Guidance and Ground Rules for Joining a Not-for-Profit Board

Welcome to wever, beyond the numbers where Weaver professionals talk about business and accounting, we'll explore a wide variety of topics from tax law and accounting standard changes to managing cyber fraud, financial and operational risks. What do these issues mean to your business? Join us as we go beyond the numbers to find out. Everyone, welcome into weaver, beyond the numbers I'm your host, Tyler Kern. Thanks so much for joining me for this episode of the show. Today, we have a really exciting episode. We're going to be providing some guidance for people who are joining a not for profit board. We're going to be providing some critical information, some things that you should know as you join that board and maybe answer some questions that you might have. And joining us to provide some insight into this area is Kirby russkis. He's a partner for tech services. Kirby, thank you so much for joining me today. How are you? I'm good, Thanks. I really appreciate the opportunity. Well, I'm thrilled to have you on the show and I'm excited to provide this kind of information. And guidance for folks. And so let's just the kick things off. Just tell me a little bit about yourself and your work for not for profit organizations. Sure just briefly, a little bit about myself. I've lived in Oklahoma for most of my life in Oklahoma city, was actually born in abilene, Texas, and then my parents moved around a little bit and ended up in Oklahoma City. So I went to high school and college in Edmond, Oklahoma, just a suburb of Oklahoma City. And then I've been a CPA in public accounting. Now for almost 25 years, started out my public accounting career as an auditor. And we just auditing mostly rural hospitals in Oklahoma, Texas and Kansas, just traveling, staying a week at the different places, learning a little bit about hospitals, mainly in non-profits on the audit side. And then after a couple of years of traveling a lot and doing things, I moved over to the tax side and started working with all types of clients. So this would be for profits and not for profits, partnerships, corporations, individuals, and then really with nonprofits on their tax returns and 990 returns, kind of informational returns about the organization and different things. So worked heavily with is there that we were kind of the types of nonprofits that we serve include arts and culture organizations, foundations, private schools, health and welfare organizations, faith based organizations, senior living organizations, and then social and recreational clubs. And then just the services we were provides to nonprofits includes financial statement audits 49999999 returns, financial statement analysis, fraud investigations, internal control evaluations, risk assessments, evaluation services. CFO advisory services, employee benefit plan audit. So a little bit of everything. So anything. And everything that a nonprofit might need. Weaver provides that service and is really good at it. We just have a lot of experience with that. It's kind of a general background. Yeah, absolutely. And I think that that background is important and helpful for people. Just to understand, when it comes to the knowledge that you're providing here on the podcast today, you know, and I think for a lot of people who are maybe regardless of how much professional experience they might have, if they're joining a not for profit board for the first time, they can be an intimidating experience. Right so what are some of the biggest challenges in your mind that are facing new board members and people who are in this position? A lot of it is. Whenever you join a board, a lot of times you don't know anything about it. Somebody may just approach you and ask you if you want to be a board member. And it's like, OK, that's the thing to do. And you kind of jump into it. A lot of it is just knowing what your responsibilities are as a board member. There's a lot of things that you may not know and maybe somebody doesn't tell you, depending on what type of organization. It is, how big they are. So I think knowing what your responsibilities are as board members is kind of the most important. Another challenge would be just learning all aspects of the organization, learning about what it is that organization does. If if you're not really familiar with it, you're trying to dive in and just learn as much as you can about it before you join. Another challenge really would just be it kind of goes along with just kind of as you learn aspects about the organization is determining if there's any legal claims or anything pending against the organization, just trying to find out the whole body of work about it, what they do. Is there anything negative kind of associated with it. You need to be aware of as you come into it? But that's kind of the three main things. They're absolutely. So you just gave us three things. But what are the top maybe three things that new board members should be aware of when starting this volunteer role? If you had to name out three things that maybe they should think about going into this process, the first one would be kind of understanding what the legal responsibilities are of being a board member. It's more than just kind of showing up and being part of things. And it's easy. There There are legal responsibilities that you have for being part of a board and being kind of a fiduciary of an organization. So that'd be the first. I think second would be just kind of what is expected of you as a board member and mainly such as attendance at meetings. Is there a financial responsibility that you have? Do you need to serve on committees are going to be responsible for fundraising and other things? I think that'd be important to kind of know another thing, to be aware of it just be kind of goes along with previously just but understanding what it is that the organization's mission, what is their mission, how do they work to fulfill it? A lot of that can be by reading over the organization's bylaws, maybe even reviewing their most recent audit report, visit a site that they run to observe how they carry out their purpose on things. And then just kind of it. And we'll talk about this a little bit later, too. But just making sure that the organization is current with all of its tax filings, that's just kind of things to be aware of, that you're stepping into a volunteer role. But there is a lot of responsibilities to it. Absolutely you know, and you started off talking about legal responsibilities, which I think is really interesting. And I want to hone in a little bit more just on that in particular. So why is that. So important to New board members? And that might be the one that they caught me off guard. More than the other two, just understanding legal responsibilities, can we dive into that in a little bit more in depth and explain why that some important board members are fiduciary? They have a fiduciary responsibility whenever they join, and they're part of managing an organization, being on the board. A lot of board members, I think they're not aware of the fiduciary responsibilities that they have as part of the organization. They may look at joining a board more as a marketing opportunity for themselves and maybe for their business instead of really focusing on, OK, now I'm on this board. What are my fiduciary responsibility for directors and board members can be held personally liable for any decisions that are made. And it's really based on three fiduciary duties as far as being held personally liable. The first and I'll just read them that I can kind of go through what they are, but it's the duty of care, the duty of loyalty and duty of obedience. Those are the three fiduciary duties. The board members have. And the first one duty of care is just it kind of describes the level of competence that is expected of a board member. And it's the duty of care that an ordinarily prudent person would exercise in a like position under similar circumstances. So kind of a broad deal, but that's the general effect of it. It's making informed decisions by knowing the law and the requirements for the nonprofit organization, keeping up with its daily activities, and then basing all of your decisions on this knowledge that you've gained from them. And it's a duty of care is to exercise reasonable care when a board member makes a decision on things. The second one would be duty of loyalty. And this one requires members to act in good faith and to pursue the organization's best interests. This includes full disclosure of any issues that could cause or be perceived to cause a conflict of interest. Also, members are not to take opportunities away from the not for profit for their own personal gain. So no personal gain. It's to protect the organization's confidential information. You always want transparency and you always must act in the best interest of the organization. And then the third is duty of obedience. This requires board members to be faithful to the organization's mission, and you're not permitted to act in a way that is inconsistent with the central goals of the organization. You have to manage donated funds to fulfill the organization's mission, and it requires board members to follow the law and all the organization's internal policies and procedures. You must always comply with federal, state laws. So that's kind of the three fiduciary duties. Also, boards have a responsibility to ensure that IRS form the 990 form is filed timely and accurately discloses financial information, including any conflicts of interest. And a lot of people. Thank you for not for profits. I don't have to pay taxes. You know, there's nothing with taxes and that may be true, but you still have a responsibility to file this tax return and to file the 990 information return. And then you can pay taxes if you have unrelated business income and some other things that may be for another topic. But ensuring that those things are filed correctly can be a big deal. If you don't file those things, you can lose your exempt status. And there's penalties for late filing. So a lot of things associated with filing, filing 990 and really directors and board members can only be held responsible for breaches of fiduciary duties if the breach is due to recklessness or willful misconduct. So if you follow the rules, if you kind of get informed and follow the procedures in place, you're going to be OK on it. But just to know what those are is important. Being that you're in a fiduciary role with that organization. Right so a lot of information there, but it's a lot more than you'd think. Just coming in and maybe joining an organization, not being aware that there are legal responsibilities here. You just go in kind of eyes wide open and informed to kind of how to be up to speed on those things. Absolutely but I think it's important for people to know those things because of the vital importance that they represent to those organizations. And so I think it's well, it is a lot of information, I think it's worth pointing out and worth people being aware of for sure. And one of the other things that you pointed out that people should be aware of as they enter into a board position like this is just knowing the expectations and having that awareness of what's expected of them. Can you expand on that a little bit more as well. And just how that can help better prepare board members for their role on a board for a not for profit organization? I've been on a couple of different boards and some kind of extreme opposites. One provides you a lot of information. And you kind of know ahead of time. The we come in a little blind and have to follow it. But a lot of organizations will provide orientation and training for new board members. And so I would urge all board members to take advantage of any training that's offered to go through and really kind have walk you through what's going to be done. But typical expectations of a board member, you would be meeting attendance with every board member should make it a priority to attend all board meetings and functions of the organization. It's an expectation that board members will be informed about the organization's mission services policies and their programs. So just being aware of what all is offered, review the agenda, supporting materials prior to all board meetings and committee meetings, just being informed. A lot of times. I want you to make a personal financial contribution to the organization. It may be a small donation or even a little larger for some. So being aware of that, being an advocate for the organization is an expectation they want you. To be proactive and talking about the organization, an important one is following conflict of interest and confidentiality policies, and usually those are circulated each year for conflict of interest. And you have to take a questionnaire and you have to fill it out. But really, being aware of those reviewing the organization's financial statements every year is a big deal. Review bylaws. There's an annual board retreat being a part of that, making sure you're including whatever is going on that you want to be a part of on things. And then just review of the 990 returns prior to filing, making sure that all have been filed. Copies are posted and available to the public on the website. You can lose your nonprofit status. If you don't file these things, you can be reinstated. But that's a whole other cost and fee that you don't want to have to worry about on things. Even smaller organizations, a lot of them, if you're below a certain threshold, you may not have to file a full 990 at all, but you start to file a 990 and postcard just being aware of what's out there and where you can keep up with what's going on and what the status of things are is important. Absolutely yeah, you're absolutely right about that. Now, one of the other questions. I have is just as you approach. Maybe that first board meeting as a member of the board, what sorts of things can would you recommend that people do to prepare themselves for this board member board meetings? And are there any financial documents or anything like that. They should request in advance just to make sure that they're informed and up to speed on things? Yeah, there are. I'd say before you go to that first board meeting, just kind of preparing for a lot of things you can do, you may have already done before you accepted the board position. But reviewing the organizational documents, reviewing the bylaws, I think getting a copy and reviewing the most recently filed 990 return, it's a public information requirement to post out there. But just review in the 990 seeing what kind of what all disclosures in there, what the financials look like. I think if you get a copy of the most recent audit report, a management letter if an audit is required is really important. The management letter as part of the audit was important to do list any deficiencies, any warnings, anything that management needs to be working on, on things. But I think reviewing that, if there's not an audit out their review of just the most recent quarterly statements available, just internally prepared statements for financials, just reviewing those. So you can kind of be aware if there's any questions that come up, you can ask them during the board meeting to make sure that answers are accepted are acceptable to you. And I think to if you can visit we talked about this little bit earlier, but visit an organization site, determine what it is they do and how they accomplish it, kind of get a feel for what's going on. And so I think anything you can do that knowledge wise to get some kind of background before that first board meeting, just so you're informed and can be aware of things, you may not bring anything up. You may not say anything that first time just to be aware of what's going on and what potential issues might be. Yeah, I think that's a fantastic point. Just to make sure you're up to speed with everything that that's going on in those areas. And, you know, as you approach that first board meeting, I suppose one of the things that board members should also be aware of are financial and governance policies. What sorts of things would you expect that board members should maybe inform themselves and educate themselves on when it comes to those financial and governance policies before attending their first board meeting? Board of directors have obviously, they have a fiduciary duty, but they have a duty to ensure that assets of a charitable organization are used in accordance with donor's intent and in support of the charitable mission. So that's one thing to kind of remind themselves of as they're attending a meeting, just making sure that everything kind of follows suit to that. Part of it is just as part of financial and governance policies, an organization must maintain minutes of all board meetings and committees. Any committee that's authorized to act on behalf of the board, you have to maintain minutes for transparency, review the conflict of interest policy each year and complete a questionnaire about any conflicts before your first meeting. You're probably going to have to complete that and make sure that there's no conflicts of interest that you have with anybody in review. If anybody else does on things, one kind of another governance policy is to approve the Ceo's compensation and benefits and determine that kind of compensation is appropriate, not excessive. And that's annually done. And a lot of times, depending on the size of the organization, you can do comparative studies for salaries and other things to make sure it's in line with things. But that's a big piece of what they need to do. We've talked about this, reviewing the 990 before it's approved and filed, just ensuring that all returns have been timely filed. You can lose your exempt status if returns are not filed. And we've had clients before where you come in and realize that they don't believe they have a filing requirement. And so they haven't filed and they're supposed to be able to lose their exempt status. So the process of going through and getting people caught up could be expensive with penalties and just the fees that are charged to get everything filed and caught up on things. It's also important policy to have a whistleblower policy that protects people if they come forward with information and also kind of let them know who they can contact within the organization. If there is an issue that comes up, they're concerned about document retention policy, destruction policy and also gift acceptance policy. Those are kind of some of the financial governance policies that board members kind of need to be aware of. I suppose when it all when we boil all of this down, board members are really key to the success of any organization, especially in a not for profit setting. So as we wrap up today, Kirby, I want to close on just you explaining some of the benefits of joining in not for profit board. What are some of those? Benefits and how would you lay that out? Yeah, we it's kind of been doom and gloom a little bit, talking about all the different things you have to keep up with. And the responsibilities and legal requirements. But there are a lot of good things and a lot of them. It's kind of simple. What they are. A lot of it is just your giving back to the community on things, especially if you find something aboard that you're kind of passionate about or a because you're passionate about. It gives you a chance to really give back and be part of helping people on things. So it sounds kind of simplistic, but it's really that's really a major benefit to it. A lot of it, too, can be a great learning opportunity. It's a chance to learn more about how to govern. And then leadership within a board and within an organization that could help you in other ways, other areas of your life. And in your career for years to come on things. So I think that's a big part of it. Just supporting something you believe in is important. It's kind of hard to be too passionate if you don't really believe in what it is you're doing. So I think even before accepting a position on the board, making sure that, OK, this is something I want to do, there's a reason there's a connection there. There you went to university, if you're associated with that or you have somebody that's gone through a similar situation that this nonprofit helps, I think just being around something that you really find that's rewarding is good. And really it just increases your leadership skills being part of things, making decisions, being accountable to things. I think those are all really good things and benefits of being on one outside of just traditional where people might think of it as a marketing tool. And another thing that's really being involved in finding something you're passionate about and making a difference for others on things that be the main things. Yeah, I think that's a really good way of putting it, especially after we go through a lot of the weeds on some of these things. And things that people should be aware of and financial documents and taxes and things that people should think through. But I think that at the end of the day, it really is about being a part of something on a larger scale. And you want to make sure that you have all the information you need to carry out those responsibilities effectively and to do the best by these particular organizations. Because like you mentioned, it's about giving back to the community and being a part of something that you're passionate about at the end of the day. Definitely so. Definitely so. Well, fantastic stuff. Kerberos partner and for tax services. We rikabi working people get in touch with you, find more information if they have questions, if they want to reach out and maybe learn a little bit more about not for profit organizations. We work on our website has lots of information on non-profits, podcasts, our webcasts, webinars that we do that, we put on for specifically for different industries, for nonprofits, different things like that. So a lot of information through there that can be accessed and looked at. Fantastic stuff could be. Ross, thank you so much for joining us here on the podcast today, explaining a little bit more about important information people should have as they join the boards of not for profit organizations. Kirby, thank you. Thank you once again. Thanks, Tyler. I appreciate it. Absolutely and everyone, thank you for tuning into this episode of wever. Beyond the numbers, we're thrilled to have you join us for this episode from more content just like this. You heard Kirby go to Weaver dotcom there. They have more podcasts, more webinars, things along those lines. They can help educate you, inform you and give you the stuff that you need to be able to carry out these responsibilities effectively. And, of course, you can always reach out to Weaver there on the website as well. If you have more questions. But stay tuned for more episodes of the podcast. We have more insights coming from the folks very, very soon. But until then, for my guest today, Kirby Ross have been your host today. Tyler, Thanks so much for listening.