by Ellen Foell, Legal Counsel
When I bought my last van, I paid attention to every dashboard light -- especially the one that said Maint Req'd.
I wasn't sure what in my precious van required maintenance, but if the little warning light was on, it drove me toward the overpriced dealer for inspection and fixing. I hated seeing that Maint Req'd light. The more annoying challenge was, I never knew whether the Maint Req'd light meant my engine was about to fall out or a fuse needed replacing.
After four or five times of paying attention (and money) and finding the required maintenance was something on the schedule for checking (not fixing), I started to get annoyed with the little light when it came on. Before long, I began to wait six months or so to have the dealer perform the "required maintenance." After all, the car was still running and seemed to be in great shape.
By the time my van had 197,800 miles on it, I stopped paying attention to the light altogether. That is, until, I finally pulled into the repair shop and my mechanic asked, "Have you been ignoring the Maint Req'd light?"
After I forked over the equivalent of a tuition payment for one semester at a small college, my lesson was learned: Don't ignore the Maint req'd light, even if things are humming along nicely.
You may not know exactly what needs fixing, but it's worth it to find out.
A Board Member's Maint Req'd
As a board member, you don't have the benefit of a dashboard that lights on your pregnancy help center bus. And probably, your center is humming along nicely.
But here's a free Maint req'd light for you: Pay attention to the little things that don't seem quite right. As a board member you have the duty to make sure the center not only appears to be humming along nicely, but that it actually is humming along legally.
The case we highlighted in this month's On the LeaderBoard is a real situation. Unfortunately, it's not an isolated case.
I just spoke with another executive director who described an employee's consistent violation of multiple policies, including transporting and interacting with clients outside of the center business, and off-premises. The in fractions themselves were all small incidences, but it's high time the director address the dashboard light.
It doesn't matter if an employee agrees or disagrees with a particular policy. The fact is, there is a policy limiting such interactions in place, and it was consistently violated. In both situations, the board was aware of the behavior but wanted to give the employee the benefit of the doubt. Both let the situation go on too long, and ended up with bigger issues than violation of a policy.
New Policy: Keep Your Policies
Every organization has policies. From time to time, your organization may have had a staff person or a volunteer continue to violate the same policy or procedure. It isn't necessarily a major incident. But consider: who is responsible to check the dashboard lights? Who has the ultimate legal authority and responsibility to respond to the dashboard lights?
A board's duty is first and foremost to the center -- not to the employees, not to the director, not to the volunteers, not even to the donors -- but to the center, as an organization.
At a minimum, directors and officers are required to act in good faith, with ordinary care in the best interests of the non-profit. That is a textbook definition of fiduciary care. Broken down, it means that the main legal responsibilities of a nonprofit board are what are often characterized as the duty of care, the duty of loyalty and the duty of obedience.
1. The Duty of care mandates that board members are expected to actively participate in organizational planning and decision-making and to make sound and informed judgments.
- Are you, as a board member, actively participating in discussions or are you rubber stamping the decisions and opinions of the executive director?
- Are you perhaps letting the accountant on the board (if you have one) handle the money alone?
- Are you reviewing, understanding and approving financial reports and executive director reports?
- Are you engaged in the discussions about adding services and/or expanding the center's physical space?
2. The Duty of loyalty requires that when acting on behalf of the organization, board members put the interests of the nonprofit before any personal or professional concerns and avoid potential conflicts of interest.
- Have you, as a board member, signed a potential conflict of interest form?
- Do you do so annually?
- If you are a board member related to a staff member, do you recuse yourself when it comes time to evaluate performance of that staff person or vote on salary increases?
3. The Duty of obedience expects Board members to ensure that the organization complies with all applicable federal, state, and local laws and regulations, and that it remains committed to its established mission. This duty requires both an internal and external view. As a Board member, you should consider to what the organization has committed itself.
- What is your mission?
- What did the center's founders tell the IRS your mission was?
- Have you recently looked at the articles of incorporation or reviewed the bylaws?
- Does your Board act in accordance to the bylaws?
- Does it make decisions with a quorum?
Then you must also look to external regulations and laws.
- Have you investigated local requirements for hiring and/or building codes?
- Is the center in compliance with the state's nonprofit statute?
- Is the center in conformity with any legal and medical requirements?
(As a side note, notice how the Commitment of Care and Competence, to which all Heartbeat affiliates ascribe, mimics these requirements in its tenets.)
Moving Forward with Life's Lessons
Remembering that these duties are included under the general title of fiduciary duty, and that fiduciary duty is owed to the center, how did the Board members of Anytown PRC neglect their fiduciary duty? Or did they?
In the situation at hand, the executive director was allowed to repeatedly fail to validate expenses. Not for just one or two months, but over a period of several months.
There was most likely a financial policy and procedure in place in the organization's policy and procedure manual. Presumably, there was also a petty cash policy in place. There were most definitely financial reports that had to be presented by someone on staff at the board meetings.
Consider the following factors:
- If the financial reports were reported, were they attached to the minutes and approved?
- If the financial reports were not approved because receipts were not submitted, did the Board set any time parameters in place within which the director should provide them?
- Did presentation of the missing receipts become an agenda item for the next meeting?
- Was the Board following the schedule of meetings determined in the bylaws?
- If the meetings were three or four months apart, should the Board have set a special meeting for addressing the discrepancies of expenses and receipts?
- Did the Board ever analyze the proportion of receipts missing to the entire budget?
- Were the unaccounted-for receipts 10% of the budget? More? Less? Was the Board simply accepting whatever financial reports the director was presenting?
This situation took place over several months, longer than one fiscal period. Did the Board ever bring up the matter of the financial issues at the director's performance review? Were better financial procedures made part of the performance goals? Should they have been?
Once it became clear that the director was establishing a pattern of failing to turn in receipts on time, did the Board consider that the director was violating the conflict of interest policy as a director, whether the director was a voting member or not?
In this scenario, we should also consider how the Board rectified the situation. It was no doubt difficult and painful for the Board to communicate the situation to its donors, community partners, and partner churches. Nonetheless, we can see that the Board performed a difficult but necessary action, fulfilling its fiduciary duty.
So here's a question from my mechanic to you, "Have you been ignoring the Maint Req'd light?"