder.
IRS Warns about W-2 Phishing Scheme Targeting NFPs
The IRS has issued an urgent alert about a Form W-2 phishing scam that targets non-profits. According to the agency, cybercriminals send an email that appears as if it is from an organization executive to an employee in the payroll or HR department. The email requests a list of all employees and their Forms W-2. The scam first appeared last year. But now, the fraudster follows up with an executive email to the payroll manager or comptroller and asks that a wire transfer be made to a certain account. If you get either of these emails, report this to the IRS immediately.
FASB Issues Guidance on Partnership Consolidation
A Financial Accounting Standards Board (FASB) update outlines the rules for when certain non-profits should consolidate activities of their other partners in financial statements. This continues current guidance that a non-profit general partner controls the partnership, unless the limited partners have certain rights. Accounting Standards Update No. 2017-02, Not-for-Profit Entities — Consolidation (Subtopic 958-810): Clarifying When a Not-for-Profit Entity That Is a General Partner or a Limited Partner Should Consolidate a For-Profit Limited Partnership or Similar Entity is effective for fiscal years starting after December 15, 2016.