The following information was summarized from The Final Report of the Panel on the Nonprofit Sector – Strengthening Transparency, Governance, Accountability of Charitable Organizations, convened by Independent Sector, 6/2005.

The Final Report of the Panel on the Nonprofit Sector – Strengthening Transparency, Governance, Accountability of Charitable Organizations - was released to the Congress and the Nonprofit Sector at the end of June, 2005. This report details the work of the panel of nonprofit experts convened by Independent Sector beginning in October 2004, and with input from thousands of people involved with charities and foundations.

There were eight principles developed to guide the recommendations of the Panel:

1. A vibrant charitable community is vital for a strong America.
2. The charitable sector’s effectiveness depends on its independence.
3. The charitable sector’s success depends on its integrity and credibility.
4. A viable system of self-regulation and education is needed for the charitable sector.
5. Government should ensure effective enforcement of the law.
6. Government regulation should deter abuse without discouraging legitimate charitable activities.
7. Demonstrations of compliance with high standards of ethical conduct should be commensurate with the size, scale, and resources of the organization.

Recommendations: (paraphrased from the report for brevity – go to www.independentsector.org for the full report).

Note: Recommendations for changes in the law or regulations would primarily apply to organizations required to file a Form 990 or 990-PF, so smaller organizations or religious congregations would generally be exempt.

1. Federal and State Enforcement – Congress should increase the resources allocated to the IRS to permit vigorous enforcement of federal and state law, and should create a federally funded program to help states establish or increase oversight and education programs for charities. All IRS-disclosed information should be shared with state charity officials.
2. IRS Reporting – The IRS annual information forms (990 etc.) should be improved so they provide more accurate, complete and timely information; Congress should remove legal barriers to electronic filing by all charities; penalties should be imposed on willful omission or misrepresentation on forms; require the organization’s board to review the 990 return and the highest ranking officer to sign and certify the 990; and, institute a new annual report for organizations with less than $25,000 in annual revenues;
3. There should not be a periodic review system for charities but the IRS should focus on review of current returns. Boards of Directors should be encouraged to conduct a full review of the governing documents and policies every five years.
4. Require organizations with at least $1 million in annual revenues to conduct an annual audit and attach the statements to the 990 return; between $250,000 and $1 million required to have financial statements reviewed by an independent public accountant.
5. Every charity should provide more detailed information about its operations, including method of evaluation and results, through annual report, website, etc.
6. Laws and regulations governing donor-advised funds should be strengthened to ensure donors or related parties do not receive inappropriate benefits from these funds.
7. Type III Supporting Organizations should have minimum distribution requirements, prohibit payments to and for the benefit of donors of related parties, and institute rules to increase the voice of the supported organizations in the governance of the Type III organization.
8. All tax-exempt organizations should be subject to the same requirements as taxable entities with regard to reporting their participation in potentially abusive “listed” and other “reportable” tax shelter transactions, and there should be penalties for managers who fail to report that the transaction was a reportable transaction.
9. Non-cash contribution rules should be strengthened regarding appraisals, conservations and historic façade easements, and clothing and household items. A list of value for specific items should be developed by the IRS and penalties for excessive deductions or overstated appraisals.
10. Compensation to board members is discouraged; if provided, the amount and reason for compensation should be disclosed.
11. More clear disclosure of compensation paid to the CEO and five highest compensated employees. CEO compensation should be reviewed annually by the Board of Directors and the full staff compensation program should be reviewed periodically.
12. Organizations should establish and enforce policies regarding reimbursement of travel expenses.
13. 501(c)(3) organizations should be required to have at least three members on the governing board; at least one third should be independent (no compensation in prior 12 months, not family members of someone compensated). All boards should establish strong and effective mechanisms to ensure that the board carries out its oversight functions and members are aware of their legal and ethical responsibilities.
14. Audit committees should include members with some financial literacy; recommend separate audit committees for organizations with independent audits.
15. Organizations should adopt and enforce conflict of interest policies consistent with state law and organizational needs.

The information below was summarized from the following sources: Hechinger, Deborah. The Boardroom: Building Better Boards. Foundation News & Commentary, March/April 2005, Vol. 46, No. 2; Chait, Ryan, Taylor. Governance as Leadership: Reframing the Work of Nonprofit Boards, Wiley Books, 2004; Bryson, Ellen, Gast, Elaine. The Boardroom: Board Briefing: CEO on the Board. Foundation News & Commentary, January/February, 2005, Vol. 46, No. 1; Charan, Ram. Aligning Board and management on Strategy. Leader to Leader Institute. Summer 2005. BoardSource.

Effective governance requires strong leadership by both the CEO and the board that focuses on accomplishing the mission.  Boards operate in fiduciary mode related to expenditure of funds; strategic mode when assessing and planning; and generative mode when thinking about the challenges and opportunities faced by the organization and determining creative solutions. Strong boards move between these modes as the needs dictate. Good board members challenge ideas, assumptions, and each other and engage in open, thoughtful debate. They put in place structures that help them meet their responsibilities. They use self-assessment tools to determine how well they are meeting those responsibilities and identify areas that need improvement.

The question of the CEO/Executive Director sitting on the board is a frequently debated topic that also affects the way the board makes decisions. In the corporate world, the CEO may serve as the president of the board, but in nonprofits, many CEOs/EDs are not official members of the board at all, and attend board meetings at the will of the Chair. Some board members believe that if the CEO has too strong a role at board meetings, i.e. is a board member, even if non-voting, the other board members will defer to the CEO or not be willing to express disagreement or concerns. They also may feel it is awkward to supervise and evaluate someone who is perceived as a “peer”. Yet, people who support the CEO/ED as a board member think it strengthens the decision-making process because the CEO has the details of the operations and community connections. It may also strengthen the CEO’s perception in the community and reduce the “just an employee” bias.

With the increase in accountability requirements, the issue of sustainability often is at the heart of difficult board decisions. How can the organization grow and be sustainable? CEOs may feel that the board revisits this issue too often, while the board feels that the CEO and management are too focused on details. This may be because of the way the discussions are held – often in small segments as parts of several meetings, or as a one-way presentation as a finished product. Neither way allows for good opportunities for questioning and probing combined with analysis of the details so that a common understanding can be reached. Only when there is a high comfort level with all the information and discussion, can a good decision be made and accepted. A workshop format – a longer period of time devoted just to the strategy discussion/decision – allows both board and staff to fully work through the issues via open discussion and informal interactions.  Some boards use half or full-day retreats with outside facilitators to ensure everyone has input. When there is a clear understanding of the management view of the situation, a presentation of the best thinking on the strategy that is still open to adaptation, and time for questioning and debate, a consensus can be reached.

Board members may not always agree with the whole board’s decision, even after consensus building and healthy debate. Voting against a motion or abstaining from voting is always the member’s prerogative, and should be recorded in the minutes. However, once the decision is made, the board speaks with one voice and each member should act and speak in accordance with the decision.

The information below was summarized from the following sources: Insurance Trips and Traps for Nonprofits, Nonprofit Directors and Officers Insurance; Making Insurance Easier to Administer. The Good, the Bad, and the Ugly. 2005. GuideStar.org; Simmonds, Scott. Insurance Consultants of Maine, Inc. 1/2005.

GuideStar suggests using one agent for all your insurance services to save time and prevent gaps and overlaps in coverage. Also, having one agent familiar with your organization and your work can prevent different companies trying to be the “payer of last resort” when claims are made. If it is possible to have all the policies renew at the same time (except workers’ compensation), that also can reduce the chances for missing payments and facilitate budget projections. Meeting with the insurance agent once a year provides an opportunity to tell him/her about changes to your programs and services that may necessitate insurance changes, and help you predict other expenses and needs when designing a new program. You can also stay current with changes in contact names, forms and other details that can affect coverage. Insurance agents are often good sources for information on how to prevent claims related to accidents and/or employment practices, provide safety training for staff, and are aware of potential legislative changes that could have a major impact on your organization.

Some of the areas to be considered relative to insurance coverage include:

• Limits of coverage – particularly review penalty clauses
• Deductibles – lower deductibles vs. higher premiums need to be carefully reviewed
• Extra expense – to cover additional expenditures after a fire, or other accident
• Business income – protection of revenues
• Liability – from lawsuits involving bodily injury and property damage
• Abuse/molestation – particularly important if the services are for more vulnerable populations
• Damage to premises rented to you – whether occasionally or consistently
• Professional liability insurance – to protect the organizations from allegations of improper performance of the work of professionals (social workers, nurses, doctors, therapists, etc.)
• Automobile insurance for employees and volunteers
• Non-owned auto liability – for employees or volunteers driving their own cars while on company business
• Injuries to volunteers

The information below was summarized from the following sources: GuideStar.org; Philanthropy Journal; Salamon, Lester, Nonprofit Financial Disclosure, Johns Hopkins University Center for Civil Society Studies, Institute for Policy Studies, Listening Post Project, 4/2005.

Many nonprofits already meet the requirements that are expected to be imposed through changes to the IRS regulations and other groups but have not necessarily made their compliance visible to the public. Seeing the information as confidential to the organization, or anticipating that the public might not understand it, nonprofits now need to find a way to present the information in a clear, concise manner that is either always available through websites or easily delivered upon request. It’s also important that both staff and board members are fully cognizant of what the 990 says and doesn’t say about their organization, so that they can both support and repudiate statements made by others.

Some of the areas of information that need to be more “transparent” include:

§         the 990 IRS reports

§         filling out the 990 form completely and accurately so that all information is available for viewing (either through GuideStar.org or on request),

§         including copies of the organization’s conflict of interest and disclosure policies on the website

§         include copies of the annual report or other documents that define the mission, programs and accomplishments of the organization in concrete, measurable terms

§         explain the evaluation methods that are used and the outcomes of recent evaluations

§         make available lists of the board of directors and advisory board members if applicable including their affiliations

§         make available copies of the annual audited financial statement and letter of determination

All of this information needs to not only be transparent to the public, it needs to be clearly understood by the board and management. Not all organizations routinely distribute and/or discuss financial statements to the board and management, review the management letter of the audit with the board, or have written (and reviewed) internal management control policies. Even the annual audit may be given only a cursory review by the board. Many organizations have used the same audit firm and same partner or manager for more than 5 consecutive years, often at the recommendation of a board member.

The information below was summarized from the following source: Wilson, Megan. Effective Websites.TechSoup.org.

Key to any collaboration initative is relationship building. And part of that entails gaining insight on organizations. Websites are an excellent way to provide such insights while also increasing the transparency of your nonprofit organization – the information on the site is available to anyone with access to the Internet, and it can be updated easily and frequently. Megan Wilson offers the following criteria to measure the effectiveness of nonprofit web sites.

1. user’s ability to interact with the site
2. the site’s educational value
3. the effectiveness of the site in relaying the organization’s mission
4. the layout and content level of interest
5. whether text is current or outdated
6. how accessible the site is for the user

 Interactive features include downloading of materials, signing up for mailing lists or chat rooms, checking in to get news and current information. These features help people using the site to feel connected to the larger community without the time and/or expense of phone calls and copying and/or sending for materials.

Users want to find news or information about the organization that they didn’t know before – they want to be educated on a continuing basis. They want to understand how the work of the organization meets the mission, not just what the mission is, or not just the raw data on services or programs. Well-written sites again help people to feel connected to the organization because they speak to the things that are important to the user.

Websites need to be simple to navigate and easy for people not familiar with the field’s jargon or systems to use. The information should be succinct, although with options for access to additional information on a topic, either on the site or through a link, and easy to move from one page to another. Frequent links to the organization – to a “real person” – are also important so that, like voice mail systems, the user can speak to an organization’s representative directly if needed. It is also critical that information be current; outdated information discourages repeat contact.

Accessibility is a multi-pronged issue for websites. They must be able to be quickly loaded (not too many large graphic files, for example), easy to navigate, have embedded captions and other tools that allow users with visual or other impairments to also access and use the site. TechSoup’s Accessible Technology section has additional information on this topic.