Spokes | Resources for Nonprofits

Find Us On Social Media:

Investing your reserve funds

by

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 Executive Committee determine the ED’s pay?

by

Our bylaws state that the Executive Committee has full authority/responsibility to review the CEO’s performance and to set compensation, and that the Board “shall be informed” of the Committee’s decision. Is this OK?

Technically, the answer is yes—assuming that all members of the Executive Committee are, in fact, directors. Even so, the board as a whole still has responsibility for the process and outcome.

That said, it’s generally recommended to have a transparent and fair process for determining the executive director’s salary. While the executive committee certainly may play a role in salary discussions, it’s often advisable to establish a compensation committee or involve the full board in the decision-making process.

Having a broader group involved can bring diverse perspectives and ensure a more objective approach to determining the executive director’s salary. This approach is in line with principles of good governance, accountability, and transparency, which are important for the credibility and effectiveness of nonprofit organizations.

Two things to keep in mind:

  • Although the IRS does not provide specific dollar amounts or an acceptable range of compensation levels, they stipulate that compensation must be reasonable and not excessive.“Reasonable” is defined as the value that would ordinarily be paid for like services by like enterprises under like circumstances.
  • Nonprofits filing IRS Form 990 must describe the process they use to approve executive compensation as part of the nonprofit’s responses on the annual return, IRS Form 990, Part VI, Section B, line 15.

Board Recruitment

by

What’s the best way to find new board members?

While there is rarely one best way to do anything, when it comes to finding new board members a great way to start is to know what you’re looking for. Create a concrete list of traits or attributes you need to have represented on your board. You need to be strategic. You’ll hear this referred to as a board matrix. List desired traits, skills, and characteristics down the left column. In the top row, give each of your current board members a column, then check off which attributes each brings to the table. Basically, you’re doing an inventory of what you currently have “in stock” and identifying what you need to go find.

Knowing what you need makes it so much easier to know where to look! Need a lawyer? Talk to lawyers. Talk to people who know lawyers. Contact the local bar association. Need someone with lots of community contacts? Get acquainted with a member of a local service club. That person may not be interested but may well know someone who is. Share your specific need with your friends. They’ll have ideas.

Be aware that you don’t need a separate person for each trait. Often, you can find someone who will fulfill more than one need. For example, one board I served on wanted to have a lawyer on the board. Also, the board was mostly male “baby boomers” and wanted a better balance of perspectives. Through sharing their vacancy with people in the community, they found a female, Gen X attorney!

Here are some helpful resources:

Does Your Board Work or Govern?

by

Do you know if your board is a working board or a governing board? Although we use these terms all the time, this is a trick question! All boards are governing boards. Their first and foremost responsibility is managing the organization: making policy and strategy decisions, overseeing and monitoring organizational performance, and ensuring accountability. Volunteer-run or small-staffed organizations’ board members may also have working responsibilities in addition to governance responsibilities, such as program delivery. Because program delivery is often the most fun part of the job, it’s natural to want to focus your time and energy on direct service.

However, things get sticky when procedures, policies, and roles aren’t clearly defined. When board members disagree on the difference between the “must do” responsibilities and the “nice to do” activities, it can cause friction or result in compliance issues.

It may be time to review your activities and ensure that governance comes first if:
• your board meetings continually go off topic,
• committee updates take more than ten minutes of a board meeting, or
• your board spends more time discussing details than big picture items.

Spokes’ Board Academy provides the perfect opportunity to explore:

• Board Member roles and responsibilities
• Governance to achieve your mission
• Legal responsibilities of board service

Whether you’ve served on your board for one year or ten years, this training will give you new tools and knowledge to make your board function more effectively.

Want to learn more about working versus governing boards? Compass Point has more to say on the subject here: https://www.compasspoint.org/board-cafe/working-board-vs-governing-board

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

How Can We Make A Difference Together?

Spokes welcomes local professionals who would like to share their expertise in support of the nonprofit sector.

Get Started Contributing

Recent Articles