Help me gain some perspective on my responsibilities

September 29, 2017 7:05 PM

I am a nonprofit board member for an organization likely going under. What is my responsibility here?

I am on the board of a nonprofit that is having serious financial difficulties. People not paying bills, director mismanagement (including not knowing how to input payroll taxes correctly), using the work credit card to pay for meals and then getting reimbursed from staff with no accountability.

Several of the problems we have known about for months and are just now trying to rectify by having an accountant reconcile the bills. Since he has offered to do this for free for the board president it has taken awhile. The real problem is that no one else on the board feels like we can do anything about the finances until we have the bills reconciled which was ok in the short term, but now that we are going into month three I am increasingly concerned.

I have asked repeatedly to sit down and at the very least look at our weekly cash in and cash out to make sure we can pay staff salaries. I've even taken limited personal time off to help deal with this situation, but then been told that financial meetings have been postponed. I've also suggested that we need either an actual financial audit or copies of receipts because I'm not 100 % convinced that everything is above board, not the least because of the multiple dinners and coffee shop purchases listed in the register. But I've been told not to 'rock the boat' and 'hurt anyone's feelings.'

After reading about personal liability for board members I'm increasingly convinced that I need to resign. I've tried my best to move this place forward in the past couple months knowing about the serious difficulties and have been mostly blown off. However, I do feel some responsibility especially since things were hypothetically 'fine' when I joined the board. (aka, we were given financial numbers which we approved without knowing they were entirely inaccurate). On the other hand, I have relationships with numerous people both directly and indirectly involved who will be negatively impacted by a shut down. Many of these people probably don't even have this on their radar. I can't decide what, if anything, I'm responsible to tell them.

Finally, I can't decide if a resignation letter should even indicate the real problem. I would rather not bow out by saying that I just can not work with the people involved and that this is a vote of no confidence. But then if I just remove myself for 'personal reasons' am I opening myself up to potential liability later just by having been on the board and for not specifically saying I've disagreed with our financial policies.

Please assume: That things are dire enough that the place is truly in danger of closing.
I do understand that boards are usually not held liable for problems such as this, but things are really unorganized right now and I do think most of the problems are due to sheer mismanagement.

And of course, YANML

posted by anonymous to Human Relations (6 answers total)

I'm totally assuming you're in the US but it's possible you're not. If not, these notes won't be of the same kind of help. But yes, this is pretty bad.

I've also suggested that we need either an actual financial audit

In about half of all US states an annual complete audit is a legal requirement for the maintenance of the 501(c)3 status. You may not be in one of those states, but for all the reasons given here, this place needs an audit. Posthaste.

Resigning absolves you of most responsibility. But you may also want to call your state AG's office to ask what the other expectations of fiduciary duty are. The AG oversees charitable charters. You don't have to identify yourself to do this part of the inquiry. After you know more about how whistleblowing might be looked at, you can make a more informed choice.

Many of these people probably don't even have this on their radar. I can't decide what, if anything, I'm responsible to tell them.

Does the organization file a Form 990? They should at least know how that's looking.
posted by Miko at 7:21 PM on September 29, 2017

Just in case: whistleblower protections for nonprofits.

Another similar link

I know this is never easy. But what keeps me motivated in NPO work a lot of the time is remembering that nonprofits are holding assets in trust for the people and they are supposed to be producing social good. It's not just an interpersonal issue, it comes down to what the whole civil society expects from orgs with this status. The more that gets eroded, the worse off we all are.
posted by Miko at 7:24 PM on September 29, 2017 [4 favorites]

I'm not an expert on fiduciary responsibility, but as a longtime non-profit staff member and previous board member, here's what I'd be thinking about. Hopefully this complements good advice that you receive on the Board liability side.

- Whether or not to quit immediately. Do you have enough allies on the board that you can try to get this under control? If not, then assuming you can do so without worsening your liability, definitely quit. If so, then it's a maybe -- get advice from whomever can advise as to your liability. If you stay, I'd be thinking about things like this;
- Better management. Consider immediately firing the director and head of finance (whoever that is if they aren't the same people) or at least asking them to go on unpaid leave until this gets sorted out. It sounds like you have program staff whom you want to keep. Can a retired board member come in and supervise them part time, just to keep things stable? Then I'd use the salary savings to immediately bring in a consultant with experience as a non-profit controller. Don't waste their expensive time sorting invoices -- split the director's salary savings between someone high level who can direct the work and a temp bookkeeper who can sort invoices, hound staff for credit card receipts, and help get the books cleaned up. It's great that you have a volunteer, but this sounds to me like the kind of thing that it's worth throwing money at, and getting invoices and credit card receipts sorted out should take like two weeks, not three months. I'd tell the rest our staff that this is top priority. And eventually the controller should get a bunch of processes in place, e.g., agreements regarding no personal use of the credit card, receipts reconciled every month... I mean, what you describe sounds ridiculous, like there must be zero processes in place.

- Foundations. Has your organization received foundation funding? If you received a two-year grant from a certain foundation and you're poised to shut down at the end of year one, I'd be calling to offer them half of their funding back. Don't burn any personal bridges you might have there by being associated with an organization that took money and didn't deliver the work. If your group has a particularly strong relationship with one, perhaps they could find additional funds to get you through this, but that's a huge risk. This news is going to seriously alarm them, so you'd better have a plan 90% ready and 50% deployed before you meet with them.
- Major donors. I'd be trying to have board members sit down individually with the top fifteen or so major donors, probably two board members per meeting with each donor. Decide if you are breaking the news of the organization's closure or asking for their assistance to prevent it.
- Who else gives money? Members? Government?
- Assistance. If you are unwinding the organization, I'm sure there are consultants who can advise on how to close out the various assets and liabilities.

The sooner you get a plan in place, the more likely you'll have funds to handle things appropriately, so I'd get on this post haste. Sorry I can't help with your other questions. I did find some great resources by googling "shutting down a non-profit," so there is definitely good stuff out there.
posted by salvia at 9:24 PM on September 29, 2017 [4 favorites]

As a director, in most states, you have duties of care, loyalty, and obedience to the organization. It sounds as if, at the very least, the board has failed in its duty of care to establish effective internal controls for the organization. While it also sounds as if the rest of the board is already aware of the issues, to resign without making the reason clear robs you of a chance to get very explicitly on the record about your concerns. At that point, you'd probably also want to cc the state AG's charities bureau.

Does your organization carry D&O insurance? I sincerely hope it does (it should!). With decent D&O insurance, and absent gross misconduct on your own part, you are unlikely to ever face effective liability, and it's more feasible to try to fight to salvage it, if you choose. If not, I'd probably go straight to consulting a lawyer about potential liability. It's not at all common, as nonprofits lack some of the constituencies that would bring suit in the same situation with a for-profit, but if fraud is strongly suspected or taxes not being paid and you all are sitting around twiddling your thumbs for months, you're asking for trouble.
posted by praemunire at 10:52 PM on September 29, 2017 [1 favorite]

The ED sued the board of a non-profit I used to work for last year for letting employees steal from the organization for years. (The whole situation was extremely ugly & went beyond just theft, but I think the suit itself was just about the theft & breach of fiduciary duty.) I don't know anything about the merits or likelihood of success of such a lawsuit. But, if you can afford it, you should consult with an attorney with experience in non-profit management and board responsibilities.
posted by Mavri at 6:14 AM on September 30, 2017 [2 favorites]

Yes, your questions are definitely at the level where advice from an attorney could be helpful for you personally.

That outside authority and expertise could also help you whip the Board into shape. Could you suggest having a closed session of the Board in which the attorney or another outside expert with that expertise explains what the Board's obligations are at this critical juncture in the organization's history?

I'm not assuming that the dinner or coffee shop purchases are necessarily inappropriate (e.g., muffins for an important meeting can be $18 well spent). Even still, it sounds like it's definitely time to rock the boat, and if people don't understand that, maybe someone else can explain it in a way that they can hear.
posted by salvia at 10:00 AM on September 30, 2017