Nonprofit Board Training (2024)

In this 2024 annual board training webinar, Ken Cerini (managing partner) and Tanya Quigley (partner) of Cerini & Associates walk nonprofit board members through their legal duties, core responsibilities, and the policies and financial knowledge needed to govern well. The session moves from recruiting and retaining effective board members, through fiduciary duties and best-practice policies, into reading financial statements and reviewing the Form 990, and closes with fundraising, board engagement, and how board composition is changing.

Main topics

• Attracting, retaining, and engaging effective board members

• Board member agreements and "give and get" expectations

• The three fiduciary duties: care, loyalty, and obedience

• Ten (plus one) key board responsibilities, including CEO oversight, planning, fiscal oversight, and risk

• Best-practice governance policies: conflict of interest, whistleblower, document retention, compensation, investment, gift acceptance, AI use

• Board meeting minutes and cautions about recording meetings

• Nonprofit financial statements, audits, net asset restrictions, and key financial ratios

• Reviewing the Form 990 page by page before filing

• The board's role in fundraising and the coming generational wealth transfer

• Recruiting younger board members and building a board that reflects the community

A few terms were garbled in the auto-transcript and I corrected them from context: NYPMIFA (New York's Prudent Management of Institutional Funds Act), Charity Navigator, Consolidated Fiscal Report, FBAR, Form 990-EZ and 990-N. Two names I couldn't confirm: "Judy Seagull" (a commenter Ken cites) and the board software he mentions, which the transcript renders as "Bell's board." I left the first as transcribed and wrote the second as "a board portal"; check both against the video.

Nonprofit Board Training 2024 Transcript: Introductions and Housekeeping (0:00)

Ken Cerini: Let's get started. Welcome, everyone. My name is Ken Cerini, managing partner of Cerini & Associates. I'm joined today by Tanya Quigley, one of five partners in the nonprofit group here at Cerini. We spend a lot of time working with nonprofit organizations, and we feel it's important to give back through education and training like this. We try to do our board training once a year, so welcome to our 2024 annual board training.

A couple of administrative things before we start. We can't see everybody, which makes it hard to have an open dialogue, so if you have questions, please put them in the chat. We'll monitor it throughout and try to get to as many as we can. If people want to start conversations in the chat while we're talking about certain topics, feel free. We'll try to incorporate them and make this as fluid as possible.

We are recording today's session and will send out the recording over the next few days, so please share it with other board members or anyone else. Along with the recording, we'll send the third edition of our board guide, which came out earlier this year, and our new fundraising guide. We believe in the nonprofit sector, and we want to do as much as we can to help it.

What Nonprofits Are Looking For (1:55)

When we ask nonprofit organizations what they're looking for, most say the first thing is discretionary funds. Everybody wants more discretionary funds. Second, they're looking for effective board members. One of the greatest challenges we see in the sector is nonprofits having a tough time attracting and retaining board members, and not just board members, effective board members. Then, once they have them, the question is how to keep them engaged.

At the end of the day, board members are volunteers. You're all volunteering for the organizations you work with, and while you might have great intentions, life gets in the way. It's hard to find board members who will dedicate a large level of energy and effort to the organization. You're here, so you're the exceptions. We'll talk today about how to find and attract effective board members.

When you bring in a prospective board member, certain things need to happen. First, board members need to understand what their roles and responsibilities will be. It's also important to ask what role they want to play. We often assume that an accountant wants to be treasurer, or a lawyer wants to practice law on behalf of the organization, and a lot of times that's not what they want to do. Find out what those board members want from the organization.

We also need to make sure board meetings are efficient and effective. I've been involved with organizations where board meetings last three or four hours, and that's tough for a board member to sign on for. When you get to board meetings, are boards talking about the right things? How much energy goes to things they shouldn't be focusing on, and how much goes to the important things? We'll touch on all of this today.

Board Member Agreements (4:40)

The first thing I want to start with is board member agreements. If your organization requires each board member to sign one, feel free to say so in the chat. I think board member agreements are very important. If a board member doesn't know what their responsibilities are, it's hard for them to know whether they can take on the role.

What makes board member agreements effective is that they communicate, in one document, the responsibilities of the organization and the responsibilities of each board member. It's a two-way street that covers joint responsibilities and each party's responsibilities. And because it's an agreement, the board member signs it. Anytime somebody puts their name on something, they're much more likely to take it seriously.

A board agreement is an agreement between a nonprofit organization and a prospective or new board member. It clarifies the expectations and responsibilities of the board member and the organization so everyone understands their roles and commitments.

Key Components and "Give and Get" (6:23)

Key components include board member responsibilities, such as how many board meetings members are expected to attend. Is it 75 percent of all meetings, or some other figure?

Then there's the financial commitment, often called "give or get," though I prefer "give and get." Every board member should have a responsibility to make some level of contribution to the organization. It's hard for a board member to ask other people to donate to an organization if they're not donating themselves.

In today's environment, board members are brought on for different reasons. They're not only brought on to support the organization financially, but also because of their ties to the community or their knowledge of an industry. I think the days of requiring everybody to give the same amount are gone. Everyone should give what is appropriate for them, and that's what we're seeing more and more on boards.

The agreement should also cover whether members are required to attend fundraising events, how many, and whether they're required to serve on committees.

From the organization's side, there should be a commitment to provide timely information. One of the most common issues we see is board members getting information the day of the meeting, with no time to review it, so the conversations aren't as deep and meaningful as they should be. Information should go out well before a board meeting. The organization should also make sure board members have proper directors and officers insurance coverage and access to the resources they need for decision making. There should be a central place where important documentation is kept.

Someone asked how to remind members of their give-and-get responsibilities. That comes down to the board chair. It's very hard for management to go to a board member and say, "You said you were going to bring in X dollars." The board needs to police itself, and that starts with the chair.

Benefits of a Board Agreement (9:17)

An agreement helps board members determine whether they can meet the expectations of the role, because they clearly understand what it involves. It helps board members become more fully committed, because they knew what they were signing up for and they signed it. It helps address inefficiencies by making sure board members fulfill their obligations, since they better understand those responsibilities and why they matter to the organization. And it makes it much easier to remove ineffective board members. If they're not meeting the requirements of the agreement they signed, it's much easier to remove them.

Three Fiduciary Duties: Duty of Care (10:18)

Tanya Quigley: I'm going to go over the three duties of care, loyalty, and obedience. These are three fundamental items you should always keep in mind as a board member, whether you're attending board meetings or doing other work for the organization.

The first is the duty of care, which means ensuring proper use of assets. Does the organization have policies to prevent waste or misuse of assets? That can range from cash accounts to investments to the use of property and equipment. Assets should be used for the mission.

It also means diligent oversight of the organization's actions: monitoring the organization's policies and management's actions, and making sure policies and procedures are in line with the mission.

Understanding operations is part of this. As a board member, you're overseeing operations and voting on decisions about them, so you need to understand them. That includes reviewing internal policies geared toward operations, knowing what programs are being run, understanding staffing levels, and knowing who oversees what.

You also need to understand funding sources. Organizations can receive contributions, grants from private companies and foundations, government grants, and fee-for-service revenue. Board members should be aware of these, because reporting requirements are tied to them. Regulations go hand in hand with that. As a 501(c)(3), the organization must comply with the IRS, New York State, and any other states where it's registered.

Maintaining fiscal oversight means making sure the organization provides you with the financial information you need to give feedback on its financial picture and to monitor that funds are being used properly and operations are running smoothly.

Finally, the duty of care means identifying and preventing potential fraud or mismanagement. Understanding operations, policies, and internal controls can help you spot problems. What are the policies over company credit cards? Who has access to bank accounts? Who can make transfers out of investments? Being aware of all that helps you carry out the duty of care.

Duty of Loyalty (13:30)

The duty of loyalty means acting in the best interest of the organization. You're volunteering to help the organization succeed, so you avoid any personal gain from its assets or information. That means disclosing any potential conflicts of interest and making sure your votes are in the best interest of the organization, not yourself.

The same applies to information. As a board member, you have access to sensitive information about employees, the people served by your programs, legal matters, and donors. You're obligated to keep it confidential within the organization.

The duty of loyalty also includes ensuring the competence of the organization's leadership, such as the CEO and CFO, and evaluating their effectiveness. They report to the board, so make sure they're giving you the information you need. How are programs being run? How are operations carried out through the year? Leadership is in the day-to-day of the organization and has much more information, and they should be sharing it so the mission and programs run as smoothly as possible.

Disclosing conflicts of interest and ensuring decisions are made in the organization's best interest is key. Set aside anything that could personally benefit you. Conflicts should be disclosed at least annually. The organization should have a conflict of interest policy, which we'll cover later, laying out the procedure for disclosing conflicts and voting on matters that involve them. Board members should review and sign it when they join the board and at least annually after that.

Duty of Obedience (16:18)

The duty of obedience means adhering to laws, regulations, and ethical standards in all actions. Board members should make sure the organization follows state, federal, and local laws: filing its 990 and meeting state requirements for financial statement audits or reviews.

It also means meeting the requirements attached to your funding. If you receive Medicaid, make sure you're filing your Consolidated Fiscal Report each year. If you receive federal funding, make sure the organization complies with those requirements. Above a certain level of federal dollars, the organization is subject to Uniform Guidance, so make sure the organization is aware of that and goes through the process.

It includes establishing policies that support the mission and sustainability. Know what the organization was formed to do. That's in the Articles of Incorporation and your bylaws. It's good practice to go over the mission at every board meeting and make sure operations are carried out for the mission without deviating from it.

On sustainability, does the organization have strategic plans to remain sustainable for the foreseeable future? Board members change and management changes, so there should be plans to make those transitions smooth.

Finally, ensure proper governance and regular communication with compliance officers. Organizations with certain funding, such as Medicaid, have compliance officers, and it's good for board members to meet with them regularly so issues are communicated to the board and actions can be taken to resolve them.

The Mission Lens and Idle Cash (19:14)

Ken Cerini: Let me jump in for a second. First, Judy, thank you for putting clarifying comments in the chat. That's great.

Tanya mentioned going over the mission at each board meeting. One thing I tell clients is to have the mission statement in front of you at all times during board meetings. Every decision at the board level should be made through the lens of the organization's mission. You should be thinking about what's right for the organization and for the people it serves.

Tanya also talked about safeguarding assets under the duty of care. Many organizations are sitting on some level of cash that isn't invested in higher-yielding money market accounts. A lot of banks won't offer you 3 or 4 percent on their own. They'll put it in a very low-yielding money market or savings account, so you have to ask. We've had a few clients move money into more effective investment vehicles that have yielded higher interest rates. It's something to think about.

Responsibilities of the Board: Define Mission and Purpose (20:40)

We want to talk about some key responsibilities of board members. We have ten listed on the next two slides, and if you listen closely I'll give you a bonus eleventh.

First, define the organization's mission and purpose. Set goals and the overall direction of the organization, and constantly check that you're staying on track with what the organization is supposed to be doing. Missions change, and operations can drift into mission creep over time. As Tanya said, regularly go back to the certificate of incorporation and the bylaws to see whether the organization is staying true to its purpose.

We saw instances during COVID where organizations tried to do good things, like providing food to community members who didn't have access to it. If that isn't part of their nonprofit purpose, they can't do it. Make sure everything you're doing is in line with your certificate of incorporation.

Choosing, Evaluating, and Supporting the CEO (22:25)

Second, choose and evaluate the CEO and set compensation. It's amazing how often boards don't review their CEOs. The CEO is an employee of the organization and should have at least an annual review, coming from the board and delivered by the board chair.

The board should also make sure the CEO has established job responsibilities and goals, and review them regularly. Organizations go through life cycles, and what's important today may not be what's important five years from now. Make sure the board's goals and management's goals are aligned.

On compensation, how do you determine what's appropriate? Will you do a salary study, look at other organizations' 990s, use a contract? How do you show the compensation was appropriate, and is it documented?

The board also needs to support the CEO. The CEO runs the organization, but direction and policies come from the board. There needs to be open communication between the CEO and the board, usually through the board chair, with regular meetings. I've been involved with boards that meet once a month, leave, and it's as if time stood still for a month. The CEO sends emails with questions, and it's like pulling teeth to get responses. If you put a CEO in place and give them responsibilities, you have to be there to support them.

Planning and Program Oversight (25:35)

Third is planning: strategic planning, setting goals, understanding the direction the organization is moving in, and how it will be funded. To plan effectively, the board has to understand what the organization does and how it does it. Board meetings should include ongoing education about the organization's programs, how they're funded, and the key indicators behind them, so the board can make informed decisions and fulfill its fiduciary responsibility.

Fourth is monitoring and strengthening programs and services. Boards often look at an organization globally instead of digging into details. How are programs doing? Are they in line with the mission, or outside the core mission? Should they be part of the organization? Are they effective and relevant? Is the world changing in ways that mean we should look at things differently?

Financial Resources and Fiscal Oversight (27:17)

Fifth is ensuring adequate financial resources, which is where fundraising comes in. As I said earlier, giving and getting funds is part of the board's responsibility, and it's up to the rest of the board and the chair to make sure members fulfill that obligation. Fundraising is becoming more important because government funding isn't covering costs anymore. Organizations have had to enter the fundraising marketplace, and it's gotten very competitive. We'll talk more about fundraising later.

Sixth is fiscal oversight. The board is responsible for understanding and overseeing the organization's finances, including making sure an annual budget is created. That budget should be broken out monthly and aligned with how the organization operates. If you have a big fundraising event in November, don't assume one-twelfth of your fundraising comes in each month. Put it in November. Otherwise your monthly budget-to-actual comparisons will show you missing budget all year, and when you get to November and miss, it's too late to react.

Don't just create a budget; use it. I've heard Judy Seagull talk about using the budget as a guardrail so the organization doesn't run off the road fiscally. Reviewing budget-to-actual comparisons monthly, and understanding significant variances, helps keep the organization on track.

It's also important to create contingency budgets when you create your budget. If the board meets only quarterly, getting approval up front means that if the numbers aren't where they need to be, management can act quickly on an already-approved plan, without waiting for the next meeting or calling an emergency meeting.

Board Development, Compliance, Advocacy, and Risk (30:23)

Seventh, the board is responsible for developing new board members: assessing what the board needs, finding new members, evaluating whether they'll be effective, bringing them on, keeping them engaged, and working to remove those who aren't effective. The board develops new members and polices existing ones.

Eighth, ensure the organization meets its legal and ethical requirements. As Tanya mentioned, that includes conflicts of interest and all the relevant rules and regulations.

Ninth and tenth, board members need to be advocates and ambassadors for the organization. For example, early intervention providers were supposed to get a 5 percent rate increase in April. It was in the state budget, and they still haven't received it, and it looks like they may not until later. If you're on the board of an early intervention organization, you should be reaching out to politicians you know and advocating for that funding.

The bonus: board members need to understand, consider, and mitigate organizational risk. We're big proponents of risk committees. Risk can be considered within an audit committee or another committee, but there needs to be somewhere risk is reviewed regularly. That includes IT and cybersecurity, insurance, funding levels, potential lawsuits and how to mitigate them, compliance with regulations and laws, employment matters (new employment laws seem to come out weekly), and government audit risk.

Policies and Procedures: Mission, Form 990 Review, and Conflicts of Interest (33:04)

Tanya Quigley: I'm going to go over best practice policies and procedures for nonprofit boards. The more policies the board implements, the better, especially since much of this information is reported on your 990, which is open to the public.

First, mission and purpose: make sure the board is aligned with the organization's goals and mission. Organizations can set annual goals, such as fundraising targets or program metrics. The board should share those goals with management and oversee progress through the year.

Second, review the Form 990. Implement a process for reviewing it before it's filed. The board has a responsibility to make sure the information is accurate, and to raise comments or questions with management or the preparer. Set aside time to review it, and possibly hold a meeting to go over questions. Sometimes the 990 is made available close to the filing deadline, which doesn't leave enough time, so best practice is to build in time for the board to review it and update parts of it that would benefit the organization, since it's a public document. I'll go over some 990 pages later.

Third, a conflict of interest policy, which is required for New York nonprofits. It governs the independence of directors and prevents biased decision making. Board members and management should know what counts as a conflict, how it could affect the organization, and what the procedure is. When it's time to vote on a matter involving a potential conflict, the interested person is excused from the vote. Monitor the policy so it isn't signed once and forgotten, but stays on the minds of the board and management.

Not Every Conflict Is a Bad Conflict (36:13)

Ken Cerini: Real quick: not every conflict is a bad conflict. If a board member wants to provide a warehouse to the organization for a dollar a month in rent, that's a conflict, but a good one, and something we'd likely want to take advantage of. Just document everything: the decision making, the process you went through, and that it was vetted, with no environmental concerns.

Also, if you're entering into an agreement with a related party, do your due diligence to make sure the pricing is appropriate. It shouldn't be a case of a board member saying "I'll do it for this" and you saying "Great." Find out whether the price is equal to or better than fair market value. Sorry, Tanya, go ahead.

Whistleblower, Document Retention, and Compensation Policies (37:46)

Tanya Quigley: A whistleblower policy protects employees who report misconduct from retaliation. The board wants information about actual or potential misconduct communicated without employees fearing termination, demotion, or pay changes. The policy gives employees comfort that they can report what they become aware of to the right people.

A document retention and destruction policy gives you guidelines for how long to keep documents. Some must be kept indefinitely, such as your Articles of Incorporation, bylaws, and Form 1023 application. Others have set time periods, such as seven years for your 990, payroll tax returns, bank statements, bank reconciliations, invoices, checks, and deposits. The policy makes sure the organization has the documents it needs for regulatory purposes. It also covers disposing of unnecessary documents properly. Client files with sensitive information can't simply go in the trash, and the policy outlines how they're disposed of.

A compensation approval policy, which Ken touched on, ensures the compensation of the CEO and other key employees is independently reviewed and substantiated, through salary studies, salary agreements, or comparisons to similar organizations' 990s. Compensation includes more than salary. It includes benefits such as employer contributions to a 403(b) or 401(k) and car allowances. The whole package should be reviewed and approved by the board. An executive or compensation committee can do the groundwork and propose it to the board for final approval.

Transparency (40:50)

As a nonprofit, your 990, conflict of interest policy, board policies, Articles of Incorporation, bylaws, and financial statements are available to the public. How the organization makes them available matters, and it's documented on the 990, which has a section on it with explanations in Schedule O. This is also important for organizations such as Charity Navigator, which look at this information and give better ratings to nonprofits that are more transparent. An easy way to make your 990 and financials available is to post them on your website.

Board Meeting Minutes (42:07)

Maintain thorough records of board and committee meetings, whether it's the full board, a fundraising committee, a finance committee, or an executive committee. Minutes document the organization's decisions and discussions. If it wasn't documented, it didn't occur. For the nonprofits we audit, we see boards review and approve the previous meeting's minutes, which gives them a chance to correct anything recorded incorrectly before final approval.

Investment and Gift Acceptance Policies (43:10)

An investment policy establishes guidelines for responsible investment and asset protection. You don't need an array of investments to have one; a money market account or CDs are enough. The policy guides the organization on how to invest. In New York, nonprofits must follow NYPMIFA, the New York Prudent Management of Institutional Funds Act, which provides guidelines for responsible investing: your risk appetite for investing donor funds or board-designated funds such as quasi-endowments, and how income from those investments is used. If you don't have an investment policy, we highly recommend establishing one.

A gift acceptance policy isn't common, but it's important for making sure donations are in line with the organization's values and mission. What's the policy for donated stock? Should it be liquidated immediately to realize its value, or held long term? If someone donates a building or land, how should the organization accept it? Are there environmental liabilities? Is it in line with the mission? Can the organization benefit, or would it be too costly to accept? This is also a question on Schedule M of the 990 if the organization receives a certain amount of noncash donations.

Local Chapters, Joint Ventures, AI, and Legal Review (45:32)

Some additional considerations. If you're a national organization with local chapters, you need policies making sure all chapters operate under the same mission and handle reporting requirements, financial reporting, budgets, and membership the same way.

Joint ventures are common, with nonprofits joining together on a program or idea that benefits both. A policy should establish that a joint venture is appropriate, keeps each organization in line with its mission and its 501(c)(3) status, and doesn't benefit any individual in either organization.

AI use is much more common now. Should there be a policy on artificial intelligence? How could it benefit the organization, and how could it harm it? Determine how the organization can take advantage of it and put policies in place for the board, management, and staff.

Finally, legal review for compliance: make sure the organization's policies and procedures, and everything on the 990, are accurate to the best of its knowledge, and that it's compliant with annual reporting, financial statement, and state filing requirements.

Recording Meetings, Spending Policies, and Joint Venture Risk (47:37)

Ken Cerini: Before you switch, a couple of things. On board meeting minutes, be careful if you're recording meetings. I typically tell clients the minutes should hit the high points with the necessary detail. If you record a meeting to help prepare the minutes, delete the recording afterward. We're seeing many organizations use AI to record meetings and write minutes. Please make sure those recordings are eliminated afterward. You have to be very careful about that.

Tanya talked about the investment policy. If you have endowments, you should also have a spending policy that dictates how much of the endowment will be spent on a regular basis. That's also required under NYPMIFA.

On joint ventures, whether with a nonprofit or a for-profit, your policy should consider reputational risk. Make sure you understand who you're entering into a joint venture with and what impact that may have on the organization.

Four Nonprofit Financial Statements (49:23)

We can't have a board training as accountants without talking about fiscal matters. The area where board members feel they know the least is the organization's finances. It's important to understand the organization's programs and operations not only operationally, but also fiscally: how the organization generates money from them. If you don't understand how the organization generates its funding, it's very difficult to have a true picture of the organization and make proper fiduciary decisions.

In the for-profit world, financial statements include three key statements: a balance sheet, a profit and loss statement, and a statement of cash flows. Nonprofits have four.

The statement of financial position is your balance sheet. It shows assets and liabilities, and instead of retained earnings, net assets, which is essentially your assets in excess of your liabilities.

The statement of activities is your profit and loss. It shows support and revenue. Revenue is what you earn through exchange transactions. Support is your fundraising and other contributions. Then come expenses, and then the change in net assets, which is essentially your profit for the year.

The statement of functional expenses doesn't exist in the for-profit world. It shows expenses by natural classification, such as salaries, fringe benefits, rent, and utilities, and divides them among program, management and general, and fundraising. That matters because it shows how much of the organization's resources go back into programs and the mission, which donors want to understand.

The statement of cash flows reconciles the organization's change in net assets to its change in cash. It accounts for noncash items, debt repayments and borrowings, and purchases of fixed assets.

The footnotes provide more insight into the numbers on the financial statements.

Meeting with the Auditors (53:07)

Boards should meet with the organization's auditors every year. In New York State, if revenue and support exceed $250,000, you're required to have a financial review, where your outside accountant provides limited assurance over the financial information. Over $1 million, you're required to have an audit. Other states have different thresholds.

If you go through an audit, meet with your auditors at least annually after it's done, so they can go over the key elements. There are required communications auditors must provide to management and the board: significant estimates, significant risks, the level of adjustments, and any findings about the control environment. Findings would also appear in a separate document called a management letter. The board should understand where control deficiencies exist, which ties back to understanding risk.

The board should also understand the financial results and how they compare with the information it received during the year, so it knows how much it can rely on its monthly or quarterly reports. Auditors who work extensively with nonprofits can tell you how you benchmark against other organizations.

We're also big proponents of trend analysis: how your numbers compare with your own last two, three, or four years, and whether the organization is moving in the right direction. We're often told we have 10 or 15 minutes to present to a board. You should invest more time in that conversation. If a deep conversation is happening at the finance or audit committee, you may not need as much time at the board level, but if the board is the only place it happens, dedicate more time. That's my soapbox. I'll get off it now.

The Audit Opinion and Accrual Accounting (56:07)

What should board members understand about the audit? First, the financial statements are the organization's financial statements. The only part that belongs to the auditors is the auditor's opinion. You're looking for an unmodified opinion, which is a clean opinion. It indicates the financial statements are in accordance with generally accepted accounting principles in the United States and free of material error.

GAAP requires the accrual basis of accounting, not the cash basis. Many of our clients use the cash basis during the year, so the board sees cash-basis information, and then we convert it to accrual during the audit. Accrual accounting records revenue when it's earned rather than when cash is received, and records expenses when they're incurred rather than when cash goes out. So you'll have receivables and payables under the accrual basis.

Net Assets With and Without Restrictions (57:22)

Net assets are divided into net assets with donor restrictions and net assets without donor restrictions. Only a donor can restrict net assets. Boards cannot restrict net assets; boards can designate them.

We're seeing more organizations receive restricted gifts, but what you really want is unrestricted gifts, because net assets without restrictions can be used for any purpose.

Restrictions can be time restrictions. Think of a pledge: someone says they'll give you $100,000 a year for five years. You record the present value of that $500,000 today, but you can't spend it until you collect it in years two through five. Restrictions can also be purpose restrictions, such as $100,000 to set up a classroom in your school. And you can have permanently restricted funds, or endowments. As Tanya mentioned, endowments are subject to NYPMIFA, which is New York State law, so if you're not following NYPMIFA, you're not following state law.

Financial Indicators and Trend Analysis (59:03)

As I said, trend analysis and understanding your organization's indicators are very important.

Liquidity measures show the organization's bankability. If you may need to borrow, you want to show you can pay down debt. There are two ratios: working capital, which is current assets minus current liabilities, and the current ratio, which is current assets divided by current liabilities. These show whether you have enough current resources to pay obligations coming due over the next 12 months. Banks typically want a current ratio of about 1.5 to 1, so strive for at least that.

The program service percentage is the share of spending that goes to program services, from the statement of functional expenses. The slide says "the higher the better," but you have to strike the right balance and not sacrifice the organization's infrastructure to push that percentage up. The right percentage depends on the type and size of the organization and its funding sources. Government-funded organizations typically have a higher program service percentage than those that rely heavily on fundraising, and organizations with high levels of donated goods, such as food pantries, also tend to run higher. Talk to someone about what's appropriate for your organization.

Days of cash is another liquidity indicator. Determine your daily cash burn, what it costs to run the organization each day, and divide your cash by it. A good benchmark is around 45 to 60 days of cash.

Expendable net assets start with net assets without restrictions and remove fixed assets, net of related debt. If an organization is heavily invested in buildings, it could have a very nice net asset balance that's all tied up in infrastructure it can't spend. You can be asset rich and cash poor. Expendable net assets show what resources are truly available.

You should also know your organization's key indicators. For a housing organization, that might be occupancy rate. For a school, the number of students. Watch those leading indicators, because they tell you where revenue is heading, and in the nonprofit world revenue drives operations. If you see a lag, you can react and adjust.

And as I mentioned, make sure the board gets budget-to-actual reporting with explanations of the variances.

Reviewing the Form 990 (1:03:05)

Tanya Quigley: I'm going to go through the 990. We took some pages from the form and put together a checklist to guide the board's review. There's the core 990, and then schedules attached based on how the questions are answered.

There are several versions of the form. We're covering the full Form 990. There's also the 990-EZ and the 990-N. The full 990 is required when the organization's assets exceed $500,000 or revenue exceeds $200,000. Even if an organization isn't subject to an audit or review, it will still file a 990, 990-EZ, or 990-N depending on its revenue and assets.

The first page is the summary. Right up front is the description of the organization's mission or most significant activities. There are only a few lines, but Schedule O is a catchall for anything that spills over from the 990, so read Schedule O along with the responses on the form to get the full picture.

The summary also shows prior-year and current-year revenue, expenses, and statement of financial position. Current-year figures link to later pages of the 990, and prior-year figures come from last year's return, so check those against last year's 990 and your financial statements.

Program Service Accomplishments (1:05:07)

This is a very important page for communicating the organization's program services, its accomplishments, how much it spent on different programs, and the revenue those programs generated. The 990 lets you describe your top three program service accomplishments.

The figures come from the program services column of your statement of functional expenses. Your financial statements may show a single program services column, but the 990 lets you break it out into several major programs.

At the top is the organization's mission again, with a bit more space to communicate its main goal and purpose. Below that are the programs, where you can describe their impact on the community: how many meals were served, what your outreach was. Donors look at this to see the impact the organization has with the dollars it raises or receives in grants.

Ken Cerini: Too often, nonprofits rely on their accountants to fill this out. This is a great place to use the 990 as a marketing tool. As Tanya said, the 990 is open to public inspection, so to the extent you can add impact measurements here, involve your marketing, communications, or development staff in writing this page. Talk about your programs and their impact. You can break it into multiple programs and add more in Schedule O, so you can really speak to donors about the impact you're having.

Tanya Quigley: It should be reviewed and updated every year. If you included metrics last year, make sure they're updated for the current year.

Part IV: Filing and Compliance Questions (1:07:46)

Part IV of the 990 focuses on IRS filings and tax compliance. It discloses how many employees the organization has, whether it filed its Form 941 payroll tax returns, and whether it had independent contractors and properly filed its 1099s.

It also covers donor receipts, which is common with fundraising events. When attendees buy a ticket, part of the price is a donation and part is the fair value of what they receive. The organization is required to notify donors of the value of the donation, or that no goods or services were received in exchange. That's question 7.

Much of this section is yes-or-no questions, and some may not apply. From question 10 down, for example, the questions don't relate to 501(c)(3) organizations and would be left blank. Read through the questions, and if you're unsure how something should be answered, raise it with the preparer or management.

Another question asks whether you need to file a Form 990-T. Unrelated business income is permitted, but keep its significance in mind and make sure it isn't a significant part of operations. Once unrelated business revenue exceeds $1,000, you must file the 990-T.

Another fairly common question asks whether the organization has any foreign bank accounts, which would trigger an additional filing, the FBAR. Essentially, the 990 asks whether these filing requirements apply to the organization and, if so, whether they were met.

Ken Cerini: The form is really a page that lets you make the government's job easier by writing yourself up. FYI, we only have about 18 minutes left.

Governance, Management, and Disclosure (1:10:38)

Tanya Quigley: Oh, okay. The governing body and management section ties into much of what we've discussed. Section B lists the policies we covered earlier: conflict of interest, whistleblower, compensation, and document retention and destruction. Schedule O requires explanations depending on whether you answer yes or no.

The disclosure section at the bottom is also important, because it's about transparency: how the organization makes its governing documents available to the public, and which states it must file in. As a New York nonprofit you file in New York, but if you conduct business or fundraise in other states, you may need to report your 990 there too.

Officers, Directors, and Compensation (1:11:34)

This section lists officers and directors. Everyone who served on your board at any point during the year must be reported, whether they left at the beginning, middle, or end of the year. It includes each person's position, the estimated average hours devoted to the organization, and their category. Officers such as the chair, secretary, vice president, and treasurer have specific boxes to check, as do the organization's officers.

It also reports compensation: what was on your executive staff's W-2s for the calendar year, and any amounts reported on a 1099 issued to a board member. It's also a good idea to understand what "key employees" and "highly compensated employees" are, because they usually aren't on your board, and highly compensated employees usually aren't your executive team.

Revenue, Expenses, and the Balance Sheet (1:13:03)

The revenue section is a snapshot of your statement of activities, showing your funding sources. Are you mostly contribution driven, mostly program service driven, or a good mix? You want diverse revenue sources so you're not over-reliant on one. This is also where unrelated business income is reported, so make sure it's minimal compared with overall revenue.

The statement of functional expenses section, as Ken mentioned, reports expenses by natural and functional classification, totaling program services, management and general, and fundraising. It mirrors your statement of functional expenses, though many of your categories may not be listed separately. Use the "other expenses" lines for categories that are significant to the organization. Keep an eye on program service expenses relative to management and general and fundraising, making sure they're the larger amount.

The balance sheet, or statement of financial position, shows your cash, investments, and so on at the end of the current and prior year. It discloses any loans to or from board members, executives, or other related parties on a separate line, along with the types of investments you hold, your liabilities, and your net assets with and without donor restrictions. If you have significant amounts in other assets or other liabilities, Schedule D breaks them out in more detail.

Reconciliation of Net Assets and Financial Statements (1:15:16)

The last page is the reconciliation of net assets. Not all revenue is reported on the 990. Donated services and donated rent, for example, are excluded from revenue and expenses, so they're reconciled on this page or on Schedule D. This page also lets you include prior-period adjustments.

The bottom section is important. It identifies whether the organization reports on the cash or accrual basis, whether its financial statements were reviewed or audited, whether they were on a separate or consolidated basis, and whether there's oversight of the process of selecting an accountant. That oversight question should be answered yes and explained in Schedule O. If you don't have a finance or audit committee, it's fine for the full board to hold that responsibility.

The last question asks whether the organization received more than $750,000 in federal funds and, if so, whether it had a Uniform Guidance audit. These are compliance questions, so be aware of what's required when you review the 990 and make sure they're answered correctly.

The Board's Role in Fundraising (1:16:50)

Ken Cerini: We have about 12 minutes and about 12 slides, so I'm going to go quickly. Sorry, everybody.

I told you we'd come back to fundraising. Part of a board's role is raising funds for the organization. We find that many board members aren't comfortable making the ask. Many organizations have internal staff who can help with that, so it comes down to board members working within their comfort zone. It's not always about making the ask. It's also about making introductions and being part of the process.

Every board member will approach fundraising differently and have a different comfort level. The organization should sit down with board members, understand what role each will play and where their comfort zone is, and then train and educate them on the process.

It helps when the organization connects board members with its operations and mission. Bring program staff to meetings. Have board members go out into the organization, meet program people, see how it operates, and meet the people it helps. The more insight board members have, the more connected they feel, and the more effective they become at fundraising.

It also helps board members tell the story. So many organizations are out there trying to raise money that you have to find a way to rise above the clutter. The better board members understand the organization and where it's going, and the more educated and inspired they are, the better off they'll be.

The Wealth Transfer and a Changing Donor Landscape (1:19:17)

Over the next 20 or 30 years, we'll see the largest transfer of wealth this country has ever seen, as the Silent Generation and Baby Boomers pass away and that money moves to the next generations. The statistic I've heard is that somewhere between $11 trillion and $12 trillion, with a T, will find its way to nonprofit organizations.

How can you get your share? Start educating and communicating with your donors and identifying which ones are appropriate for these conversations. If you have older, significant donors, what happens when they pass away? Have you developed connections with their families so that funding continues to your organization? There are many strategies to think about now.

The fundraising landscape has also changed. Around 2000, about 70 percent of individuals gave to nonprofit organizations, and many of those were smaller $50 or $100 gifts. A lot of that has been squeezed out. The share of people giving is now closer to 50 percent. Fewer people are giving, yet total charitable giving is higher than it was 20 years ago. More of it is coming from larger donors, so you need access to those larger donors. I know that's harder for smaller organizations, but you have to figure out how to make it work.

Engaging Board Members in Fundraising (1:21:31)

As a board, prioritize fundraising. Keep it as a key focus at meetings so the board understands the need and the emphasis. Build personal connections by involving board members in hands-on mission activities so they can better tell the story. Start small, with manageable tasks, and work up as board members become more comfortable. And lead with passion and inspiration.

Building Deeper Board Engagement (1:22:08)

We talked earlier about board engagement. You build deeper engagement on a board the same way you build it in any organization: by fostering relationships. It may make sense to hold board retreats, informal gatherings, or team building, whatever it takes for the board to come together and gel.

Make sure you have good communication among board members, between the board and its committees, and between the board and key members of management. A good flow of information keeps board members engaged because they know they're informed and have responsibilities.

Establish accountability. We talked about the board agreement at the beginning. Clearly define roles and regularly assess performance. The board shouldn't only assess the CEO; it needs to assess itself, too.

Celebrate wins. When positive things happen, such as contributions coming in, celebrate them at board meetings. That boosts morale.

Keep finding and developing talent. When board members are ready to leave, they should help identify their successors.

Encourage volunteering. The more individuals volunteer, the more engaged they become and the more they learn about the organization, so getting board members involved in volunteering helps build engagement.

Run effective meetings. Meetings should not be three hours long. Use a consent agenda so the board knows up front what it will be voting on, with the motions already laid out. That makes the process easier and keeps things moving. Anything that creates efficiency in board meetings helps create engagement, and a committee structure between meetings helps keep board members engaged, too.

Use digital tools for continuous engagement, and make it easy for board members to find things. Your certificate of incorporation, bylaws, and other key documents should be housed in Dropbox or a board portal that holds everything in one place.

Finally, do regular board evaluations. Is the board effective? What could it do better? Are people satisfied with their involvement? If you don't ask the questions, you won't get the answers.

Recruiting Millennial and Gen Z Board Members (1:25:32)

A couple of quick points over the next three minutes. We've seen many boards with people who have served for 20 or 25 years. It may make sense to bring in new, younger members with different ways of thinking. You always want different perspectives.

Millennials and Gen Z bring fresh ideas. They're more innovative, have much more digital expertise than older board members, are much better at social networking, and care a great deal about social responsibility. They're the future leaders, and they're some of the people who will be inheriting money down the line, so find ways to bring them into the organization. They can leverage social media, provide more authentic messaging to enhance engagement, and connect with younger generations when you're out fundraising. Recruiting Millennials and Gen Z to your nonprofit board is especially important since they make up a much bigger portion of today's workforce than other generations.

The Changing Face of the Board (1:27:01)

We're also seeing the face of the board change. Board members used to be brought on because they were power board members who could attract donors or make large donations themselves. The dynamics have changed. It's important for boards to reflect the people and community the organization serves, and to include different voices, perspectives, and life experiences.

That enhances discussion at the board level and brings thought processes you might not have considered, because you may not have boots on the ground in the community the way other potential board members do. A board that reflects the community drives better decisions and deeper community connection, spurs innovation, avoids groupthink, and broadens recruitment and retention. It helps make sure the mission and the delivery of services are much more reflective of the community's needs.

That's what we have. As I said, we'll send a copy of the board guide with the recording, along with the updated nonprofit fundraising guide. If you go through them and have questions, please reach out. We'll also send the PowerPoint as part of the package.

Thank you, everybody, for attending. I know it was a little rushed at the end, and I apologize. If you have ideas for future topics, please let us know, because we want to incorporate them. In January we'll be doing our annual 2025 trend guide and webinar. The guide will come out at the beginning of January, and the webinar will take place toward the end of January, so stay on the lookout.

We're offering CPE for today. If you need CPE, get in touch with us and we'll send you an evaluation form to fill out.

Everybody have a happy and healthy holiday season, and thank you for being part of today's presentation.