Presented by

NONPROFIT TRUSTEE/DIRECTOR

QUESTIONS AND ANALYSISTO MEET YOUR FIDUCIARY

DUTIES

THE FOLLOWING DIALOGUE HELPS DIRECTORS/TRUSTEES TO CARRYING OUT FIDUCIARY RESPONSIBILITY.

IT IS A NEUTRAL INQUIRY TO UNCOVER FIRST AND RESULT IN PREVENTATIVE ACTION TO SERVE YOUR ORGANIZATION.

MORE OFTEN THAN NOT, SYMPTOMS OF A PROBLEM ARE OBSERVED. AFTER ANALSIS THE REAL PROBLEM AND RELATED SOLUTION ARE OFTEN NOT WHAT ONE ORIGINALLY EXPECTS.

BY UNEARTHING VIOLATIONS OF STANDARDS, ONE UNEARTHS THE REAL PROBLEMS.

THE DIALOGUE IS A WORK IN PROGRESS, YOUR SUGGESTIONS AND EDITING FOR CONTINUING DEVELOPMENT OF A STRUCTURE ARE APPRECIATED.

INTRODUCTORY COMMENTS

1. F iduciary responsib i l i ty inc ludes three dut ies: care , loya l ty, and obedience.

a . a proact ive s tance is suggested

b. f iduciary ’s do ing the i r homework avo ids cr i t ica l inc idents and un in tended consequences

c. f iduciar ies need to look out for both “symptoms” and “v io la t ions o f s tandards

2. One starts with the mission of the organization,

a. how the mission is carried out,

b. what resources are available and how are they allocated

c. what is the organizational strategy

3. Financial accounting for non-for-profits is based on “fund accounting” and as such is often allows that reporting is not transparent. Typically, such organizations significantly reduce the scope of formal CPA audits because they are very expensive.

a. what aspects of a full audit are eliminated

b. what is the partial audit objective (restricted audits may confirm basic internal controls or safeguards by verifying that transactions are properly recorded and the financial statements can be verified.

c. was there an analysis of actual vs. budget

d. is there a history of adjustments to the budget (if so that may be a symptom of disequilibrium)

e. does the audit include testing that transactions are properly authorized and according to the bylaws.

4. The Bylaws are equivalent to the constitution (should a NL knowledgeable bylaws individual provide material it will be posted as a separate item on the main web site)

a. How often are they updated

b. Due they reflect the needs of the organization

c. Are they fair and do they support fiduciary action

OVERVIEW

Areas of InquiryMISSION

MEMBERSHIP

ASSETS AND LIABILITIES

BYLAWS, REGULATIONS, GUIDELINES

MEETING MINUTES, ANNUAL REPORTS, & OTHER RECORDS

FINANCIAL ACCOUNTING

COMMUNICATIONS TO FIDUCIARIES

PERSONNEL ISSUES INCLUDING ETHICS

ORGANIZATIONAL STABILITY AND DIRECTION

THE TEST: How would any action be reported in the “Washington Post”

SEARCHING FOR SYMPTOMS OF DISEQUILLIBRIUM

Determine the mission(s) of your organization and determine how and at what level of the organization each is being carried out, resources required, and responsibility as well as guidelines for execution.

Are there other organization activities and do they compete with, complement the existing mission, and/or distract from carry out the organization mission?

MISSION

What are the trends in numbersWhat types of membersWhat are the Demographics and Geographic disbursement

Is there differentiation between membership and participation at the National vs Regional vs Grass Roots levels

MEMBERSHIP

I. GENERAL

What are the major assets, their proportion of the total, and how have the balances changed over time (are each stable, declining, increasing, or volatile and why?)

What are the major liabilities, their proportion of the total, and how have the balances changed over time (are each stable, declining, increasing, or volatile and why?)

What assets are directly related to liabilities? Which assets/liabilities are considered long-term vs. short term Do any other assets and or liabilities have implied or actual restrictions? How are the assets and liabilities and changes reported to organization

fiduciaries and are there categories and/or items that are past, present, and/or future concerns?

ASSETS AND LIABILITIES ( 1 OF 3)

II . INVESTMENTS

For investments is there a current investment policy statement (IPS)? (The IPS is a governing set of guidelines on how funds are to be invested and monitored) How was it developed, namely did an outside advisor develop it, or

was it developed with due diligence by organization fiduciaries? If not developed by fiduciaries is there documentation of adequate

due diligence? Is there risk to the organization and its financial welfare by the

current IPS How often are investment balances, activity, and current history

reviewed relative to the current investment policy statement?

ASSETS AND LIABILITIES ( 2 OF 3)

III. REAL ESTATE Do the Assets/Liabilities include Real Estate?

Is it land and/or building? From an investment perspective, is it better to have a diversified real estate portfolio rather than

owning a single building in a single market place? How does the real estate asset relate to the organization mission? How does the real estate contribute to the organization’s well-being? What are the opportunities and threats relative to the real estate holding? Is there a building and/or real estate which requires material management vs. just an investment?

Does managing the building distract management from carrying out their mission? What is the market outlook for that real estate Can one “sell” an office building as an exchange for shares in a (purchasing) Real Estate Investment Trust? ( that may

provide diversified real estate portfolio - not just one building and eliminate the management burden) What kind of financial commitments are there for the real estate and how timely are those

commitments and is the membership and board of directors consulted? Is it more prudent as fiduciary to discuss refinancing and other alternatives such a selling a real

estate investment at the annual membership meeting than other decision-making bodies? What percent of the organizations total assets does the real estate represent?

ASSETS AND LIABILITIES (3 OF 3)

MEETINGS MINUTES, ANNUAL REPORTS AND OTHER RECORDS

• Are there permanent records of past organization activity?• Are there any reviews and summaries to determine if past concerns

are addressed and/or current concerns were studied? (If so, previous reviews may assist in accomplishing current analysis)

• Have there been lingering unresolved concerns that need to be resolved to meet fiduciary responsibility of officers and trustees/directors?

Financial Accounting allows for historical analysis What are the trends

Are there changes of line items budget items or expenditure classifications Are there variations from original budget and actual

How often are financial reports issued, how timely, and how often are they reviewed and by whom What is the most recent state of financial affairs What are the income sources and how is income defined

From Membership and from individuals vs corporate or other organizations From grants and the nature of grants From gifts and donations From fees and the nature of fees From the line of credit, loans From investments and which investments From income vs principal of investments From other account transfers

What are the expenses, how are they classified, Are there any questionable income related transactions How are travel and entertainment budgeted, are there internal controls

FINANCIAL ACCOUNTING

How often are there formal communications Are communications transparent as to the state of affairs of the organizations Are communications timely Are promises or commitments made and are they fulfilled

How often do leadership get out in the field, do they tell the truth, do they identify opportunities and threats and provide solutions and alternatives are such related expenditures prudent

first class travel vs coach home stays vs budget hotels vs more expensive alternatives are travel rewards points earned used to defer future costs are there cost/benefit analysis before and after analysis on all such travel Are there limitations on individual areas: breakfast, lunch, dinner, hotels, cars and how are exceptions handled

COMMUNICATIONS TO FIDUCIARIES

(In the Age of Accountability facing: External Forces, Events, Environment of Change, Ethics and “politics”)

Undue Influences: One former elected official was “blackmailed” because of unacceptable behavior – the pertinent question and challenge for fiduciaries to avoid a situation whereby organizational leadership is placed in a position that they may be unduly influenced based on their past transgressions.

Retaliatory: As second concern is whereby an organization has various constituencies and often majorities and minorities; whereby the majority chooses to take actions that seek to disqualify and/or denigrate the other side or individuals to further their own cause. The organization needs to have timely full investigations and findings by neutral parties

Personal agenda: In any voluntary organization there are as many personal agendas as there are members. The education of fiduciary responsibility is critical to both fulfilling mission and the health of the organization in carrying out their mission.

Personal Finance: Unfortunately individuals are placed in fiduciary positions and have access to organization assets and because of personal financial problems inappropriately appropriate those assets. Do you do credit checks to qualify your organization officers?

Is there a staff, what kind of turnover, are their expert ise uti l ized what are their qualif ications are the salaries commensurate are there bonuses related to performance towards the organizations mission who does staff report to are there oversight so that staff can report to the board without recrimination

PERSONNEL ISSUES

The world changed, the dinosaur didn’t, the dinosaur is extinct

If it gets to comfortable, there is something wrong

Are there changes, are they metered or are they extreme?What is the organization doing to adapt to the changing

environmentWhat is the focus of leadership and how relevant is it to mission

and changing times

ORGANIZATIONAL STABILITY

.

OUTCOMES

THE OBJECTIVE IS NOT TO MANAGE THROUGH THE REAR VIEW MIRROR

BUT RATHER TO IMPROVE THE ROADMAP FOR THE FUTURE OF THE ORGANIZATION.

WE CAN’T CHANGE WHAT IS DONE BUTWE CAN ADJUST OUR FUTURE PATH