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Investing your reserve funds

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Our board is looking to know legalities a nonprofit board should be aware of in deciding how to handle or invest a financial reserve.

When one of our nonprofits approached Spokes for help with that topic, our first reply was, “We are not attorneys, tax experts, or financial advisors.” That said, we can offer practical suggestions based on our experience with the many nonprofits we serve.

The most important thing to keep in mind is the board’s fiduciary responsibility to the organization. As part of that responsibility it must act with prudence and with the organization’s best interests in mind.

California has adopted the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which provides guidelines for the investment and management of nonprofit institutional funds. It includes eight factors to consider:

  • General economic conditions.
  • The possible effect of inflation or deflation.
  • The expected tax consequences, if any, of investment decisions or strategies.
  • The role that each investment or course of action plays within the overall investment portfolio of the fund.
  • The expected total return from income and the appreciation of investments.
  • Other resources of the institution.
  • The needs of the institution and the fund to make distributions and to preserve capital.
  • An asset’s special relationship or special value, if any, to the charitable purposes of the institution.

In San Luis Obispo County, some of our smaller nonprofits with surplus funds have placed them in FDIC-insured certificates of deposit with varying terms to ensure that funds are available when needed. Nonprofits with greater reserves will want to adopt a sound investment policy in line with UPMIFA.

Learn more about UPMIFA.

Can the treasurer be the bookkeeper?

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A new nonprofit was struggling to put together its first board of directors. The organizers had contracted with someone to be the bookkeeper and they wondered if it would be acceptable to have that person also serve on the board as the treasurer. The answer: maybe, but it might not be the best idea.

One issue is conflict of interest. Directors of nonprofits are not to benefit financially from their role on the board. So, even if the bookkeeper were a director but not the treasurer, if her firm is paid to do the bookkeeping, that could easily be seen as a conflict of interest. That might be mitigated if the firm did the bookkeeping pro bono. Another possible mitigation is to get bids from several bookkeepers and, if the bookkeeper’s firm is willing to do the work for significantly less, then that also might mitigate the conflict. In the latter situation, the board would want to clearly document the research that was done, and the bookkeeper would recuse herself from participating in the decision to contract with her firm.

A second issue to consider is that a fundamental part of the treasurer’s responsibilities is to provide financial oversight. So, if the treasurer is the bookkeeper, he/she is overseeing him/herself. In that case, it would be prudent to put a structure in place to ensure oversight. For example, the board might formally appoint another person to be the Chief Finance Officer and provide a written description of the CFO’s duties, which would include oversight.

The board also needs to keep in mind that if the organization is paying the director/bookkeeper, then that person becomes an “interested person.” In California, no more than 49% of the board of directors may be interested persons.

Finally, whatever arrangements are made, the board would be wise to put in place some basic internal controls. Here are two useful resources on that topic.

Two Important New Employment Laws

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Pay Transparency

Among the new employment laws that go into effect January 1, 2023, two deserve special mention. One, referred to as “Pay Transparency,” applies to your nonprofit if you have 15 or more employees. Starting January 1, you’ll need to include pay range information in any job posting. In addition:

  • ALL employers must provide a pay scale to any current employee for their position upon request.
  • Employers must also maintain records of a job title and wage rate history for each employee during employment and for three years after separation from the company
  • All private employers with 100 or more employees must file pay data reports with the State’s Civil Rights Department, regardless of whether they are required to file a federal EEO-1 with the EEOC. (Note: nonprofits are considered “private employers.)

Retirement

The other change has to do with retirement programs. The CalSavers Retirement Savings Program is a state-run retirement program for employees who work for employers not offering a private-market retirement plan, such as a 401(k) plan. Previously, the law only applied to nonprofits with 5 or more employees. As of January 1, it applies even if you have only one employee.

Learn more

Spokes members can view the 60-minute video overview of these and other new HR-related laws for 2023. Sign into your account, click “access member benefits,” and go to the Video Library. You’ll find the recording in the Past Classes showcase. Not a member yet? Check out the member benefits.

Managing Conflict

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Do you have advice about how to manage conflict on our board? We seem to be in two camps and can’t agree on what to do.

Conflict is bound to arise when a group of people is involved in a common endeavor. It’s not a bad thing. In fact, differing opinions can lead to creative solutions. On the other hand, serious and unresolved conflict can cripple an organization. Here are some suggestions for preventing, managing, and resolving conflict gleaned from some expert resources.

Pointers

In her article “Moving From Dissonance to Harmony: Managing Conflict on the Board,” Jill Sarah Moscowitz offers these basic pointers:

  • Start by reminding yourselves of your common interest in furthering the mission of organization
  • Identify the key issues. Even if they seem obvious, take the time to label them and write them down.
  • Begin with facts rather than assertions.
  • Avoid taking about “my position” versus “your position.” Instead, seek out your common interests. What do you all want to see accomplished.
  • Be truly curious. Focus more on listening than having the answer.

Face-to-Face Communication

Writing in “Managing Conflict: A Guide for Volunteer Boards,” E. Grant MacDonald emphasizes that “Confronting a conflict situation almost always can benefit from face-to-face communication.” He suggests holding a series of meetings and offers these recommendations:

  • Involve a trusted third party to facilitate the meetings.
  • Insist on confidentiality.
  • These are private meetings, not board meetings, but they are not secret meetings.
  • Make sure everyone knows that no decisions will be made in these meetings that bind the organization. The goal is for the parties to agree on recommendations that they will make to the board at large.

Avoiding Conflict

MacDonald also offers these ten practices to help avoid unnecessary conflicts in the first place. Many of them can be part of your board development activities.

  1. Practice good interpersonal communication.
  2. Operate with a strategic plan.
  3. Clarify roles and responsibilities.
  4. Help develop a skilled chairperson.
  5. Learn about conflict resolutions processes.
  6. Establish a code of conduct for directors.
  7. Encourage performance evaluation.
  8. Implement a grievance procedure.
  9. Celebrate agreements and new understandings.
  10. Look to gender and cultural differences as a way out of a mess.

References:

Moving From Dissonance to Harmony: Managing Conflict on the Board

Managing Conflict: A Guide for Volunteer Boards

Policy or Procedure?

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Setting policy is an important responsibility of the board of directors of a nonprofit organization. Determining procedures is not. That’s why board members need to know the difference!

Policies are general statements that express principles or requirements of behavior for the organization. They don’t change often. What are some examples of basic policies nonprofits should have in place?

  • Conflict of Interest
  • Whistle Blower
  • Document Retention and Destruction
  • Gift Acceptance
  • Financial Control
  • Investment

By contrast, procedures lay out the steps and processes by which the policies will be implemented. They do change, as often as needed, to make sure they are working right.

When a nonprofit has paid staff, generally it is the Board’s responsibility to establish polices and the staff’s responsibility to develop the procedures to implement the policies. In an all-volunteer nonprofit, the job of developing procedures probably should be delegated to a committee. In either case, the goal is for the board as a whole to work at the level of policy and strategic direction, and avoid “micromanaging” the organization.

Two good resources to learn more:

What Governance Policies Should Your Nonprofit Have?
Creating Nonprofit Policies

Guiding nonprofits to achieve their goals through support and expert resources.

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