SIDNEY — The definition of duty is “a moral or legal obligation; a responsibility.”
That duty, said Abigail Kline, an associate assistant attorney general with the Ohio Attorney General’s Office, is what every board member of a nonprofit organization vows to do when they join the board.
“Thank you for everything you do,” said Kline, who spoke at a Board Governance Seminar sponsored by the Shelby County United Way and held at Sidney-Shelby County YMCA Wednesday morning. Kline specializes in the charitable law division of the AG’s office.
Approximately 50 members of the community who serve on nonprofit boards or other agencies were present for the seminar.
Kline said there are 1.5 million nonprofit organizations in the United States, which is a 31 percent increase since 1999. Nonprofits can be public charities, private foundations, and other types of nonprofit organizations, including chambers of commerce, fraternal organizations and civic leagues.
There are 1.1 million 501 c 3 groups, she said, and the charitable sector never stopped growing even when the economy was not. That’s an increase of 60 percent since 1999.
The role of the Attorney General’s Office, she said, is outreach, compliance and investigation. Outreach means a member of the office can attend a seminar such as she did Wednesday, members of the group can go to the AG’s office for training or they can do webinars.
Compliance means every charity in the state of Ohio must register with the Attorney General’s Office. They are responsible for nonprofits, charities and issuing licenses for bingo.
Investigation is when the office receives a complaint about the funds an organization is handling.
“That (investigation) is the biggest part of what our office does,” said Kline. “Someone alerts us that there’s a problem and we investigate it.”
The AG’s role in the oversight of the charitable trusts is one of the most ancient duties of the office, she said. It dates back to the Elizabethan period.
“You (board members) can help us stop problems before they become major headaches,” said Kline. “We fielded nearly 1,000 complaints last year.”
Kline said the AG’s Office has statutes which it operates under: the Charitable Trust Act, Charitable Organizations (Solicitation) Act and Ohio Nonprofit Corporation Act (Ohio Revised Code 1702). The office also has common law authority and Ohio Administrative Code authority.
The Nonprofit Corporation Law, she said, has many bylaws under which nonprofits can operate.
“Local boards have bylaws that can’t be contrary to 1702,” she said. “There’s a lot of things in 1702 that may not be in your local bylaws but you can use the state ones.”
There are many duties that board members must fulfill when they accept a position on a board: duty of care, duty of loyalty, duty to maintain accounts and duty of compliance.
“Preventing theft is the board’s most important role,” said Kline.
Directors of charitable trusts, she said, must conduct themselves with a level of care, skill and allegiance that an ordinary prudent person would exercise when handling their own affairs.
Board members must attend meetings, be prepared for meetings, participate in the meetings, help establish policies and assist with the selection of key staff members.
“You’d be amazed at how many people don’t know they are on a board,” said Kline. “There are some members who have never seen the bylaws. You need to pay attention and know what’s going on with your board.”
Each board, she said, should have policies in place that deal with financial controls, conflict of interest, major expenditures, spending, investments and asset allocations, hiring procedures, conduct of meetings and protection for whistle blowers.
“Boards sometimes rely on the staff too much,” said Kline. “The board must provide oversight. You must ask questions. You can be held personally liable if you don’t do that.”
Kline presented several examples of people who have stolen funds from nonprofit groups. One person was the executive director of a veterans organization. The person stole $250,000 from the organization.
The executive director, she said, did everything and had control of all the finances. The person went to the board meeting and told them everything was fine. Instead of the money going to the veterans, it was used to get her hair done, purchase cellphones for her children, purchase clothes and pay her phone bill.
“The board could have stopped it if they had asked to look at the bank account,” said Kline. “She had hand picked the board members personally.
“You need to ask questions,” she said. “You need to pay attention.
Each board member, she said, has a duty of loyalty. They must put the interest of the charity above their own personal interests.
In the case of a conflict of interest, the board member cannot have personal financial gain for being on the board and their loyalty or relationship to another cannot influence any decisions made by the board.
“Conflicts will happen,” said Kline. “What mattes is how you deal with them. You must have a conflict of interest policy. If there is a conflict, it would prohibit a board member from voting or seeking to influence a decision.”
The minutes of a meeting should indicate there’s a conflict for a board member and the person involved should leave the room during the discussion and vote on the issue.
The board has a duty to maintain accounts and to make sure all financial matters are properly managed. The board must oversee the charity’s budget and its projections of income and expenses.
“Pay attention to the bills if they are higher than what you thought they should be,” said Kline. “Or if few donations have been received than anticipated. You must change the budget to reflect these.”
She said each board should have an audit and budget committee which meets regularly to go over the financial reports and the budget. Board members have the right to ask for statements from the accounts held by the charity or nonprofit.
The board has a duty of compliance to make sure they are complying with all legal requirements and other obligations such as state and federal laws, governing documents, agreements and contracts and representations made in solicitations.
Kline said if a board goes out to raise money for a specific item, then all money must be used to purchase that item. If the board decides they don’t want to purchase the item, the AG’s office must approve the change.
Each board should have its list of best practices that they do yearly such as an annual checkup of bylaws, policies, conflict of interest policies, etc.; a timeline for dates which documents must be filed; insurance coverage for directors and officers and evaluate themselves to make sure to board is working correctly.
Following Kline’s presentation, Marian Spicer, executive director of the Community Foundation of Shelby County, talked about the role of board members, orientation for new members, board leadership and an exit interview when the member leaves the board.
