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THE NONPROFIT GUIDE TO BASIC (AND ONGOING) TRAINING

BEATING THE ENLISTMENT BLUES 1

AVOIDING MINEFIELDS: AN UNTRAINEDBOARD IS A DANGEROUS BOARD 2

OPERATION “WATCHFUL EYE” 3

A BATTLE PLAN FOR BOARD TRAINING 3

MISSION “ENDURING SPREADSHEET” 4

7 MARCHING ORDERS FOR CREATING TRAINING WITH IMPACT 6

IS YOUR BOARD TRAINING “FLIGHT READY?” 8

ANCHORS AWEIGH! 9

The U.S. military has long been acknowledged as one of the best-managed organizations in the world.

Military service begins with a thorough orientation (boot camp, anyone?), followed by rigorous training. Recruits are drilled in the vision, mission, and values of the organization – whether it’s Bravo Company or the Fifth Fleet – and they understand their role in the big picture.

Just as importantly, they have a clear chain of command. Everyone knows to whom they report; duties are spelled out in detail. And everyone knows what’s expected of them. In the end, troops come together to form a lean, mean fighting machine.

If only nonprofit board service was so clear-cut.

BEATING THE ENLISTMENT BLUES

Just like buck privates reporting for basic training, board members come from many places. Whether they are homemakers, business owners, professionals, or retirees, they have been recruited because they are passionate about the cause and mission of the nonprofit – and they come ready to serve.

Yet, in many cases, they are woefully unprepared for duty.

No matter their education or experience levels, most board members simply don’t have the knowledge or experience to effectively govern from their first day of “enlistment.” That’s because, in large part, nonprofit entities operate in a unique environment in which even experienced business people can find themselves out of their league.

Likewise, even battle-hardened veterans need regular training. Long-serving board members can be blindsided if they are not up-to-date on regulatory changes, compliance issues, and best practices.

Ultimately, solid new board member orientation coupled with ongoing training throughout the year can keep all of a nonprofit’s troops equipped and ready for action.

1BOARD MEMBER BOOT CAMP: THE NONPROFIT GUIDE TO BASIC TRAINING

I don’t know, but I’ve been told.Being an untrained board member sure gets old!

Sound off 1, 2. Sound off 3, 4.Sound off 1, 2, 3, 4!

AVOIDING MINEFIELDS: AN UNTRAINED BOARD IS A DANGEROUS BOARD

Bad things can happen when board members are sent to the front lines without adequate training. Consider these potential common problem areas.

• They break formation. Just like troops being rotated into and out of active duty, board members serve their term and move on. Therefore, board composition is constantly shifting, and without ongoing training, the board’s collective knowledge is fragmented and inconsistent.

• They don’t follow the rules. An untrained board faces a veritable minefield of unfamiliar rules, regulations, and compliance requirements. State and federal laws stipulate many things from the legal duties of board members to how nonprofits handle tax-exemption, fundraising, and employment. There are plenty of ways to get into trouble, and punishment can go far beyond peeling potatoes or swabbing the deck. For example, a poorly trained compensation committee (or equivalent) could trigger harsh penalties if the executive director’s pay isn’t supportable under intermediate sanction rules. Likewise, an overzealous fundraising committee could hear from an aggrieved state’s Attorney General if their new crowdsourcing campaign runs afoul of charitable registration rules. And an ever-present danger is the risk of losing grant funds as a result of failing to adhere to regulations and compliance requirements imposed by the granting agency.

• They don’t understand the financials. Board members are required by law to protect their organization’s fiscal health. Yet, nonprofit financial statements can be a hard read even for otherwise financially savvy professionals. Board members who don’t understand the intricacies of a nonprofit’s balance sheet can fall into a number of traps. For example, they might approve a budget that they don’t really understand or make staffing decisions without knowing whether or not the organization can afford the new position.

• They break rank. An untrained board tends to overstep its authority. Well-meaning board members may start meddling in the organization’s day-to-day activities when, in fact, their primary duty is to set policy and provide high-level leadership. At the other end of the spectrum, they may fail to take action in areas that are their responsibility. Not wanting to overstep their bounds, for example, may translate into the board assuming that “someone else” is responsible for reviewing the organization’s internal control procedures. However, in fact, they have a fiduciary obligation to safeguard its assets.

• They don’t follow Standard Operating Procedures (SOP). Something as basic as maintaining accurate minutes and properly documenting decisions can be a challenge for a board without proper and/or effective training. Minutes are considered to be legal documents, and the IRS asks very directly whether nonprofits create “contemporaneous documents” that record the actions of the governing body.

• They create conflicts of interest. Without specific training on the topic, board members may not understand the serious nature of related-party transactions and conflicts of interest. For example, an untrained board member may urge the organization to purchase insurance coverage through a firm controlled by his spouse. Even a board member who believes the

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nonprofit is getting a better deal through his or her company should recognize that such conflicts of interest can jeopardize the nonprofit’s reputation or even its tax-exempt status.

OPERATION “WATCHFUL EYE”

Just like an eagle-eye drill instructor, a veritable army of prying eyes is watching your nonprofit. The Attorney General’s office in approximately 45 states strictly regulate nonprofit fundraising. Likewise, the federal government has made nonprofit compliance a major focus area. And a growing number of nonprofit watchdog groups are shining the light on nonprofit accountability. Bottom line: it is more critical than ever to show that your board is following sound governance practices. Consider these five audience groups.

1. The IRS – The “Governance, Management, and Disclosure” sections of Form 990 ask some very pointed questions about your organization’s board structure, policies, and practices — everything from how executive compensation was determined to whether you have adopted conflict-of-interest, whistleblower, and record retention policies. You’ll also be asked very specifically whether a copy of Form 990 was provided to your governing board for review before it was filed. The message from the IRS comes across loud and clear: Sound governance matters.

2. State Regulators – States consider charity regulation an important matter of consumer protection, and they back up their bark with plenty of bite. In many states, nonprofit fundraisers that fail to register with the proper state agency before soliciting contributions in that state can be subject to fines and civil suits. The state may also revoke your organization’s right to solicit contributions there.

3. Charity Watchdog Groups – Groups such as Charity Watch, Guidestar, and Charity Navigator – which rank nonprofits using algorithms based on Form 990s obtained from the IRS – are interested in not only how you raise funds, but also what you do with donations and how you manage your finances. This information is posted very publicly on the Internet at the disposal of both donors and the media.

4. The Media – The nonprofit sector is a huge, multi-billion dollar industry, and there are typically stories to be found that are both good and bad. Therefore, media coverage of nonprofits has increased dramatically.

5. The Public – The rise of the Internet and social media has also placed nonprofits squarely in the public spotlight. Increasingly skeptical donors are looking for transparency and accountability. They are researching nonprofits, reading their Form 990s, and asking questions about governance and finances before making the decision to support an organization.

A BATTLE PLAN FOR BOARD TRAINING

Effective training starts with a thorough orientation session for new board members. The best time is shortly after they are elected, which helps “newbies” quickly gain an understanding of their roles. This session can occur either before a regular board meeting or during an annual retreat.

3BOARD MEMBER BOOT CAMP: THE NONPROFIT GUIDE TO BASIC TRAINING

As an added benefit, well-rounded orientation often increases board members’ engagement and participation.

The board chair and executive director typically facilitate the orientation session. Topics can include:

• Overview of organization (history, mission, vision and values)

• Orientation to board manual and bylaws

• Roles and responsibilities

• Overview of board structure

• Overview of board operations

• Review of strategic plan

• Roberts’ Rules of Order

In addition to newcomers, you might also invite current board members to attend the orientation as a refresher. (It’s amazing how quickly the basics can be forgotten.) Likewise, if you’ve begun phasing in a structured training program, be sure to invite your old-timers to “start at the start” by attending the orientation session.

Next, identify opportunities for ongoing training throughout the year – for both new recruits and veterans. Solicit input from seasoned board members by asking, “Looking back, what do you wish you had known when you first became a board member?” Query staff on areas in which they wished current board members were better versed (everything from knowledge of acronyms and lingo to the context needed to read and understand reports). Based on their answers, develop a comprehensive board education plan that includes a schedule of training and necessary information to be given to board members.

MISSION “ENDURING SPREADSHEET”

Just as the armed services have their own distinct way of doing things, nonprofits have their own way of accounting for their finances.

Unlike a for-profit business, no one “owns” a nonprofit. The goal is not to maximize the owner’s earnings but, rather, to carry out its purpose or mission. As a result, board members need to wrap their heads around some often-unfamiliar concepts such as these outlined below.

• Fund management – Nonprofit financial statements are based on a fund management system of accounting. Fund sources, such as grants and donations, are classified based on limitations set by the funder. Fund management accounting then focuses on how the funds are used.

• Revenue and expense recognition – In the for-profit world, revenue is matched with expenses, and a business’ P&L reflects net income or net loss for the year. By contrast, nonprofit financial statements focus on changes in net assets. Revenues from reimbursement-type grants are recorded once they are expended, and expenses are reported based on programs they support, as well as by function.

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Is your nonprofit already covering most/all of these topics? Great! But just like an Army wouldn’t stop its training with a few basics, don’t forget the other topics that should be covered with your board members – and on an ongoing training basis.

Semper Fi!

The U.S. Marine Corps famously trains its troops to be “always loyal.” In fact, Semper fidelis is a core value of the Corps. One of the most important things board members must understand is their fiduciary duties — the fundamental legal responsibilities that apply to everything that the board of directors does. If board members fail to follow them, then they could be held liable for any negative consequences of their actions. These duties include:

1. Duty of Care – Legally, this term is “the amount of care that an ordinarily prudent person would exercise in a like position and under similar circumstances.” In practical application, it means that board members must exercise reasonable care when they make decisions for the organization.

2. Duty of Loyalty – This duty requires board members to keep the best interests of the organization in mind at all times when making decisions (i.e., avoiding conflicts of interest).

3. Duty of Obedience – This responsibility requires that board members’ actions be consistent with the organization’s mission statement, articles of incorporation, bylaws, and tax-exemption documentation. In other words, the nonprofit’s central goals must guide all board decisions. Additionally, board members must comply with all applicable laws and regulations.

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Understanding a nonprofit’s finances isn’t a luxury for board members; it’s an imperative. In order for a board to make sound financial decisions, they need to understand the numbers! In fact, some organizations make financial literacy a requirement and insist that all board members have knowledge of basic financial information.

7 MARCHING ORDERS FOR CREATING TRAINING WITH IMPACT

Most board members are volunteers and do not have a significant amount of time to invest in the organization. Not much typically elicits more board member groans than irrelevant, unproductive, or ill-timed training. Time and thought must go into creating training that meets board members’ needs and furthers organizational goals.

1. Go by the book. A board manual should be a key component of any training session (you do have one, don’t you?). It’s a crucial resource for members to collect, organize, and reference resources needed to carry out their roles as board members.

2. Design from a high organizational level. Board training should be designed and managed at the chief executive officer and board chair level. In an ideal situation, a Board Development Committee exists and that chair can provide strong guidance in the development of training.

3. Assign a “buddy.” Pairing tenured board members with newer ones can add value to the orientation process.

4. Give them homework. Participants should receive the training agenda and materials at least two weeks before the training session and be asked to review the materials before the meeting.

5. Focus training on specific needs. Here’s where a board self-evaluation can really pay off. For example, if board members are saying they don’t understand the role of the board, specific training can be focused on this topic.

6. But don’t forget the big picture. Board members also need to understand (and embrace) their role as vision-keepers for the organization. They need

BOARD MEMBER BOOT CAMP: THE NONPROFIT GUIDE TO BASIC TRAINING

Recruiting 101: What Does a “Good” Board Member Look Like?

Obviously, a good recruit delivers a desired skill set. Maybe it’s a local banker with financial expertise, a marketing professional, or someone with strong fundraising credentials. Beyond particular technical skills is the need for some equally important “soft” skills, including:

• The ability to express individual opinions and perspectives (including asking difficult questions) balanced with the willingness to support group decisions.

• An understanding that disagreement and conflict come with the job, and that working with colleagues to resolve differences is crucial.

• Being comfortable with diversity.

• An ability to resist any attempt by management to override or undermine their authority as board members.

Board members should also be free of any conflicts of interest with the organization. This requirement includes recent employment with the organization, family relationships with management, and direct business relationships with the organization or its leaders.

In the end, good board members exercise independent thinking. They critically test, analyze, and evaluate ideas on their own. They work hard to prevent “group think” and collusion. They know that it is important to attend and prepare for meetings. They ask questions. And they are always prepared to address potentially unsound or imprudent decisions.

7A CLEAR VIEW: THE PERVASIVE IMPACT OF TRANSPARENCY ON COMMUNITY HOSPITALS

Of course, training board members to understand financial statements is one thing – presenting data that invites action is another thing altogether. Better performing nonprofits often keep the following tips in mind when preparing financials for board review.

1. They identify what the board really needs to know. They consider the level of knowledge required by their board and then present the data board members need to make informed decisions. They consolidate the information and keep it focused. In fact, many follow the structure of their audited financial statements when creating their own internal financial reports. Finally, they keep the format consistent. A stable format helps the board become increasingly familiar with the presented data and easily compare numbers across reporting periods.

2. They put it in context. They don’t present their financials in a vacuum. Rather, they share benchmarking data that shows how their numbers compare to similar organizations. Knowing if the numbers look better (or worse) than their peers provides the board another basis for measuring performance and making informed management decisions. Here, a simple dashboard report of key performance indicators can be very effective. (CRI can assist with determining what data is important to your organization and then creating these dashboards.)

3. They create teaching moments. As the board reviews the organization’s financial statements, they look for opportunities to educate them on specific accounting items. Instead of breezing over a line item for “deferred revenue,” they might take the time to illustrate the point in a way board members can learn. For example, an arts association might explain that the registration fees they’ve collected for next year’s writer’s conference will not be recorded as revenue this year but will be deferred until next fiscal year. Some proactive nonprofit executives even map out an agenda of key topics for the year and then spend 15 to 20 minutes per meeting addressing one or two.

Ultimately, all board members must have a basic understanding of the organization’s financial statements – including what actions they should take if they are out of compliance with board wishes or generally accepted accounting standards.

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a clear understanding of its mission and purpose, as well as a vision for the future. Just as importantly, new board members must clearly understand the difference between governance and management – only one of which a board member is charged to do.

7. Train for a diverse board. As boards become more diverse in terms of age, gender, and other demographic characteristics, training that sharpens relationship building and communication skills between different groups is essential.

IS YOUR BOARD TRAINING “FLIGHT READY?”

Many nonprofit executives will say, “Of course we provide board training.”

Yet, if the truth be told, training at many nonprofits is often just a brief presentation describing the organization – with a vague promise of more to come. And it has no discussion of fiduciary duties, overview of responsibilities, or flight plan.

To ensure that board training will get the job done, executive leadership must dig a little deeper and cover these key issues:

BOARD MEMBER BOOT CAMP: THE NONPROFIT GUIDE TO BASIC TRAINING

Governance An overview of board members’ basic roles and responsibilities

¨ Vision for the organization

¨ Responsibilities (fiduciary duties)

¨ Role (high level leadership, establishing policies, oversight)

¨ Financial stewardship

Financial StatementsAn understanding of the organization’s accounting and financial reporting

¨ Basic structure of funds/financial statements

¨ Required statements – depending on the nature of the organization

¨ Restricted or designated net assets and fund balances

¨ Financial analysis – comparisons to prior periods

¨ Benchmarking – comparisons to similar organizations

Funding An understanding of the entity’s funding model and primary revenue sources

¨ Where the money originates (grants, donations, fees for services)

¨ Operating revenues

¨ Capital funds

¨ Restricted or designated net assets (difference between the two)

ANCHORS AWEIGH!

As nonprofits become more complex and the communities they serve more diverse, their boards must increasingly operate as “special forces” – cohesive, highly trained, and focused on the mission at hand. All members of the team should know their duties (fiduciary and compliance), understand their roles, and provide the high-level leadership the organization needs to march full steam ahead.

Don’t be afraid to call in the cavalry if your organization is struggling with a board ill-prepared to handle its duties. Proper training for those charged with governance is mission-critical – and CRI’s not-for-profit team is ready to deploy with the resources you need. Contact us to set-up a free 30-minute consultation or analysis of your current board training program.

Risk ManagementThe importance of implementing controls to manage everything from the risk of fraud to risks to the organization’s reputation

¨ Need for regular risk assessment

¨ Implementation of appropriate controls (e.g., segregation of duties)

¨ Adherence to established policies

¨ Understanding reports on internal controls from CPAs

Regulatory ComplianceAn overview of compliance issues

¨ Federal/state/local laws and ordinances

¨ Income tax and/or informational reporting (wage reporting, contract labor, grant reports, etc.)

¨ Meeting grant requirements, including Single Audits for federal funds

¨ Fundraising registration/“Do Not Call” rule

Strategic PlanningThe need for more than “here-and-now” thinking

¨ Importance of long-term succession planning

¨ Need for multi-year strategic plan

¨ Importance of balancing institutional knowledge with fresh perspectives

¨ Need for interim/emergency succession plan

9BOARD MEMBER BOOT CAMP: THE NONPROFIT GUIDE TO BASIC TRAINING

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