Strengthen a Nonprofit Oversight Function, Find the Right
2005 - Many experts say that predicting the future is often
a matter of noting which way the trends are heading and
envision them continuing in that direction. It doesn’t
take a crystal ball, then, to realize that the Sarbanes-Oxley
Act (SOA) will have an impact on the nonprofit sector. Nonprofits
must be prepared to actively reassure diverse publics, including
regulators and individual donors, that their control systems
are airtight. Some nonprofit organizations, to allay public
concerns about fraud, have already declared that they are
adhering or intend to adhere to SOA.
Controls and Financial Reporting
definition of good practice is evolving in a clear direction:
Nonprofit organizations face increasingly stringent requirements
for sound financial controls and oversight. Therefore, nonprofits
must act now not only to enhance financial reporting, but
also to add new layers and protections for independent financial
control at the board level. For some nonprofits, this may
mean creating or strengthening an audit committee. For others,
strengthening procedures within the existing finance committee
structure may suffice.
audit and financial oversight functions in a nonprofit organization
starts with identifying and recruiting directors and audit
and finance committee members who have relevant professional
experience. To attract people with this expertise, the organization
might try the same methods it uses to hire an accounting
firm, although board and committee members with financial
expertise are not necessarily accountants. Resources include
the CPAs on Boards program that a group of organizations,
including the NYSSCPA, recently launched. Or, a nonprofit
can ask its CPA firm to recommend individuals from other
firms. Good recommendations may also come from other board
members or colleagues in the business community.
directors typically express two major concerns about serving
on a nonprofit board: the risk of liability, and the time
commitment. A good fit is more likely if the prospect is
sympathetic with the organization’s mission; has a
prior track record of committee or board service; or has
a basic understanding of, or a demonstrated interest in,
working with nonprofits in some capacity.
directors and officers (D&O) policy should contain guarantees
against liability and should share that information openly
with potential board, audit, or finance committee members.
Moreover, the nonprofit should assure a prospective director
that the organization will be fully receptive to any recommendations
about strengthening the organization’s financial controls.
prospective director should be educated about the organization’s
mission and the positive impact it has had. Appeal to the
prospect’s altruism. Remind accountants that service
on a nonprofit board often involves activities that qualify
for continuing professional education credit. If the individual
remains reluctant, the organization should look elsewhere.
A director who takes on the task halfheartedly will not
be an asset to the organization.
New Approaches to Attract the Right People
may have to become more flexible to attract the right people,
given the increasing demand for directors with oversight
credentials. An organization may need to reconsider its
approach to another concern voiced by many prospective board
members: the personal fundraising or donation commitment.
an organization has difficulty recruiting board or committee
members with suitable oversight expertise, it may need to
consider lowering or dropping its fundraising expectations
for such individuals. If competition for experienced financial
professionals gets intense enough, organizations may even
need to consider monetary compensation for board and committee
members who will be contributing to the organization’s
McNee, CPA, is partner-in-charge of the nonprofit
industry group of Marks Paneth & Shron LLP, New York,
N.Y. He is a member of the NYSSCPA’s Not-for-Profit