Understanding the Business Owners on Your Board–Stewardship
Have you ever heard this Board discussion?
Executive Director: The auditors’ management letter is in your package. You’ll note that they’re reporting a material weakness in our controls over our outgoing payments. Apparently, with our new online bill pay, our bookkeeper can pay bills online in any amount without limit. Since the bookkeeper also keeps the books, and balances the bank account, unauthorized payments could happen and we might never know.
Board member: That’s how we pay bills in my company. You can only tie things up so much. At some point you just have to trust people.
Exec: Actually, I did some research, and found a bank that will give us free online bill pay with two levels of permission; one to prepare payments and another to approve.
Board: That’s fine, but do you really think it’s worth the hassle of switching banks? I’ve worked with our bank for years. They’re one of our sponsors.
Business owners are extremely capable individuals. They’re effective, efficient and confident. However, the same qualities that make them successful in their businesses, can create sticking points when they serve on your Board.
Business owners are accustomed to managing their own finances. They don’t need controls against inside fraud when they’re the ones managing the business. If business owners give non-owners access to funds, let’s say to pay bills, they’re taking a calculated risk, but it’s their risk to take. After all, it’s their money.
This aspect of “business as usual” doesn’t necessarily translate into the nonprofit environment. Nonprofits have a higher degree of accountability to donors, grantors, members, the IRS and others. They also have a higher degree of risk, because everyone’s a non-owner.
In a nonprofit, the Board is responsible for ensuring that the money goes for mission-related impact, and that the organization remains financially sustainable. This means that fraud prevention controls matter more in a nonprofit. After all, it’s not your money.
What can we learn?
Business owners can be some of your most capable Board members. How can you help them apply their experience, skills and knowledge in the nonprofit environment?
Board orientation. Help Board members understand their role and responsibilities including:
- your nonprofit’s accountability requirements,
- your governance policies,
- management’s role,
- how management supports Board oversight, and
- the fiduciary responsibilities of Board members.
Boundaries. Keep discussions at the appropriate level. Issues related to daily operations are management’s responsibility. Frame Board discussions in relation to how the Board’s responsibilities apply to the issue at hand.
Play to Your Board Members’ Strengths. The business owners on your Board are really good connectors. Inspire them to engage others to develop resources for your mission.
We discuss Board governance in our financial leadership seminar, Financial Leadership Training for Emerging Nonprofit Professionals; Alexandria, VA, November 7-8, 2018.
Your CFO will soon be implementing new GAAP. Tell her about our in-depth seminar, Financial Intensive Training on the New Financial Reporting GAAP—Remodel Your Financials—an in-depth look; Alexandria, VA, November 2, 2018.
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