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Frequently Asked Questions about Administration
Can a husband and wife be the sole board members in an Iowa nonprofit corporation?
No. Under Iowa law, a nonprofit corporation is only required to have one or more board members (Iowa Code 504.803), but the IRS, on the Form 1023 Application for Exemptions, wants to see at least three board members. The Iowa Principles and Practices for Charitable Nonprofit Excellence recommends at least five board members (V.B.3).
Can a nonprofit organization enter into a contract with a board member?
A contract between an organization and a board member is considered a self-dealing transaction. Such transactions may be permissible but only if certain precautions are taken to minimize conflict of interest. The contract should only be approved by board members who have no personal financial interest in the transaction. If it is determined that the transaction is in the best interest of the organization and if the contract presents the best deal the organization can get with reasonable effort then the disinterested board may approve the contract. Board members may be subject to personal penalties if an organization does not take the proper precautions to ensure that self-dealing transactions do not present conflicts of interest. Organizations should be sure to draft policies to deal with both real and perceived conflicts of interest.
Does my organization need to have written employee policies?
Yes. It is important that organizations take the time to create written employee policies. It is easy to forget that an important component of an organization’s successful pursuit of its mission is a positive relationship with its employees. In addition to having responsibilities to their communities, nonprofits also have responsibilities to their employees. Drafting well-thought-out employee policies can prevent conflicts that arise from misunderstandings between employers and employees. The Minnesota Council of Nonprofits recommends drafting employee policies within the first year of hiring staff. Some common topics usually addressed in employee policies are: job descriptions and organizational structure, hiring and termination procedures, salaries and benefits, substance abuse and testing, sexual harassment, anti-discrimination, absences, vacations, and holidays, employee evaluations, and grievance procedures.
How can a board best utilize subcommittees?
Efficient management of subcommittees can prove to be elusive and requires careful balancing. Therefore, it may be best for a new board to start doing the whole job itself and appointing committees only as necessary. Effective use of committees can make the full board’s agenda more manageable, allow more time to be spent on larger issues, and allow directors to concentrate on their particular areas of competence. However, boards should use subcommittees sparingly to avoid problems with fragmentation, dual authority, and redundancy. For details see Board Source
How do we evaluate the Executive Director?
One responsibility of the Board of Directors is to evaluate the work of the organization's Executive Director (ED). An evaluation can help improve the confidence, support, growth and working relationship between the Board and the ED. While this review is sometimes avoided or done poorly, it represents an opportunity to identify challenges in program or performance, reward the ED, and strengthen the organization's overall administration. The ED should expect to receive a coherent view of the Board's opinion of his or her work once each year. The evaluation process will be more effective with planning. At a minimum, the evaluation should take the form of a pre-arranged discussion between the ED and the Board Chair. The evaluation should also have a written component.
See Appendix 9 of The Governing Board for Iowa Charitable Nonprofits, 2nd edition, by Willard L. Boyd for more on evaluating the executive director.
How do you use outcome measurement to attract potential funders?
Funders need to see that your programs are valuable in order to give your organization money or other resources. Outcomes are helpful indicators of the value of your organization's programs. By showing potential funders the outcomes you aimed for, the actual outcomes, and the programming changes you made as a result, you give funders a clear idea and greater assurance about how their resources will be spent by your organization.
How do you use outcome measurement to evaluate whether your nonprofit is running effectively?
You can make an outcome measurement plan that has multiple elements. Ask who, what, when, and how for each outcome and the output that is indicative of that outcome. Your data sources, data collection methods, and data analysis will vary depending on your outcome and the indicator of that outcome.
Learn more at The Free Management Library - Outcomes Based Evaluation
How does my organization create a strategic plan?
The strategic planning process consists of four basic elements: critical issues faced by the organization, the organization’s strengths, opportunities available to the organization, and different approaches available to the organization. An organization must identify and prioritize the critical issues it faces. Then, the organization must decide how its operational strengths can be applied towards the resolution of critical issues. Next, the organization should identify available opportunities (e.g., opportunities for facility renovation, fundraising expansion, collaboration, etc.). Finally, the organization must decide upon the approaches that will allow it to take advantage of new opportunities and address critical issues. Three key questions should be repeatedly asked during this process: Are critical issues being addressed? Is this on track with our mission? Is this a financially responsible decision?
Learn more: The Free Management Library: All About Strategic Planning
How involved should the board of directors be in the day-to-day activities of our organization?
Though slightly oversimplified, the functions of an organization can be divided into ends and means. Ends, or desired outcomes, are generally the responsibility of the board, while means, the method for achieving the ends, fall to the organization’s administration. There is certainly overlap between the two categories, but growth is usually stunted in organizations whose board members spend too much time doing the administration’s work.
How should our organization approach board members who are not fulfilling their responsibilities?
It is important to present potential board members with a written summary of expectations and responsibilities in order to avoid confusion or misunderstandings after persons join the board. However there are times when an organization will have to confront a board member who is not actively participating or fulfilling his or her responsibilities. When board members fail to meet their responsibilities it can usually be attributed to one of several factors. The board member might not have been well enough informed or might be confused about what is expected of him or her. The board member might not be comfortable with his or her assignment. It is possible that the member has too many other board assignments or because of too many other commitments in addition to the work he or she is doing for your board. A committee or board chair should talk with the member to determine the reasons for the problem then offer the appropriate solution such as additional training, reassignment, and so on.
What are outcomes?
An outcome is the final component of any given program carried out by an organization. When a program’s inputs (resources dedicated to a particular program, including staff), activities (how the program utilizes the inputs) , and outputs (the direct products of the activities) are all taken into account, the result is an outcome— the effect the program had on the participants. After the activity, did the participants increase their skill in a particular area? Was their behavior modified? Did they accept a new perspective or obtain new knowledge? Many times, organizations keep thorough records about inputs, activities, and outputs, but they do not have a complete sense of what happens to participants after they receive their services.
What are the basic duties of the board of directors?
The Iowa Principles and Practices for Charitable Nonprofit Excellence explains that "A board of directors’ primary responsibilities are to determine the organization’s mission and its policies; set the organization’s overall program for the year and engage in long-range planning; establish the fiscal policy; provide adequate resources for the activities of the organization; select, evaluate, and, if necessary, terminate the appointment of the chief executive; and develop and maintain communication links to its constituencies and the community." (V.A.1) The board sets policy and monitors policy implementation. “Policy” generally means an articulation of some broad principles to govern particular nonprofit issues. So, for instance, a fundraising policy would usually govern such issues as types of fundraising campaigns (capital, annual corporate sponsorship, etc.,) and how those, generally, would be administered. In addition to the policy, the board is often involved in drafting and adopting “practices” which are the more detailed operational implementation of policies. The board is significantly involved in fundraising activities, and its leadership in pursuing funding goals is critical to the overall success of the nonprofit’s fundraising campaign. Budgeting is also a primary board responsibility. In assessing the budget, the board looks at such things as cash flow, the statement of activities, and the relationship of restricted and non-restricted funds to activities being funded. In analyzing the annual budget there should be a review of income and expenditure variances in the actual budget as compared to the proposed budget. Periodically, the board would also review the effectiveness of internal controls, a system designed to minimize errors in the bookkeeping and to prevent fraud. The annual budget review is usually a review of the operating budget. The board should also review the capital budget for larger equipment and facility needs.
What are the basic management functions within a nonprofit organization?
Generally, four basic functions are included in the definition of management: 1) Planning. Goals must be prioritized, schedules must be created for employees and volunteers, and dates for various events must be set; 2) Organization. This includes the structuring of operations, implementing efficient communication systems, and developing better filing systems; 3) Leadership. Managers should lead by encouraging staff and volunteers and should champion efficient methods that are in line with the organization’s mission; 4) Coordination. Mechanisms for evaluation should be implemented, and information must be exchanged with the community so the organization can efficiently pursue its mission.
Learn more: The Free Management Library: Planning Assessment Checklist
What are the benefits of creating a strategic plan?
The process of creating a strategic plan is almost as valuable as the finished plan itself and offers many benefits to the organization. Three broad characterizations summarize some of the benefits that may be enjoyed by organizations that take the time to create a strategic plan. First, creating a strategic plan promotes strategic thought and action. Critical information will be gathered and acted upon in a more systematic manner. The Board and the staff will be more united in their vision of what is necessary to achieve the organization’s goals, and their individual actions will be more aligned with the broader organizational priorities. Second, the decisionmaking process will be improved. Not only do strategic plans focus attention on critical issues, but the plans provide the Board and the staff with rubrics for dealing with challenging situations. Third, strategic plans promote action. Organizations engaging in strategic planning are more responsive to demands placed upon the organization and more effective in dealing with new challenges.
Learn more: The Free Management Library - Strategic Planning Basics
What are the legal responsibilities of nonprofit boards?
The fact that most board members are not compensated and serve out of a sense of civic duty does not absolve them from accountability. Board members have an obligation to always act responsibly and with the organization’s best interests in mind. Board members are held to certain standards of conduct most commonly known as the following:
- Duty of Care--Board members have an obligation to perform their responsibilities “in good faith and with a certain degree of diligence, attention, care, and skill.” This is not to say, however, that directors must always make correct decisions. As long the director fulfills his or her duty of care, a court will not review the action, even if the action is harmful to the organization.
- Duty of Loyalty--Board members have an obligation to act in the organization’s best interests. Included in this obligation is a prohibition against using one’s position as a director to improperly obtain a personal benefit. The director is to place the interests of the organization above his or her own interests.
- Duty of Obedience--Board members must remain true to the organization’s mission. They must carry out the purpose of the organization as it is expressed in the articles of incorporation or the certificate of incorporation. If the directors desire to depart from the purpose in a substantial way, the articles and bylaws must be amended.
For more, see The Principles and Practices, section V.F.
What employee laws are applicable to nonprofits?
The fact that an organization is classified as a nonprofit does not excuse it from complying with federal employment laws. A nonprofit may also be subject to various state laws. Whether or not a law applies to a nonprofit may be determined by the nonprofit’s number of employees. Therefore, it is especially important that growing organizations keep abreast of employment laws and regulations. Although by no means an exhaustive list, the following is a representative sampling of potentially applicable employment laws: Americans with Disabilities Act (ADA), Civil Rights Act of 1964, Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), Health Insurance Portability and Accountability Act (HIPPA), Occupational Safety, and Health Administration (OSHA) Unemployment Compensation.
What is a political subdivision?
The term "political subdivision" denotes any division of any state or local governmental unit which is a municipal corporation or which has been delegated the right to exercise part of the sovereign power of the unit.
Find a detailed discussion of "political subdivision" and related issues here.
What is outcomes measurement?
By engaging in outcomes measurement, an organization can better assess the effects its programs are having on people’s lives. The United Way of America’s Outcome Measurement Resource Network defines outcomes measurement as “The regular, systematic tracking of the extent to which program participants experience the benefits or changes intended.” Outcomes Measurement provides an answer to the question, “What is the impact on the recipients of the services we offer?” Outcomes measurement is a tool that can assist an organization in the pursuit of two fundamental goals: improving and refining program services and communicating the organization’s value to the community. Organizations that can make a strong, quantifiable showing that their programs are having a strong impact on people’s lives are, among other things, better able to recruit and retain talented staff, obtain competent volunteers, increase or retain funding, and be leaders in the community. The results of outcomes measurement can help an organization determine where improvement is needed, how budgets should be modified, and how long-range goals should be prioritized.
What is strategic planning?
A strategy is a set of actions that enables an organization to function in an efficient manner in order to carry out its purpose. Strategic planning is a systematic approach to determining what actions will be included in the set. In Strategic Planning for Public and Nonprofit Organizations, John M. Bryson defines the phrase as “a disciplined effort to produce fundamental decisions and actions that shape and guide what an organization is, what it does, and why it does it.” Strategies can be divided into three categories: organizational, programmatic, and functional. Organizational strategies detail actions that promote organizational growth (community development plans, partnerships with for-profits, board recruitment, etc.). Programmatic strategies focus on actions that that will enhance and manage the organization’s programs and services (developing a program evaluation process, initiating new services, informing the public about offered services, etc.). Functional strategies outline actions geared towards managing and supporting the organizations (e.g., obtaining appropriate technology to keep financial records, developing employee evaluation processes, facility management, etc.). A complete strategic plan includes all three categories.
What is the best way to select the employees or positions to be eliminated?
The Minnesota Council of Nonprofits stresses the importance of using an objective method to select which employees or positions will be eliminated. It recommends basing retention on seniority and positions that have been deemed essential as determined by a needs assessment, a lottery, or employee evaluations. It is also important for an organization to establish an oversight committee in charge of objectively establishing the process of implementing the reductions.
What is the board of directors' role in outcome measurement?
The board of directors of your organization can decide what outcomes to create. To do this, they must first identify the intended beneficiaries of your organization's programs and what services your programs can provide to them. The members of the board should ask themselves, "what do we want to be true of our program's participants during and after the program?” The answers to this question will be the outcomes that you want. It is helpful to put the answers into written statements with your program's participants as the subjects of the statements. An example of an outcome statement would be, "adults completing [our] literacy program are able to read at the sixth-grade level."
Learn more: United Way Outcome Measurement Resource Network
What should be included in the meeting minutes?
Minutes are more than just a convenient record of what was discussed at the last meeting—they are legal documents. Courts will hold directors to certain standards of reasonableness, so it is important that enough information is provided in the minutes to indicate that the board came to its decisions reasonably. The secretary of the board is usually responsible for taking minutes during meetings. Minutes from the previous meeting should be approved at the next meeting, and copies should be filed and kept with the governing documents.
What should go on the agenda for the board of directors meeting?
If not diligently kept on track, board meetings may be boring and even worse, ineffective. Some common reasons for ineffective meetings are: 1) board members did not have sufficient time to review materials before the meeting; 2) poor participation at the meetings; 3) time is not properly managed at the meeting. A well-written agenda that is distributed to members two to three weeks before the meeting can go a long way to remedy these problems. Rather than simply listing committee reports on the agenda, the reports should be incorporated into the context of the main discussion. The agenda should be organized by topic or project with supporting reports included at the appropriate time. This format is sometimes referred to as a strategic agenda. It is important to stay on time. If it appears that a discussion will exceed the allotted meeting time, then fifteen or twenty minutes before the scheduled end of the meeting the chair should have the group decide if it wants to stay later. If staying later is not an option, then the current discussion should be ended in favor of any issues that must be resolved in that particular meeting.
Learn more: The Free Management Library: Sample Board of Directors Meeting Agenda
What should my organization keep in mind when drafting an employee handbook?
It is important to compile all employee policies and procedures into a handbook. The handbook should be explained to the employees as part of employee orientation, and employees should sign a form indicating that they have read and understood the handbook. To avoid some potentially sticky contract issues, the handbook should include a disclaimer indicating that nothing in the handbook is to be construed as a guarantee of continued employment and that employment is on an at-will basis.
What should the relationship be between the board of directors and our organization?
The board of directors serves the organization; it does not own it. The organization is really owned by those who have a stake in its operation: employees, members, donors, beneficiaries, and so on. Directors serve as proxies for the true owners. Thus, the board is truly a collection of stewards in whom the rights and duties of ownership have been vested and the authority to make strategic decisions has been given.
When an organization's budget shrinks to the point that it is forced to terminate some employees what precautions should the organization take against suits from employees who were terminated?
The risk to the organization in a termination situation is a claim from an employee that discrimination played a role in determining who was to be laid off. The first precaution an organization should take is to consider alternatives to layoffs. Discussion of the alternatives should be carefully documented. The analysis should be outlined in a memorandum to the board, complete with reasons why the alternatives to layoffs are unsatisfactory and the rationale that was applied when selecting the employees to be laid off. The decision to cut a position must be supported by a legitimate operational reason.
When selecting our board members what should we consider?
The Iowa Principles and Practices for Charitable Nonprofit Excellence provides this list of skills and talents to consider in finding board members:
a. Operational area—includes management, finance, investment, law, accounting, public relations, fund raising. Together board members should have a range of operational competencies needed to carry out the duties of the board.
b. Program understanding—knowledge of and informed insight on the organization’s programs.
c. Connection to constituencies—should include representation from groups the organization directly serves. Widespread support requires a diverse board.
d. Advocacy leadership—access to resources and influence with constituencies important to the charitable nonprofit organization.
e. Inclusiveness—age, sex, ethnicity, religion, sexual orientation, socio-economic background, and geographic location of prospective board members.
f. Commitment—give time and funds and participate in fundraising.
g. Supportive—support mission, vision, and values. " (V. B. 4) When nonprofit corporation boards do not have the skills necessary to deal with a particular issue, reasonable reliance on outside experts such as accountants and lawyers is allowed without breach of fiduciary duty. Iowa Code § 504.831(5) For trustees, the Iowa trust code provides, “A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's representation that the trustee has special skills or expertise, has a duty to use those special skills or expertise.” Iowa Code § 633.4205.