BORIS FRAND ASSOCIATES 608/845-3100 7094 Paoli Road, Verona, WI 53593 borisfrank@tds.net BEST PRACTICES FOR NONPROFITS PUTTING OUR HOUSE IN ORDER ___________________________________________________________ Serving Not-For-Profit Organizations Since 1982 ROLE OF THE BOARD -- Key Responsibilities -- * Represent the "owners;" protect the public interest * Establish policy * Planning; setting mission, vision, goals, objectives * Assure financial health; assure resources are available; approve budget * Oversight; monitor the performance of the CEO -- Basic Principles -- * The principle of prudence and due care; mismanagement and nonmanagement * The principle of good faith and loyalty * The principle of personal accountability; avoiding personal benefit, self dealing and conflict of interest -- A Good Resource -- http://www.mncn.org/info/principles_and_practices.pdf BORIS FRANK ASSOCIATES 608/845-3100 7094 Paoli Road, Verona, WI 53593 borisfrank@tds.net CONFIDENTIAL AGENCY ASSESSMENT PRINCIPLES, GUIDELINES AND "BEST PRACTICES" Issues may apply differently to specific organizations depending on size of agency, size of staff, how long the organization has been in existence, type of agency and statutory regulations of the state in which you are located. We recommend, other than those that are legally required, adopting policies and procedures that work best for your organization. ___________________________________________________________ Serving Not-For-Profit Organizations Since 1982 To help evaluate the effectiveness of our organization, please complete this questionnaire using the following scale: 1. Not or never true 2. Rarely true 3. True 50% of the time 4. Usually true 5. Always or absolutely true 6. Do not know 7. Does not apply BOARD 1. ___ Board members understand the roles and responsibilities of a board 2. ___ Our bylaws are up to date and effective 3 ___ We follow our bylaws 4. ___ Board members understand the principles of "due care and diligence, prudence, good faith and loyalty" 5. ___ There is a formal process for selecting board members 6. ___ Community diversity is represented on the board 7. ___ A substantial majority of the board members are independent and do not receive any form of compensation or personal benefit from the agency 8. ___ The bylaws define board terms, which are enforced 9. ___ There are written, current board job descriptions 10. ___ There are written, current performance standards for board members 11. ___ Board members are not compensated, other than for reasonable expenses; a travel and expense reimbursement policy has been adopted for the agency 12. ___ New board members are adequately oriented and trained 13. ___ The board works well together 14. ___ There are people on the board with financial and nonprofit accounting expertise who review the financial reports 15. ___ The board and its members regularly evaluate their effectiveness 16. ___ Board meetings are effective, well run and deal with important issues 17. ___ Board and committee meetings start and end on time 18. ___ The Board receives an agenda, including committee, Executive Director reports and related documents in advance of board meetings 19. ___ Board minutes are kept, reflecting actions and dissent 20. ___ Board members review advance information and come prepared to meetings 21. ___ Board and staff conflict of interest and loyalty policies are in place 22. ___ Privacy and confidentiality policies are in place 23. ___ All board members receive and understand financial reports 24. ___ The bylaws provide for removing ineffective or inactive board members 25. ___ The board meets in executive session to discuss staff and personnel issues 26. ___ Bylaws, policies and procedures are periodically reviewed 27. ___ We have a political activity and advocacy policy 28. ___ We have an agency conflict of interest policy 29. ___ Board members are required to disclose potential conflicts of interest and sign a conflict of interest statement 30. ___ Compensated staff do not serve as officers 31. ___ The President or Board Chair does not concurrently hold the office of Treasurer or Secretary 32. ___ The Finance Committee, Audit Committee or full Board review the Federal 990 report and State reports before they are submitted 33. ____ All applicable open meeting and Freedom of Information requirements are met COMMITTEES 1. ___ It is clear how committees can be formed and that they meet statutory requirements 2. ___ The committee structure works 3. ___ All committees have clearly defined roles and responsibilities 4. ___ Committee reporting process is clear 5. ___ Committee minutes are kept 6. ___ We have an Audit Committee 7. ___ All Board committees that have the power to "exercise the powers of the Board with respect to the management of the affairs of the corporation when the Board is not meeting" include at least three Board members (Wisconsin statutory requirement) PERSONNEL AND STAFFING 1. ___ The hiring process of the CEO is well defined and effective 2. ___ Role and relationship between board and staff is clear 3. ___ Communication between board and staff is effective 4. ___ There is a clear, current agency organizational chart 5. ___ The board is never involved in subordinate staffing decisions 6. ___ Staff is effective and competent and works well together. Morale is high 7. ___ Background checks are conducted when hiring 8. ___ Personnel handbook and policies are current and have been reviewed by competent human resource professionals 9. ___ Grievance procedures and policies are current 10. ___ Staff have a process to bring critical administrative and operating issues and concerns directly to the board without fear of retaliation 11. ___ A Whistleblower system exists 12. ___ Staff have current job descriptions and performance standards 13. ___ The CEO is evaluated at least annually 14. ___ All staff are regularly evaluated by their supervisor; appropriate records of evaluation are maintained in the employee's personnel file 15. ___ Employee workload, compensation and benefits are at levels that attract a qualified staff 16. ___ Staff is responsive to board requests for information 17. ___ Volunteer policies and procedures are in place and are applied; volunteer background checks are conducted, especially when volunteers will interact with clients 18. ___ A CEO succession plan exists 19. ___ We have "key person" insurance BUDGETING AND FINANCES 1. ___ We have adequate operating funds 2. ___ An annual budget is approved by the board 3. ___ The annual budget projects a "profit" 4. ___ We have a 12-18 month cash flow projection 5. ___ All income and funds received are deposited within 48 hours of receipt 6. ___ An accounting system based on generally accepted accounting principles is in place and applied 7. ___ Financial reports including statement of financial position (balance sheet) and statement of activities compared to budget and prior year are prepared and reviewed by the Board at least quarterly 8. ___ Internal financial audit controls, checks and balances, including accounts payable procedures, based on generally accepted practices, are in place and applied 9. ___ All payroll taxes and other payables are remitted in a timely manner and are up to date 10. ___ A regular audit or financial review is conducted within 3 to 5 months of the end of our fiscal year by a firm selected exclusively by board members not directly involved in the financial affairs of the organization 11. ___ Our audit is "clean" and unqualified 12. ___ Our auditor provides us with a Management Letter describing any issues that require attention 13. ___ Staff is not involved in selecting the auditor 14. ___ The Audit Committee and Finance Committee meet in executive session with the auditor 15. ___ All Board members receive a copy of the audit/review and management letter, and have an opportunity to meet with and question the auditor 16. ___ An adequate reserve fund exists 17. ___ We have an investment policy that is regularly reviewed 18. ___ Everyone handling money or involved in financial transactions is bonded or is covered by a dishonesty policy 19. ___ The agency does not make loans, or guarantee loans, to board or staff 20. ___ Reasonable, cost effective travel and expense reimbursement policies are in place 21. ___ At least 65% of the annual budget is devoted to program activities 22. ___ Depreciation is funded FUNDRAISING 1. ___ Responsibility for fundraising is clearly defined and assigned 2. ___ A fundraising plan is in place 3. ___ Fundraising is diverse, not depending upon limited sources 4. ___ The board plays a role in fundraising 5. ___ All board members contribute annually 6. ___ Board members and volunteers are adequately trained in sound fundraising procedures 7. ___ The board chair takes a lead role in fundraising 8. ___ Fundraising is cost effective 9. ___ We have written Gift Acceptance, Donors Rights and Privacy Policies 10. ___ All gifts and pledges are acknowledged within 48 hours of receipt 11. ___ A formal acknowledgement meeting IRS requirements is sent to all donors 12. ___ We are in compliance with Better Business Bureau Standards of Practice 13. ___ Individuals raising funds for the agency are not compensated based on a commission or percentage of funds raised 14. ___ We are appropriately licensed, where required, in all states where we solicit funds MANAGEMENT AND OPERATIONS 1. ___ Operating policies are current and have been approved by the board 2. ___ There are clear policies as to who may speak for and commit the organization 3. ___ Working conditions and resources are adequate 4. ___ Technology is state-of-the-art 5. ___ Record keeping and files are current and accessible 6. ___ Computer records and electronic files are regularly backed up and stored off site 7. ___ Copies of critical documents are stored off site 8. ___ We have adequate insurance coverage including general liability; property; vehicle; workers compensation; financial malfeasance and dishonesty; and directors and officers liability. Volunteers are appropriately covered. We review our coverage at least annually 9. ___ All federal and state operating and fundraising licensing and reporting requirements, including Federal Form 990, are met and the Board reviews these reports for accuracy and completeness 10. ___ A crisis resolution plan exists 11. ___ A disaster recovery and catastrophe plan exists 12. ___ A confidentiality policy exists 13. ___ A document retention policy is in place 14. ___ We are familiar with and follow all rules, regulations and guidelines regarding political activity 15. ___ Key agency documents, including federal and state reports, financial reports and program effectiveness reports are readily available for public review 16. ___ An annual inventory of agency equipment and facilities is performed PUBLIC INFORMATION 1. ___ An agency spokesperson(s) has been identified 2. ___ An effective marketing and public information strategy is in place 3. ___ We are transparent...the public, stakeholders, clients, members and other partners are kept informed about the agency 4. ___ Required records and documents are available for public inspection 5. ___ Marketing and public information materials are current and effective 6. ___ The agency responds in a timely and effective manner when contacted by the public 7. ___ We are well known in the community 8. ___ Our credibility is high and we have a positive image in the community PLANNING, PROGRAMS AND EVALUATION 1. ___ Mission is clear and current 2. ___ Vision and long range goals have been adopted 3. ___ A strategic plan has been approved by the board 4. ___ A strategic planning process, involving all board members and key staff, has been conducted within the last year 5. ___ Planning is based on a community needs assessment process 6. ___ Realistic, measurable goals and objectives are in place 7. ___ The strategic plan and agency goals are regularly reviewed and modified 8. ___ Our programs and projects are effective 9. ___ A process is in place to continually evaluate the effectiveness of the agency and our programs 10. ___ We regularly meet our goals and objectives Name of organization you are evaluating:_________________________ My relationship to the organization: ___ Board member ___ Committee member ____ Volunteer ____ Staff ____ Other ______________________________ Name: (Optional) __________________________ Today's date __________________ SARBANES-OXLEY IMPLICATIONS FOR NOT-FOR-PROFITS Created to rebuild public trust in the corporate community in the wake of corporate and accounting scandals, the American Competitiveness and Corporate Accountability Act, or Sarbanes-Oxley Act, requires that publicly traded companies conform to new standards in financial transactions and audit procedures. As state officials explore ways to apply elements of the law to the nonprofit sector, it is recommend that nonprofits voluntarily incorporate certain provisions of the Act that make good governance sense. 1. Insider Transactions and Conflicts of Interest * Understand and fully comply with all laws regarding compensation and benefits provided to directors and executives (including "intermediate sanctions" and "self-dealing" laws). * Do not provide personal loans to directors and executives. * In cases in which the board feels it is necessary to provide a loan, however, all terms should be disclosed and formally approved by the board, the process should be documented, and the terms and the value of the loan should be publicly disclosed. * Establish a conflict of interest policy and a regular and rigorous means of enforcing it. 2. Independent and Competent Audit Committee * Conduct an annual external financial audit (the boards of very small organizations, for whom the cost of an external audit may be too burdensome, should at least evaluate carefully whether an audit would be valuable). * Establish a separate audit committee of the board. * Board members on the audit committee should be free from conflicts of interest and should not receive any compensation for their service on the committee. * Include at least one "financial expert" on the audit committee. * The audit committee should select and oversee the auditing company and review the audit. * Require full board to approve audit results. * Provide financial literacy training to all board members. 3. Responsibilities of Auditors * Rotate auditor or lead partner at least every five years. * Avoid any conflict of interest in staff exchange between audit firm and organization. * Do not use auditing firm for non-auditing services except tax form preparation with pre-approval from audit committee. * Require disclosure to audit committee of critical accounting policies and practices. * Use audit committee to oversee and enforce conflict-of-interest policy. 4. Certified Financial Statements * CEO and CFO should sign off on all financial statements (either formally or in practice), including Form 990 tax returns, to ensure they are accurate, complete, and filed on time. * The board should review and approve financial statements and Form 990 tax returns for completeness and accuracy. 5. Disclosure * Disclose Form 990 and 990-PF in a current and easily accessible way (also required of all nonprofit organizations by IRS law). * File 990 and 990-PF Forms in a timely manner, without use of extensions unless required by unusual circumstances. * Disclose audited financial statements. * Move to electronic filing of Form 990 and 990-PF. 6. Whistle-Blower Protection * Develop, adopt, and disclose a formal process to deal with complaints and prevent retaliation. * Investigate employee complaints and correct any problems or explain why corrections are not necessary. 7. Document Destruction * Have a written, mandatory document retention and periodic destruction policy, which includes guidelines for electronic files and voicemail. * If an official investigation is underway or even suspected, stop any document purging in order to avoid criminal obstruction. ABC ORGANIZATION STANDARDS OF PRACTICE ABC subscribes to the Better Business Bureau Standards of Practice. The BBB Wise Giving Alliance Standards for Charity Accountability were developed to assist donors in making sound giving decisions and to foster public confidence in charitable organizations. The standards seek to encourage fair and honest solicitation practices, to promote ethical conduct by charitable organizations and to advance support of philanthropy. These standards replace the separate standards of the National Charities Information Bureau and the Council of Better Business Bureaus' Foundation and its Philanthropic Advisory Service that were in place at the time the organizations merged. The Standards for Charity Accountability were developed with professional and technical assistance from representatives of small and large charitable organizations, the accounting profession, grant making foundations, corporate contributions officers, regulatory agencies, research organizations and the Better Business Bureau system. The BBB Wise Giving Alliance also commissioned significant independent research on donor expectations to ensure that the views of the general public were reflected in the standards. The generous support of the Charles Stewart Mott Foundation, the Surdna Foundation, and Sony Corporation of America helped underwrite the development of these standards and related research. Organizations that comply with these accountability standards have provided documentation that they meet basic standards: * In how they govern their organization, * In the ways they spend their money, * In the truthfulness of their representations, and * In their willingness to disclose basic information to the public. These standards apply to publicly soliciting organizations that are tax exempt under section 501(c)(3) of the Internal Revenue Code and to other organizations conducting charitable solicitations. The standards are not intended to apply to private foundations, as they do not solicit contributions from the public. The overarching principle of the BBB Wise Giving Alliance Standards for Charity Accountability is full disclosure to donors and potential donors at the time of solicitation and thereafter. However, where indicated, the standards recommend ethical practices beyond the act of disclosure in order to ensure public confidence and encourage giving. As voluntary standards, they also go beyond the requirements of local, state and federal laws and regulations. In addition to the specific areas addressed in the standards, the BBB Wise Giving Alliance encourages charitable organizations to adopt the following management practices to further the cause of charitable accountability. * Initiate a policy promoting pluralism and diversity within the organization's board, staff, and constituencies. While organizations vary widely in their ability to demonstrate pluralism and diversity, every organization should establish a policy, consistent with its mission statement, that fosters such inclusiveness. * Ensure adherence to all applicable local, state and federal laws and regulations including submission of financial information. * Maintain an organizational adherence to the specific standards cited below. The BBB Wise Giving Alliance also encourages charities to maintain an organizational commitment to accountability that transcends specific standards and places a priority on openness and ethical behavior in the charity's programs and activities. STANDARDS FOR CHARITABLE ACCOUNTABILITY GOVERNANCE AND OVERSIGHT The governing board has the ultimate oversight authority for any charitable organization. This section of the standards seeks to ensure that the volunteer board is active, independent and free of self-dealing. To meet these standards, the organization shall have: 1. A board of directors that provides adequate oversight of the charity's operations and its staff. Indication of adequate oversight includes, but is not limited to, regularly scheduled appraisals of the CEO's performance, evidence of disbursement controls such as board approval of the budget, fund raising practices, establishment of a conflict of interest policy, and establishment of accounting procedures sufficient to safeguard charity finances. 2. A board of directors with a minimum of five voting members. 3. A minimum of three evenly spaced meetings per year of the full governing body with a majority in attendance, with face-to-face participation. A conference call of the full board can substitute for one of the three meetings of the governing body. For all meetings, alternative modes of participation are acceptable for those with physical disabilities. 4. Not more than one or 10% (whichever is greater) directly or indirectly compensated person(s) serving as voting member(s) of the board. Compensated members shall not serve as the board's chair or treasurer. 5. No transaction(s) in which any board or staff members have material conflicting interests with the charity resulting from any relationship or business affiliation. Factors that will be considered when concluding whether or not a related party transaction constitutes a conflict of interest and if such a conflict is material, include, but are not limited to: any arm's length procedures established by the charity; the size of the transaction relative to like expenses of the charity; whether the interested party participated in the board vote on the transaction; if competitive bids were sought an d whether the transaction is one-time, recurring or ongoing. MEASURING EFFECTIVENESS An organization should regularly assess its effectiveness in achieving its mission. This section seeks to ensure that an organization has defined, measurable goals and objectives in place and a defined process in place to evaluate the success and impact of its program(s) in fulfilling the goals and objectives of the organization and that also identifies ways to address any deficiencies. To meet these standards, a charitable organization shall: 6. Have a board policy of assessing, no less than every two years, the organization's performance and effectiveness and of determining future actions required to achieve its mission. 7. Submit to the organization's governing body, for its approval, a written report that outlines the results of the aforementioned performance and effectiveness assessment and recommendations for future actions. FINANCES This section of the standards seeks to ensure that the charity spends its funds honestly, prudently and in accordance with statements made in fund raising appeals. To meet these standards, the charitable organization shall: Please note that standards 8 and 9 have different denominators. 8. Spend at least 65% of its total expenses on program activities. Formula for Standard 8: Total Program Service Expenses should be at least 65% Total Expenses 9. Spend no more than 35% of related contributions on fund raising. Related contributions include donations, legacies, and other gifts received as a result of fund raising efforts. Formula for Standard 9: Total Fund Raising Expenses should be no more than 35% Total Related Contributions 10. Avoid accumulating funds that could be used for current program activities. To meet this standard, the charity's unrestricted net assets available for use should not be more than three times the size of the past year's expenses or three times the size of the current year's budget, whichever is higher. An organization that does not meet Standards 8, 9 and/or 10 may provide evidence to demonstrate that its use of funds is reasonable. The higher fund raising and administrative costs of a newly created organization, donor restrictions on the use of funds, exceptional bequests, a stigma associated with a cause and environmental or political events beyond an organization's control are among factors which may result in expenditures that are reasonable although they do not meet the financial measures cited in these standards. 11. Make available to all, on request, complete annual financial statements prepared in accordance with generally accepted accounting principles. When total annual gross income exceeds $250,000, these statements should be audited in accordance with generally accepted auditing standards. For charities whose annual gross income is less than $250,000, a review by a certified public accountant is sufficient to meet this standard. For charities whose annual gross income is less than $100,000, an internally produced, complete financial statement is sufficient to meet this standard. 12. Include in the financial statements a breakdown of expenses (e.g., salaries, travel, postage, etc.) that shows what portion of these expenses was allocated to program, fund raising, and administrative activities. If the charity has more than one major program category, the schedule should provide a breakdown for each category. 13. Accurately report the charity's expenses, including any joint cost allocations, in its financial statements. For example, audited or unaudited statements which inaccurately claim zero fund raising expenses or otherwise understate the amount a charity spends on fund raising, and/or overstate the amount it spends on programs will not meet this standard. 14. Have a board-approved annual budget for its current fiscal year, outlining projected expenses for major program activities, fund raising, and administration. FUND RAISING AND INFORMATIONAL MATERIALS A fund raising appeal is often the only contact a donor has with a charity and may be the sole impetus for giving. This section of the standards seeks to ensure that a charity's representations to the public are accurate, complete and respectful. To meet these standards, the charitable organization shall: 15. Have solicitations and informational materials, distributed by any means, that are accurate, truthful and not misleading, both in whole and in part. Appeals that omit a clear description of program(s) for which contributions are sought will not meet this standard. A charity should also be able to substantiate that the timing and nature of its expenditures are in accordance with what is stated, expressed, or implied in the charity's solicitations. 16. Have an annual report available to all, on request, that includes: * the organization's mission statement, * a summary of the past year's program service accomplishments, * roster of the officers and members of the board of directors, * financial information that includes (i) total income in the past fiscal year, (ii) expenses in the same program, fund raising and administrative categories as in the financial statements, and (iii) ending net assets. 17. Include on any charity websites that solicit contributions, the same information that is recommended for annual reports, as well as the mailing address of the charity and electronic access to its most recent IRS Form 990. 18. Address privacy concerns of donors by a. providing in written appeals, at least annually, a means (e.g., such as a check off box) for both new and continuing donors to inform the charity if they do not want their name and address shared outside the organization, and b. providing a clear, prominent and easily accessible privacy policy on any of its websites that tells visitors (i) what information, if any, is being collected about them by the charity and how this information will be used, (ii) how to contact the charity to review personal information collected and request corrections, (iii) how to inform the charity (e.g., a check off box) that the visitor does not wish his/her personal information to be shared outside the organization, and (iv) what security measures the charity has in place to protect personal information. 19. Clearly disclose how the charity benefits from the sale of products or services (i.e., cause-related marketing) that state or imply that a charity will benefit from a consumer sale or transaction. Such promotions should disclose, at the point of solicitation: a. the actual or anticipated portion of the purchase price that will benefit the charity (e.g., 5 cents will be contributed to ABC charity for every xyz company product sold), b. the duration of the campaign (e.g., the month of October), c. any maximum or guaranteed minimum contribution amount (e.g., up to a maximum of $200,000). 20. Respond promptly to and act on complaints brought to its attention by the BBB Wise Giving Alliance and/or local Better Business Bureaus about fund raising practices, privacy policy violations and/or other issues.