For Nonprofits, It’s All About the Board

by Linda M. Lampkin, Senior Nonprofit Compensation Specialist 25. April 2012 09:00

recent blog by Lucy Marcus again brings home what being on the Board of a nonprofit means – a responsibility not to be taken lightly!

This lesson for how boards should function comes from an investigation of Greg Mortenson, former executive director of the Central Asia Institute (CAI).  Investigators found that he had used funds for personal use and fabricated the accomplishments of his charity. In April 2012, the attorney general of Montana ordered Mortenson to repay $1 million to CAI and decided that he can no longer serve on the board or hold a position of financial responsibility. While board oversight was conspicuously missing in this situation, Marcus chose to focus on how a Board can be structured to prevent such abuses. 

Nonprofit boards exist to ensure that resources go toward the mission of the organization and are used responsibly, whatever the size and mission of the charity. Board members should have expertise in a number of areas:

  • Governance – setting up processes and procedures to keep the organization healthy, to keep the focus on the mission and to use funds responsibly.
  • Financial knowledge – providing oversight and financial planning.
  • Independence – with no ties, adding different views for discussion and oversight.
  • Fundraising – critical, but recognizing that the primary role of the board is governance and ensuring that raised funds are used as intended.
  • Mission/organization-relevant knowledge – adding valuable, and sometimes costly, expertise, such as marketing, human resources, legal advice.

The Exempt Organization of the IRS (the division that regulates charities) agrees that there is a linkage between good governance practices and compliance with IRS rules and regulations.  As noted in a recent post but worth recapping, the preliminary analysis by the IRS showed organizations are more likely to be compliant if they: 

  • Have a written mission statement,
  • Always use comparability data when making compensation decisions,
  • Establish procedures for the proper use of charitable assets, and
  • Have the Form 990 reviewed by the entire board of directors.

It is clear that filling out the governance questions on Part IV of the Form 990 is important to the IRS and “wrong” answers in this section (for example, no comparability data used for compensation decisions) could end up leading to a review by the IRS.  It is hard to envision a successful organization that does not have a written mission statement, and procedures to protect assets.  A review of Form 990 by the entire board is easily implemented.  And comparability data are easily available – in fact, ERI’s Nonprofit Assessor, available at www.erieri.com, provides executive salary comparability data at no cost, which is adequate for the vast majority of nonprofits.

So before you accept that invitation to join a nonprofit board, make sure you understand the necessary commitment and are ready to accept the responsibility.