Financial Management Workshop for CILs…Regulations and Beyond IL-NET presentation on May 25-27, 2016 Module 2: Board Roles and Responsibilities PAULA McELWEE: So the board is responsible for the board. This is a tricky one sometimes, if your board isn't taking that responsibility. A lot of times Executive Directors are finding themselves kind of trying to pull them into their responsibilities and they aren't always ready for that. But whatever the level of expertise on your board, you need to continually develop their understanding around their responsibilities. So important that they are aware of and responding to those requirements. So the present and proposed operations of your organization will tell you what skills you need on that board. We have one overreaching consumer control requirement that all of us meet with our board. 51% of your board members must be people with significant disabilities. If you don't have the word significant in there, you're missing something. But significant disabilities, and so you've got that requirement. But within that requirement, you can still seek out areas of expertise -- for whatever the person's disability is, they might also have other areas of expertise. A lot of times we'll do a matrix, and if you're interested in that, drop me an e- mail. Making my way around tables and dropping off business card with you. Feel free to contact me by phone or e-mail. I lock my phone in my office so those of you on East Coast can't call me at 5:00. But you can send e-mail and you're welcome to call me. I won't answer until regular working hours. But as you look at a matrix, you can kind of say, okay, for our operations, we really need somebody with some understanding about how the medical world works, because we're doing some things with Medicaid, relocating people out of nursing homes, so it would be helpful for us to have some expertise there. We really want somebody with some financial, legal -- good luck with that. Lawyers are notoriously too busy to attend board meetings. We really need somebody who is from this community. We really need somebody who is of this ethnicity. We really need somebody who is representative of certain disability group. Board defines what your board needs and then recruitment efforts can follow those same things, so probably think about all the different areas where you'd like to see someone represented on your board and then check them off. People can meet more than one, check them off as you have them met, then you know kind of where your recruitment efforts can be focused. That's one way you can kind of look for that proper skills level to make sure the board is representative there, because the board needs the skills to guide your organization well. So they need to have some of those things identified and working on that. Besides figuring out where the gaps are on the membership of the board and recruitment efforts, we suggest the board evaluate whether it's doing a good job or not. A lot of the nonprofit sites have board self-evaluations, where the board member can evaluate themselves or the board as a whole can evaluate its performance and we feel like both those tools are very effective, and can really help your board to identify its responsibility to grow. Whether that's in recruiting more board members or growing in their skills and in their ability to do the different things that you need them to do. Then as you look at expertise, I mentioned some here. Human resources is another one. Technology can be one. Fundraising, marketing are key board roles so it's good to have somebody with some knowledge there on your board, and I'm sure as you and your board meet you can think of some others as well. When you look at what you do with your board, I would challenge you to consistently do orientation for new board members. Maybe you bring several people on at once, maybe only one at a time, but either way they need to come to your center, see you in operation, get a copy of your policies and procedures. A lot of times orientation manual might include the minutes of the last six board meetings or something, so they can kind of come up to speed on what the issues the board is dealing with. Of course, any board policies and procedures, any job descriptions related to the board, sometimes you have job description for committee or for committee chair, so put that all together so that you have that material available and then go through it with them as part of an orientation for your board members, and that's very helpful. Another thing find very helpful, if you identify a mentor. So somebody on the board says, I'll kind of take this person under my wing and I'll sit next to them at the meeting and if they can't find something in their packet, I'll be there to assist them in finding it. If they are sitting there at the start, I'll introduce them to people around the room and they can have a one-on-one conversation and I'll make sure that the person knows their name and they know the person's name. If they have questions, I'll make sure those questions have answers. Have someone to take on that mentoring role, it's also very effective. You probably have board policies and procedures, in addition to the policies and procedures for other operations. Make sure they have those in place. And John. JOHN HEVERON: But a couple of things I think really would be good for a board. What I'm going to ask, what would be the best way to present this? This came up at a conference, whatever. The first thing I think really good for a board is a tool called charting impact. Again, from the independent sector, mentioned them before. There are a lot of good resources with independent sector, but this charting impact really walks the board through the process of thinking about the strategic direction for the organization. It asks, what is your organization attempting to accomplish? What are your strategies? What are your capabilities for doing this? Do you need to increase your capabilities? How do you measure your progress? How will you know you are making progress? What haven't you accomplished so far? So that's one tool charting impact. There's another tool that we don't have up on the slides here, but I'm sure we can make it available on the website. It's called principles for good governance and ethical practice. This came out a number of years ago. It's pretty easy to find. They have their own website now called principlesforgood.org, and there's an in-depth version of this. There is an implementation manual for this. But there's also just a very brief two-page summary of the principles. And they're not overwhelming. They are 33 principles. Again, two pieces of paper, for a board to go through, say, how are we doing in each of these areas? Maybe you take a section at a time because they have sections for legal compliance and public disclosure, a section for effective governance, one on strong financial oversight. And one on responsible fundraising, so four sections, maybe focus on one at a time. An example, legal compliance, public disclosure, charitable organization should establish, implement policies and procedures that enable individuals to come forward with information on illegal practices or violations of organizational policies. This whistle-blower policy should specify the organization will seek to protect the confidentiality of the individuals who make good-faith reports. Also, legal compliance, charitable organizations should establish and implement policies and procedures to protect and preserve the organization's important data, documents, and business records. And then effective governance, they say, just a couple of examples, the board of a charitable organization should meet regularly enough to conduct its business and fulfill its duties. Charitable organization should include members with diverse background, including but not limited to ethnicity, race, gender. Experience, organizational, and financial skills necessary to advance the organization's mission. Strong financial oversight, one example, charitable organization should spend a significant amount of its annual budget on programs. To pursue its mission while assuring the organization has sufficient administrative and fundraising capacity to deliver those programs responsively and effectively. Finally, responsible fundraising, solicitation materials, communications addressed to donors and the public must clearly identify the organization, be accurate and truthful, and contributions must be used for the purposes consistent with the donors' intent, whether described in the relevant solicitation materials or as specifically directed by the donor. Good stuff. And this is an update to a set of guidelines that was issued several years ago. It was a collaboration of nonprofit leadership groups and they spent an awful lot of time in developing this. So this is really good stuff. And the suggestion would be that the board somehow go through this as part of a meeting, as I said, possibly look at a section at a time. PAULA McELWEE: One of the other things that we didn't put on the chart, I don't think. Might be on another slide, I'll correct myself on that. Code of ethics. You can find lots of samples online. You can have a board committee work on it and suggest a code of ethics that the board wants to adhere to. We suggest review that at least once a year, have them sign off on it when they become members of the board but use it as a training tool because the code of ethics usually has written into it how do you report if you have something you think is a problem? Whistle-blowing is the term often used there, but what's your process for reducing the potential for fraud or misuse of funds or any other unethical behavior by having a way the board can hear about it and know about it and responds to it? So having that is usually one of the elements, and there are other ethical matters that it's really -- code of ethics works really well for that kind of thing. Committees, we mentioned earlier, and I just would like to loop back to it. Sometimes your board is small and committee structure ends up being a committee as a whole, no matter what you do. If you're operating with a board of six or under, that's probably your circumstance. Get to about ten, you're starting to get to where you could do some committee structure. Boards that run 15, usually 15, 16, 17, very efficiently can use committees. I've seen boards up to 25. I don't think I'd want to go any higher than that, just because it becomes unmanageable. Sometimes your SILC council ends up being driven by other matters. Think in terms of 25 or under, at what point would committees work for you? And committees of board do not have to be only made up of board members. If you've got some potential board members out there you'd kind of like to see how they operate and they have an interest in a certain area and are interested in your center, they might make a volunteer committee member without being on the board. Usually there's some staff assigned to the committee, because the committee is looking at an area that staff person is over, so Finance Committee, finance person is usually a part of that committee structure as at least staff liaison. Of course, Executive Director can be on every committee. May or may not want to be on every committee. But that's an option for the Executive Director to attend. But as you look at your committee structure, ask yourself, can we match these skills that we thought we needed? Match it to our committee structure? Some centers have bylaws that specify eight committees and you are never going to have eight committees, so if your bylaws specify a committee structure you're not doing, your bylaws should be revised to reflect what you're doing or leave it open enough your policy and procedures can guide the specifics, so usually the only standing committees that you really have to have in your committee structure would be your Executive Committee and your Finance Committee. And I've seen centers who have a committee for just about every function and it's hard to give them something to do sometimes. It makes more sense to have an ad hoc personnel committee than to have personnel committee that meets all the time. Ad hoc personnel committee can cover personnel policies every time they come up or once a year, review, come to the board with recommendations, but the day-to-day personnel business ought to be conducted by Executive Director, direct supervisor. Don't want confusion having a committee for everything, and have it not work well. So you want to make sure you structured your bylaws to only require the minimum, and then you can require more functionally your policies and procedures without doing bylaws changes every time. That was free advice on the side. The best way for committee to work is the committee brings a motion to the board. The committee has done their work, figured out what they want to do and what they do then, the committee chair or someone designated actually makes a motion to the full board, and then there's a discussion around what the background was and what you want to do with it and the full board votes on the committee's recommendation, and that's typically the best way a committee works, and as I said, you may want to have limited other authority, in some cases, you should document what their authority is in the bylaws. Common example is, board meets quarterly but the Executive Committee is authorized by your bylaws to make decisions on behalf of the corporation in between those quarterly meetings. That's a real common one, is an authority given to the Executive Committee. If you're going to give that authority to the Executive Committee, probably that needs to be part of your bylaws. Then committee participation and the role of committees. Typically you say to every board member, you need to serve on at least one committee. So everybody is somehow active besides those board meetings in some area in which they're interested. If you have an active committee structure, this is very effective. I've seen centers where the requirement is the board serves on two committees. One committee of their choice and the fundraising committee. We know how much boards love fundraising and they can't wait to come to that meeting with ideas. It's not an easy thing, fundraising piece, so it's always a tough one. So I'm just curious, how many of you use committee structure at all? Let me see a show of hands that you use -- looks like maybe half? Not quite half, maybe. So some of you -- those of you who do not use a committee structure, is it because of the size of your board? Hands up if it is. Okay. A little less than half. Some that didn't answer. So as you look at committee structures, that's always helpful. How many of you have all your committees are standing committees, they're required to meet all the time? Maybe a quarter of the room. And of those of you who have standing committees, do you find that they meet regularly? They meet regularly and they actually do work. Four, five of you have effective committees. If you have effective committees, it's really a great way for the board to get some work done, and when we come to some of these ethical issues and some of the financial oversight issues, it really gives them time to consider and take their role seriously, if they're doing it in committee structure rather than full board meeting. Most have boards who want us to make that board meeting as short as possible. It's not always possible. They like to see it an hour. Maybe three -- so you want to do what you can with that. Ad hoc committees are a good way to deal with committees, if you don't have a real regular committee structure. So think about a board committee for specific purpose for short time period, so they can come in and do that, so that's a nice way to also address some things. How many of you use ad hoc committees for your board? A few of you. Sometimes something comes up you want the board or the council to work on together, that's effective. As we said, usually the Executive Committee is a standing committee, that's in bylaws, and that's usually the officers of the organization, so usually that's a chair or vice chair or maybe president or vice president, and secretary/treasurer or secretary and a treasurer, whatever your officers are. Sometimes members at large also put on Executive Committee, kind of give you a nice enough group of people to meet should they need to do that. And typically they can serve as advisers to the Executive Director. If there's a problem coming up, it's not a bad way to run it past your Executive Committee to figure out how to present it to the larger group. Sometimes they deal with matters need immediate attention and can't wait on the board meeting. If they do that, needs to be authorized in your policies and procedures or in your bylaws or both. One challenge for the SILCs related to Executive Committee meetings is that SILCs are typically required to be open meetings. Most states, that's not true with centers. Now some states that is true with centers, but in most states, you're not required to have an open meeting. Most centers choose to have them open anyway because of our commitment to consumer control. So you may see that or you may not see that with centers, but when they have to have open meeting, have to look at your state's regulations. Vary a great deal from state to state to state. So know whether or not your meetings need to be open, and in the case of SILC, they almost always have to be and notice whether committee meeting also has to be open or not, and what open means as far as a notice and how firm the agenda has to be and whether or not there's public comment and how that happens, again that varies state by state. So you do need to be aware of those laws and make sure you're following those principles as you go through. When I gave you that link, I'm not implying you shouldn't hold us accountable here. You absolutely should. It's sometimes helpful for your board to have that as a reference, so you can put it in orientation manual, it can really help the board have that reference, what those acronyms are. Anyway, the Executive Committee is often where new board development also happens, and focused on who is going to benefit your organization the most. So the board Executive Committee might be working on that particular area. Sometimes there is a personnel committee. Usually they look at personnel policies. Sometimes they will also look at the senior staff job descriptions. Executive Director job description should be authorized by the board for sure. And salary recommendations related to that as well. And participate in or review performance evaluations of Executive Director, CEO. When we say for senior staff, there are some situations where the board specifically wants something from other senior staff, and the CFO, financial person, is often one of the people they want to be involved in, due to specific financial responsibilities to the board. So they may be involved in reviewing that as well. Of course, going to review organizational chart, making any changes in the organizational chart, that's something board should be aware of. They also usually have some kind of a role, if there's a grievance procedure, so usually you have multiple steps. Somebody tries to resolve grievance first with supervisor, then it goes to the Executive Director. And then may go to the board, depending on who the grievance is against and how you structure your policies. Often personnel committee is one of the places where that might take place. So they would actually be reviewing grievances from staff. It's nice to have human relations, general management experience if you're on that kind of committee. So those are typical committees. And finance is the key one that we're talking about today. They're going to make sure your policies and procedures talk about budgeting. What is your budgeting process? At what point does the board approve a budget? At what point does a board approve changes in budget? You keep the same budget year-long and you just deal with variances or do you change your budget as you go through your year? How does that happen? What is the process for review and approval? Also policy and procedure for collections, if you're collecting money for anything, they want to know about that. Of course, your financial reports, whether monthly or quarterly. Reviewing those. Assuring that things are filed on a timely basis, so you've got a few requirements around budgeting as far as filing with the IRS at the end of the year, so you want to take a look at that too. And of course investing policies. JOHN HEVERON: Couple comments on Finance Committee. It says here "develop sound budget." Certainly in more cases than not, staff will develop the budget. But finance would review the budget, have some input into it. Maybe even provide some guidance before the budget is developed, but the mechanics of the budget would normally be done by the staff. I also wanted to follow up on your fee for service comment. That's really important when that occurs, as auditor I've seen situations where some people are unreasonably demanding of payment, and also, other cases where people want to be nice and say, oh, don't worry about it. If you don't pay for it, our funding covers it. You really shouldn't have your employees who are responsible for collecting that money making the policy about collection. The board really needs to set that standard, so that there's consistency. I wasn't sure whether you said personnel committee, they should also review and update the personnel manual periodically. Again, the schedule you mentioned, the annual schedule probably makes sense. At least every couple years that should be reviewed and updated. PAULA McELWEE: It's really important to have somebody with some HR background. John mentioned earlier today, those new regulations around the Fair Labor Standards Act and when you are required to pay overtime, which may be different from what you're doing now. That's exactly the kind of thing that that personnel manual may need to be updated to reflect, right? So that's a good example. Of course, if you have money to invest, you want policies for how to invest it. Some of you have that wonderful concern, and you have money that was given to you as an endowment or given -- you have excess of money given to you in some kind of a lump sum that you now need to decide when and how to invest this money and how safe we want the investment to be and we want it always to be FDIC-insured or not. The board needs to make that decision, not the staff. So the board directs your investment policy and also your banking and your borrowing policy. I've seen where the board approves at the beginning, sets up a line of credit for cash flow purposes, and someone not real aware of how that is supposed to work comes in and just spends out that entire line of credit without having any hope that some of the expenses are going to be reimbursed later and that should not be okay. The policy should be very clear how that line of credit is or is not used. And as you probably know, you're not allowed to pay for bad debts out of your federal funding, so if you've got a debt that resulted from that kind of decision-making, then you're going to have to do private fundraising to pay for it and good luck with that. Because most people don't want to pay for a bad debt. So donors really are not jumping on board and all excited about that. Maybe you could do it through your profit from a fee for service program, or something. But once you're in that situation, it's a very difficult situation to extract yourself from. The board ought to be fully aware of any loan or line of credit or any situation that's in place and what the policies and procedures are related to those. And if you don't have a policy and procedure related to that, it needs to be generated in the next review, think about what are our policies, do we borrow money and when, and who needs to be informed, and approve that? One of the things that John and I both bring to this conversation is the things we've seen go wrong. That's one where we've seen things go wrong. Treasurer should be on that Finance Committee. Of course, you want people who have any kind of background in finance but you also want people on the board who don't necessarily have that financial background so that they can learn how to read those financial statements, learn what they mean, come up to speed. It's really useful to have that. And as mentioned earlier, Audit Committee is very much considered today to be a best practice. I don't know, John, if you want to speak about that a little bit. JOHN HEVERON: Just to say, it is becoming much more common. It's not an absolute requirement but it is more of an expectation these days. You know, the Audit Committee would interact with the auditors. It actually can relieve the board somewhat and also possibly take things to a higher standard because it's usually a small committee with audit expertise. That committee may also serve in the role of receiving any whistle-blower reports and so that can be a valuable resource, and then conflict of interest issues might come to that committee as well. PAULA McELWEE: Conflict of interest policy ought to be in place, but as far as developing a response when a conflict is suspected or concern about a conflict comes up, these committees can be real effective, as who would review that potential conflict of interest and get some advice if it's considered a conflict, how to proceed from there. And of course, long-range planning is a typical committee structure of some sort, working on issues that have to do with physical property as well as other kinds of planning. Long-range planning around physical facilities is an important one. I do end up going into centers who are kind of in trouble most of the time, although sometimes it's a transition. Usually I do my on-site work with centers in transition, centers in trouble. Very troubling to me to see inaccessible Centers for Independent Living. And that they're even out there shocks me. But that no one has stopped them and said, you got to get out of this building, this is not good, because ABC are not in place, can you fix them with the landlord or not? If not, you need to go somewhere else. Advocacy hasn't gotten you what you need yet, what are you going to do about it? The facilities committee on your board can be very effective in looking at this ethical issue, which is more than just a physical plant issue. It really is a legal and ethical issue for you as well, so looking at accessibility is a real important part of this. Do you need to someday be somewhere else as part of that strategic planning and how you'll get there. And then of course, fundraising, as we said, like to see the fundraising activities happen because Title VII says centers WILL do fund development, so do need to keep that in mind as well. There's some other slides here, just a few more. We're not going to go into a lot of detail on the rest of this section. But we just do want to say that as an organization, you have commitment to tell the board what they need to know. They may not always ask you. You need to tell them anyway. So this is a two-way street. The relationship between the board and the Executive Director typically, finance, or both, and need to communicate to the board the important things they need to know. You also need to communicate to the staff what the board has said because that's another area, right, where the responsibility of the Executive Director and/or finance person depending on the policy area is to follow through. So the board makes a decision, at the board meeting, what is the follow-through? And the follow-through may be in terms of actual change of policy or procedure. Or it may be in terms of training for the staff or both, so kind of keep that in mind.