board fiduciary responsibility – understanding oversight and monitoring roles
DESCRIPTION
BOARD FIDUCIARY RESPONSIBILITY – Understanding Oversight and Monitoring Roles. Presented by: Dan Campbell, Partner. Effective Board Governance. Type I - Fiduciary. Type II – Strategic. Governance as Leadership. Type III - Generative. GOVERNANCE AS LEADERSHIP by Chait, Ryan, & Taylor. - PowerPoint PPT PresentationTRANSCRIPT
BOARD FIDUCIARY RESPONSIBILITY – Understanding Oversight and Monitoring Roles
Presented by:Dan Campbell, Partner
GOVERNANCE AS LEADERSHIP by Chait, Ryan, & Taylor
Effective Board Governance
Type III - Generative
Type II –
Strategic
Type
I - Fi
duci
ary
Governance as Leadership
Learning Objectives
After attending this session you will have a better understanding of:
• Exempt organization fiduciary responsibilities • Risk assessment - the purpose and process• Key areas of financial oversight and monitoring• Effective internal control systems
Effective Board Governance
Type I – Fiduciary• The basic work of the board includes:
Financial discipline Informed oversight and monitoring Mission fidelity and program alignment Promoting the organization’s interests and
insuring its integrity Selection, compensation and evaluation of the
President
Effective Board Governance
Type II – Strategic The Board and CEO (Leadership Team) think
strategically and project the vision. The President/CEO, faculty and staff (Management
Team) develop operational, facility, and strategic plans aligned with the vision of the Leadership Team.
The Board monitors the implementation and results of the strategic plan(s) to insure that the mission of the organization is accomplished.
Effective Board Governance
Type III – Generative Work Generative thinking or “Grappling”
Emerging major issues to gain understanding and to formulate decisions. This is usually something they do together. This is not a planning activity.
Grappling – open, in-depth, collaborative discussions on major issues, crises, or external policies or events that threaten the health of the institution or present new opportunities that can help fulfill institutional mission within its values.
Fiduciary Responsibility
Fiduciary ResponsibilitySumming it Up
...to act reasonably, prudently, and in the best interests of the organization, to avoid negligence
and fraud, and to avoid conflicts of interest
Duty of CareDuty of LoyaltyDuty of Obedience
Fiduciary ResponsibilityDuty of Care
Care that “an ordinary prudent person would exercise in a like position and under similar
circumstances”
Fiduciary ResponsibilityDuty of Care
• Act in good faith• Ordinary and reasonable care• Best interest of the organization• Exercise independent judgment• Exercise adequate board oversight• Be informed and follow up regularly• Reflect decisions in board minutes• Attend board meetings
Fiduciary ResponsibilityDuty of Care
• Ensure financial accountability by:oOverseeing the CEO monitoring the CFOo Validating that resources are used prudentlyo Verifying that records and reports are
accurateo Ensuring that risks are evaluated and controls
are reasonable to mitigate them – no one person has unlimited access or control over assets or finances
Fiduciary ResponsibilityDuty of Loyalty
• Demonstrate complete and undivided allegiance and loyalty, put the organization’s interests above personal, family, or business interests
• Avoid conflicts of interest• Disclose all potential concerns• Maintain strict confidentiality
Fiduciary ResponsibilityDuty of Obedience
• Follow governing documents• Adhere with stated policies• Conform actions with stated purposes• Comply with laws and regulations• Evaluate programs:
o Effectiveness and efficiencyo Accomplishing organizational purposes
Fiduciary ResponsibilityIt’s about Stewardship
Boards should oversee and monitor all people, processes, and activities to ensure proper
stewardship over an entity’s assets and activities
Risk AssessmentPurpose and Process
Risk AssessmentThe Purpose
• Assets are safeguarded (stewardship)
• Transactions are properly authorized, executed, and recorded to demonstrate proper use of resources
• Integrity of financial information used by the board in decision making
Risk AssessmentThe Purpose
• Financial reporting to all constituents is complete, accurate, and transparent
• Compliance with applicable laws, regulations, and ethical responsibilities
Risk AssessmentThe Process • Identify financial, operational, and external risks
• Understand and oversee processes for internal controls
• Assess insurance coverage for various exposures
• Consider contingency plans
Key Areas of FinancialOversight and Monitoring
Key Areas of FinancialOversight and Monitoring
Essential Financial Information for the Board:• Budget and financial reports, dashboards• Management analysis and commentary• Independent audit reports• Investment management reports • Risk assessment summary• Internal control monitoring reports• Audit committee and internal audit reports
Key Areas of FinancialOversight and Monitoring
Financial areas to monitor:
• Financial planning and budgeting, including cash forecasting/projections
• Interim and annual financial performance
• Contingency planning and budget changes
• Risk assessment and internal control systems
Key Areas of FinancialOversight and Monitoring
Financial areas to monitor:
• Fraud prevention and detection measures
• Misconduct policy and whistleblower protection
• Identifying, avoiding, approving/managing conflicts of interest
Key Areas of FinancialOversight and Monitoring
Financial areas to monitor:• Reasonableness of compensation:o Employees,o Independent contractors, and o Service providers
• Timely payment of payroll and taxes• Regulatory reporting and tax compliance
Key Areas of FinancialOversight and Monitoring
Financial areas to monitor: Liquidity –
o Sufficient cash and short term investments to cover operating cash outflows, including current liabilities
o Sufficient designated cash and short term investments to cover donor restricted net assets and to avoid internal borrowing
Condition of accounts receivable and payable
Effective Internal Control Systems
Effective Internal Control SystemsThe Framework
• The primary internal control framework used in the U.S. is based on a study of best practices and what is needed to establish and maintain an effective internal control system, referred to as COSO, resulting from a study released in 1992 by the “Committee on Sponsoring Organizations” of the Treadway Commission.
• COSO is an integrated framework
Effective Internal Control SystemsThe Objectives
COSO Objectives: To provide reasonable assurance that the organization’s objectives will be met (risks mitigated) regarding:
• Effectiveness and efficiency of operations
• Reliability of financial reporting
• Compliance with laws and regulations
Effective Internal Control SystemsThe Components
• Monitoring – evaluating the effectiveness of controls and reporting of deficiencies
• Information and communication – providing important financial and control information inside and outside the organization
• Control activities – implementing policies, procedures and other safeguards – preventative and detective
• Risk assessment – assessing risks related to financial reporting
• Control environment – tone at the top, core values, structure, management philosophy, and staff capabilities
Effective Internal Control Systems
COSO Cycle
Effective Internal Control SystemsConsidering Fraud
Understand that intent is the difference between errors and fraud
Consider the adequacy of fraud prevention and detection measures, including training and awareness at all levels of management
Be alert to three types of fraud:o Financial Reporting FraudoMisappropriation of Assetso External Fraud
Effective Internal Control SystemsThe Fraud Triangle
Effective Internal Control SystemsConsidering Fraud
Some Areas of Fraud Risk to Monitor:• Diversion of revenue or assets for personal use• Vendor fraud• Payroll fraud• Altered checks• Personal expenses paid or reimbursed• Padded or duplicate expense reimbursements• Lack of bank statements & reconciliations review• Lack of journal entry review and approval
Summary
Understand fiduciary responsibilities and duties, periodically evaluate board performance
Focus on risks and outcomes, assess vulnerability and degree of mission accomplishment
Monitor key areas of financial operations, be vigilant to know and ask questions
Assure that effective internal control systems are in place and being well maintained
Recommended Resource
Recommended Resource Contact Information
Dan Campbell, Partner
Atlanta 678.518.5301 Ext. 120Columbia 803.458.2169