Where Was the Oversight?

By Janet Brown from her blog Better Together

From large major institutions to small nonprofits, one of the critical responsibilities of volunteer board members and funders is to assure best practices in fiduciary and organizational management. When a management issue arises that threatens the stability of a nonprofit arts organization, “where was the oversight?” is often the question on everyone’s lips. There are some common misperceptions and unfortunate “group think” that prevent or discourage adequate oversight by board members. Here are a few:

1. “This is an arts organization and, as a board member, I’m here to have some fun, support my passion and not to deal with the same issues that I have in my own work.” WRONG. This is a business. It operates like businesses…income should exceed expense and proper and timely financial reporting is required.
2. “These are my friends, I don’t want to rock the boat by bringing up contentious issues at a board meeting.” WRONG. This is not a club. This is a business with responsibilities to “investors” (donors) and the public good.
3. “I’ve asked the executive director more than once about this and he/she keeps telling me not to worry and that it’s being taken care of.” Don’t fall into this rabbit hole. The proof is in the deed, not the promise to do the deed.
4. “Others have made me feel uncomfortable by bringing up certain issues, so I’ll just keep my mouth shut or resign from the board and let others deal with it.” WRONG. Although this is an easy solution for one person, it does nothing to change what could be systemic issues that may result in the bankruptcy or closure of an organization. You weren’t invited to join the board in order to just “get along.” (or let’s hope not.)
5. “It’s the arts and I don’t understand how that business operates, so I should just accept what is presented. It’s not that serious and it’ll be fine.” WRONG. (See #1.)

Funders have a unique responsibility, and in many ways, an easier job of dealing with the signs of organizational dysfunction. Their first responsibility is to make sure their contribution (the investment from their foundation or tax-payers dollars) is being used for the intent in which it was given and that the organization is operating with sound leadership and proper governance. There are also some misperceptions and idiosyncrasies that hinder funder oversight:

1. “It’s a small organization, with limited staff, and they can’t be expected to have good financial records.” Just WRONG and as a funder, you could even help them out with some technical assistance by hooking them up with a financial management consultant or advisor.
2. “They have amazingly artistic and visionary leadership so we need to cut them some slack in the financial and organizational operation category.” Even MORE wrong. (Solution, see #1)
3. “The arts community is a small one, already under siege by lack of funds. By pointing out problems that we suspect our grantee is having, we hurt our own program’s credibility.” WRONG, WRONG, WRONG.

The nonprofit sector has come far in the past three or four decades in establishing its credibility to provide programs in an administratively sound manner. There continues to be growth in infrastructure of technical assistance and best practices. But, there also continue to be negative stereotypes that, all too often, reflect reality.

The elements that can make an organization successful also can work in reverse to take it down…exciting vision, sound implementation and transparent governance and financial management. Exciting vision without sound management only harms our efforts to secure wider funding and support. Sound financial management without a vision for the mission and the artform is also ineffective. This takes a team…a team of artist, manager, board member and funder. If any one  link drops out of the oversight management team, there is trouble.

Board members and funders, please ask the hard questions. When was the last audit? Can you really afford not to have an audit? Shouldn’t you have monthly financial statements? What makes up the net assets number on the balance sheet? Follow your instincts. If you get excuses instead of answers to your questions, your instincts might be right and the results of doing nothing could be a betrayal of the public good.

Artists and arts managers, please be diligent to educate board members and funders about your organization, its strengths AND its weaknesses. Also be transparent about your personal strengths and weaknesses. It’s OK to ask for help. These are your partners, your guides, your fallback in times of trouble. Don’t blind-side them…bring them with you. And be grateful for that funder or board member who asks the tough questions.

When it comes to understanding how nonprofit boards can operate successfully, John Carver wrote the bible, “Boards that Make a Difference” (Jossey-Bass, 3rd edition, 2006.)  Information on the board’s oversight of nonprofit finances can be found on lots of accounting firm sites but also national groups like the Nonprofit Finance Fund and Grantmakers in the Arts.