By Jennifer L. Coleman, CPA, CFE
Every nonprofit must find the proper balance between board oversight and managing daily operations. The goal is a perfect equilibrium between efficiency and good governance. As with so many other issues a nonprofit confronts, a well thought out policy can go a long way to create the proper balance when it comes to board designations and delegations.
When a not-for-profit’s governing board sets self-imposed limits on the use of resources without donor restrictions, this is known as board-designated net assets. However, it’s not necessary for the board to approve each designation separately. Often times, especially within large nonprofits, the board will delegate this responsibility to senior management. If this responsibility is being delegated, it’s important to ensure that the delegation is formally documented and that the designations are reviewed with the board at least annually and reflected in the minutes.
Assess where you are:
Do you have board designation and delegation policies in place? Even without formal policies in place, most nonprofits have established practices around what the board decides and what will be delegated. Taking the time to formally document these decisions into policies is worth the effort. Having these policies in place is a key aspect of good governance.
Are your processes documented? Although many organizations follow processes, they don’t always take the important step to formally document them. Consider taking the time to formally document these processes. Especially with the increased disclosure required by FASB Accounting Standards Update (ASU) 2016-14. If you are proactively documenting your processes, you’ll be ahead of the game.
When was the last review? If you have policies in place, take this opportunity to review them to ensure they still meet the organization’s needs. This is also a good time to review the existing designations and document their purpose in the board minutes.
Consider the following:
Authority and responsibility can be delegated, but accountability cannot. Ensure that policies include oversight and monitoring of any delegations.
Authority should be delegated to a position, not a specific individual.
Identify the requirements an individual must have before the authority can be delegated. The individual should be knowledgeable and trained in the responsibilities being delegated, as well as competent and skilled in their respective areas of responsibility.
Be sure to include procedures for regular review of delegations.
There are some decisions not suited for delegation and should remain with the governing board. These are decisions relating to: the hiring/firing/compensation/evaluation of the executive director, major capital investments, management of legal issues, and changes to the bylaws, mission or vision of the organization.
There are sample policies available online. However, you should consult with legal counsel to ensure your policies comply with applicable laws and regulations. Once your policies are formally documented, remember to review them on a regular basis.
Jennifer Coleman, CPA, CFE is the assurance and quality control partner of Myers, Brettholtz & Company, PA. She is a member of the American Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants and is has received Certification in Fraud Examinations.