We are two professionals concerned about the economic health and viability of nonprofit organizations. Although neither of us currently works in the nonprofit sector, together we have over 40 years of experience with nonprofits in a variety of roles: administering, consulting, auditing, training, and volunteering. Despite our divergent backgrounds (accounting and social work), we share a common belief that too many nonprofits put their missions at risk when they fail to attend to the demands of governance. At the same time, we know that resources are available to assist nonprofits with the tough issues they face, particularly in this time of economic uncertainty and blossoming regulation.
We came together to write this book because we believe that knowledge of laws and regulations is important, and there are chapters in this book dedicated to those topics. But the issues facing boards go beyond the technical components of decision making. Nonprofits and their leaders must distill the facts of any given situation, assess the risks, and ultimately make a proper decision based on those elements. Such decisions are not always clear cut or easy. Ethical, interpersonal, political, and other considerations can affect decision making and the outcomes that result. Thus we focus not only on the laws and policies guiding nonprofits but also on the individual and group dynamics.
This book offers an introduction to the most important things that board members and nonprofit executives need to know. The first chapter sets the stage by helping the reader understand the reasons why the content is important to the governance of the nonprofit. Chapter 2 defines the difference between roles that management and the board hold in the nonprofit and discusses the board's responsibilities in the context of the Independent Sector's good governance model. Suggestions for implementation by smaller nonprofits are a main focus of this chapter.
Chapter 3 discusses the legal and ethical imperatives that the leaders encounter in nonprofit governance and reviews resources for sound decision making. This is followed by chapter 4, which discusses how to resolve the conflict that is bound to arise in nonprofits when management and the board disagree. It identifies a framework for working through those issues.
Boards will have a difficult time governing if they can't read the basic financial statements of a nonprofit. This technical background is essential to understanding the information that is provided to them on a periodic basis as well as the information that may be audited and made available to donors, funding sources, and others. Chapter 5 provides descriptions of the terminology and definitions, illustrated in a set of nonprofit financial statements, that are important to that understanding.
Chapter 6 discusses the uncertainty and risk that nonprofits face as well as methodologies that a board could use to deal with them. This includes the risk nonprofits run related to external forces such as economic markets and the internal risk of fraud, which is prevalent in nonprofits.
Chapter 7 discusses the internal controls that should be implemented to prevent or detect misstatements and fraud. The chapter illustrates the types of fraud to which the nonprofit is most susceptible.
Chapter 8 discusses a variety of issues with which boards should be familiar related to the organization's tax exempt status.
Chapter 9 introduces the concept of moral courage—the capacity of individuals to take unpopular stands and to act in defense of principles. It identified the barriers to moral courage and provides steps and examples to cultivate courage.
Nonprofits that introduce control measures, risk management initiatives, and other structures are undertaking significant change processes. Chapter 10 addresses organizational change and the effects such changes have on the individuals involved. It details the steps in a change process and the strategic decisions needed for successful transformations.
Chapter 11 synthesizes the book's key points and applies them to new cases, creating a platform for application and for continuing conversation.
Throughout this book are tools and templates that organizations and individuals can use to guide essential discussions and to help ensure compliance and, ultimately, the success of the organization. The book is also populated with numerous case examples. Most cases are composites of situations that we have encountered rather than representations of actual organizations. When we do refer to actual nonprofits, we have offered citations that link the case to news reports or other sources describing the situation.