Many of my articles focus on recommendations for nonprofit board best practices. While it is important for board members to know their roles and responsibilities, it is equally critical that they realize what to avoid.
Today’s article will tell you about a board that literally sank their nonprofit by not adhering to a single governance obligation.
- They had no idea what was going on with their organization’s finances.
- They paid no attention to following their mission and failed to respond to complaints from the clients they were supposed to be helping.
- They gave no oversight to the executive director’s performance.
- They undermined their donors’ trust by fundraising after losing their nonprofit status.
You can read the details of this tragic situation in an article published last week in the Fresno Bee newspaper about an organization called Made For Them which served survivors of human trafficking.
Let’s look at each area where the board was negligent and highlight what the board should have done instead.
Neglect: The Made For Them board did not request or receive regular finance reports. Board members did not concern themselves with the fiscal aspects of the organization. For example, they did not know or care that the executive director was the only staff member who received checks, deposited them in the bank, paid all receivables and received bank statements. Even when they were told about embezzlement and self-dealing by staff, they did nothing to stop it or investigate the situation. This board failed to meet their legal duty of care and, as such, will most likely be individually liable for the organization’s financial debacle.
Best Practice: Board members exercise overall responsibility for the fiscal affairs of the nonprofits they serve. They must demonstrate a sincere interest in the fiscal affairs of the nonprofit by asking questions about the current financial position, the reliability of the reports the board receives, rationale for the budgets and the annual Form 990. The board must ensure that sound fiscal policies are in place and practices, such as separation of duties, are adhered to. Internal controls of cash management, payroll and accounting must be transparent.
Neglect: The mission of Made For Them was to heal, empower, and employ survivors of human trafficking. The board failed to realize that the clients their organization was supposed to be helping were, in fact, being further abused by the nonprofit. Clients were regularly hired by the organization but not paid. Even though messages about this mistreatment were often featured on local social and print media, the board did not question the business practices or attempt to hold staff accountable. This board completely lost sight of its mission to the detriment of its clients and the entire community. They also cast a shadow over the local nonprofit sector trying to serve the needs of society. Even more egregious was the organization’s claim to serve in a Christian environment.
Best Practice: Ensuring the organization is being faithful to its mission is probably the most important duty of a nonprofit board. In order to do this, board members must make themselves knowledgeable about the impact their nonprofit is having within the community and on the clients it serves. The board should also examine the mission statement from time to time to ensure it is relevant to the changing needs of its recipients.
Neglect: This board never held the executive director accountable for any actions. There was no performance review and board members allowed the executive director to completely run the show. Even though self-dealing and embezzlement were obvious, no one was held accountable or even reprimanded. The executive director was the founder and, as such, hand-picked individuals to serve on the board who were faithful to her.
Best Practice: The executive director is the board’s one and only employee and main partner in doing the work of the organization. Therefore, the board should support the individual to help them do their best job and conduct a performance review for the executive on an annual basis. This evaluation should be a two-way conversation between the board and executive in order to strengthen the partnership and create a winning team. Mutual trust and respect as well as clear and consistent communication will keep this team on track.
Neglect: Even though Made For Them lost their nonprofit status for 25 months, they continued to host fundraising events and solicit donations from supporters who were unaware they no longer qualified as a 501(c)3. This extreme neglect undermined the trust of donors and resulted in many of the donor gifts failing to be tax-deductible. The organization’s documents posted on their website appear to be registered with Guide Star and Charity Navigator. However, upon closer examination it becomes clear that these documents have not been updated since 2011.
Best Practice: Board members have a duty to ensure that the organization has sufficient resources to accomplish its goals. Therefore, fund development plays a key role for board and staff. The organization must honor the trust of donors by ensuring that funds are disbursed in the manner appropriate to the solicitation promises. Of course, it is a given that the board must ensure that the organization always adheres to nonprofit laws, follows all appropriate policies and maintains solid legal standing.
There are three legal responsibilities of all nonprofit boards: The Duty of Care, The Duty of Loyalty and the Duty of Obedience. The board members of Made For Them failed to adhere to any of them.
The article in the Fresno Bee, referenced above, reported that “Ashleigh Rocker Greene, while serving as interim director of Made for Them, asked the California Attorney General’s Office for an investigation pertaining to illegal solicitation, fraud, deception, theft, misuse of assets, compliance violations of Articles of Incorporation and falsified statements, and also reported the alleged crimes to the Fresno Police Department.
She was fired a couple days later by a volunteer board that then resigned—except for its chair, founder Andrea Shabaglian, who was installed without Rocker Greene’s knowledge after Shabaglian had to resign as executive director this summer. Rocker Greene additionally filed a report with the IRS on Tuesday, alleging Made For Them didn’t properly report and manage the donations it received.”
In the interest of full disclosure, I will tell you that Ashleigh Rocker Greene is my granddaughter. You can imagine how very proud I am of her bravery and sense of integrity.
Serving as a board member for a nonprofit is an honor and a responsibility. Essentially, each board member is a steward of the organization’s finances, mission and trust.
If you serve on a board, please remember to always ask questions about the various aspects of the nonprofit’s work, keep a close eye on the finances, ensure that the executive director receives an annual performance evaluation, be sure the organization stays on track with fulfilling its mission and be a vocal ambassador for your group.