Author: Mark Koscinski

Earlier this month I relinquished my role of Chairman of the Board of Directors of a not-for-profit (“NFP”) organization.  The organizational by-laws require a new chairman be elected every three years. I completed three years of service in that position and it was time for someone new to take the reins.  My service began as an interim appointment to the Board of Directors and I subsequently went on to win three successive terms to the Board.

Our current chairman is new to the Board.  While he has experience with other non-profits this is his first engagement with a Center For Independent Living.  The laws and regulations for this type of organization are somewhat bewildering. More than one-half of our board must be disabled in order to maintain our standing under federal and state law.  Should we miss this requirement, we run afoul of the law, and our funding could simply disappear. Some of the rules are not even written.  For instance, the State of New Jersey has an unwritten rule the executive director of an organization receiving funds from the state may not sit on the board.  Obviously, this is the opposite of the corporate world, where a limited number of “inside” directors is permissible.

Currently, I am not assigned to any new committees and do not hold any other board positions.  How can a former chairman of a small NFP help the new board management? Suppose you were to find yourself in a similar situation. What are the roles of a “Chairman Emeritus?”  While there are many, I believe the four most prominent are:

1. Advisor.   It may be tough to realize but his is no longer your show.  All of the glory and agony belong to the new Chair. The learning curve can be steep for the new board officers.  Suggestions about how to administer the organization are important as they help cut down this learning curve.  How many times have we encountered new managers who have said let’s look at a problem in a certain way?   We may have looked at this problem before, and communicating that knowledge reduces wasted time.
2.  Senior Statesman.  Many board members may still look to you as the former chairman for leadership.  There is now a fine balancing act between speaking your mind and potentially upsetting the new board chair.   My opinion is you need to act in a respectable and ethical manner.  Ethics always trumps all though. If you need to speak up, you should speak up.  You are a fiduciary to the organization.  The organization and the board need your best insight.  Sometimes the new board officers just need to talk through problems.  Being available to help in such a situation is extremely helpful.
3.  Historian.  You have critical knowledge that may not exist on the record.  There are various methods of taking board minutes.  Some are sparser than others.  You were there.  You can fill in the blank spots for the new chairman.  You can also provide back history for him as well.
4. Knowledge Authority.   Human Resources and Organizational Development theorists point to different power bases.   One example is formal power.  Another is knowledge power.  In my time as board chairman, I have developed a very strong understanding of New Jersey NFP law and regulations.   You probably developed skills extremely useful to the organization.  It would be a shame for this knowledge to disappear from the organization.

My time as Board Chairman was personally rewarding, but I am entering another, perhaps more mature relationship with the board of my organization. I think it will be challenging and just as rewarding!

The Sarbanes Oxley Act (“SOX”) has brought a great deal of attention to internal controls in public companies.  SOX was passed in 2002 after corporate scandals such as Enron and Tyco.  The heart of SOX provides protection to investors’ funds by mandating a system of  internal controls for public companies. SOX places the responsibility of maintaining a system of internal controls squarely on the shoulders of the Board of Directors and its Audit Committee. Over the intervening years, most astute observers of the accounting and finance arenas would say SOX helped plug a large hole in corporate responsibility.

Unfortunately, this same level of attention to internal controls is often not seen at not-for-profit (“NFP”) entities.  Boards of directors or trustees are  not as diligent as they are when serving on  a public company board. There are many reasons for this.  Some of these are:

1. There are no investors per se and no personal investments in a NFP.  A donor often makes a charitable donation and often does not even think about the NFP until the next time a donation is required.
2. Some NFP organizations have members that elect a board of directors.  Some do not.  When there are no members, the directors nominate replacements for themselves. A level of organizational oversight is eliminated of necessity in NFPs without members.
3. Board members in NFPs are usually not paid, so their NFP board service becomes less of a priority.  They are usually very part-time directors at best.
4. State law can exacerbate the lack of director oversight. Many corporate bylaws provide a corporate director can be forced to give up their seat if they continually miss meeting. The board has a “hammer” to force participation. That is not always the case in a NFP. For instance, in New Jersey, a director of a charitable organization cannot be removed for missing meetings.  A person elected to a NFP board may never show up to another meeting for the rest of his term and face no real consequence for their lack of participation. A board member who is derelict in their fiduciary duty is bad enough in itself.  He also creates havoc with board quorums and unanimous consent resolutions, further weakening board oversight.
5. Smaller organizations may have difficulty attracting high caliber board members.

The list could go on and on but I think you already have the idea.

Good internal controls start at the top of the organization and should permeate down through the entire organization. A board attentive to internal controls sets the tone from the top.  This is called the control environment. The control environment is the foundation on which all internal control can be built   A good control environment makes the entire organization sensitive to the need for internal controls. Employees of the NFP will adhere to the required internal controls instead of ignoring them or finding work-arounds.  It is extremely difficult to establish a good control environment in an organization with very part time directors.  The lack of a good control environment is often compounded by a lack of segregation of duties in small organizations and the attention of the executive director to other, seemingly more pressing matters.  Nevertheless, it is a critical part of the board of directors function to make sure there is a functioning system of internal controls at their organization. A small investment of time by the directors can prevent embarrassing news such as embezzlements further down the line.

Many pundits claim the recent tax law will have a crushing impact on not-for-profit (NFP) organizations.  These organizations have traditionally relied on the generosity of their donors and grant funding to operate.  Now the standard deduction for the federal income tax has been raised to $12,000 for a single taxpayer and double that for a married couple. This reduces the incentive to donate to NFPs since the donation will probably not generate a tax deduction for the average American taxpayer.  Even when someone has enough enough itemized deductions so the charitable contribution will produce a tax deduction,  the new lower marginal tax rates will also reduce in lower deductions.

Management of NFP organizations should not take this potential challenge lightly. They must realize charitable contributions are not simply a matter of economics. People donate because of their charitable impulses and their desire to  do something good for the community.  In the current environment NFP’s need to significantly step up their communication program, explaining how important they are to the community.  NFPs  provide many of the needed services to our communities.  For instance, Centers for Independent Living provide a wide-range of services for people with all types of disabilities.  Religious organizations provide food and shelter to the those in need. Management and their boards need to speak up and be heard.

Charitable donations are scarce resources  being devoted to an almost infinite need.  The change in the tax law is only one complicating factor in raising funds.  The sheer number of NFP organizations means stiff competition for any organization looking for funding, particularly the smaller organizations. NFPs need to  examine their methods of raising money.  Do they make it easy for their patrons?  Is their a “donate button” on the website?  If so, is it easy to find?  Does an NFP advertise on  hackneyed social media such as Facebook and Twitter, or has it moved to Instagram and Snapchat?  Does the NFP run an effective marketing  campaign?  An NFP must cast its net far and wide to raise funds in today’s operating  environment, and it must consistently stay in front of their donors.

NFPs also need to remind their donors it is not only money that is important.  While there is no doubt charities need funding, they make use of the time, treasure, and talent of their patrons.  Increased utilization of volunteer time and volunteer talent could go a long way in supplementing the operations of an NFP.  To some extent, volunteer time and talent can substitute for treasure. Volunteers already do much of the work at NFP’s but there certainly is room for improvement. Many professionals have found volunteering at a NFP is both professionally and personally rewarding. NFPs can take advantage of this new environment to push for additional volunteers.

Thanks for joining me!  I am a visiting assistant professor of accounting at Moravian College in Bethlehem Pennsylvania.   I teach the full range of accounting courses at Moravian, from the introductory Financial Accounting class to Advanced Accounting.  I have also earned a doctorate in Eastern Christian Spirituality from Drew University in Madison NJ, and served as a Catholic deacon for over ten years.  I have also been privileged to be on the Board of Directors of MOCEANS, CIL, a not-for-profit organizations for the last three years.  I served as Board Chairman for those three years.  I have many observations I hope to share with other NFP board members. Hopefully, you will find an interesting mix of business and religious writings on this website.

This blog will serve as a place where I can collect my musings and gather my thoughts together for eventual publications.   I hope you will join me, and send comments as we go along.

My website is under construction, but I hope to build it into something you  will want to visit often.