It’s okay to trust, but still verify
I just heard another sad tale today of a nonprofit that ended up in a financial pickle that almost ended its vital community programs.
Apparently the executive director took on a grant obligation which required a big match and the board took the exec’s word that the money was there to back up the obligation.
While it is the rare day that I find myself quoting Ronald Reagan, here goes: “Trust but Verify.”
The relationship between a Board and its CEO would be pretty broken if there weren’t high degrees of trust both ways. Yet for a Board to be truly exercising its fiduciary role, it can’t always rely on the word of its staff. It’s a sorry thing to have to say that, but even the most trustworthy person may find his or herself (or a family member) in a situation that they believe merits directly bending the truth or using silence to avoid disclosing a problem.
There was absolutely no personal gain in this case and nothing illegal. But how many times have you read a newspaper story about the loyal employee, the one that everyone trusts implicitly, who turned out to have been embezzling money all those years. (Often to support gambling addictions – we’ve had too many of those in our state). And think “that can’t happen to us.”
Instead, think about how that might happen to you and take some preventive action.
In their PolicyGovernance (R) model, John & Miriam Carver suggest three ways that Boards can monitor the situation at their organization:
1. Ask for a report from staff
2. Engage someone from outside the organization to conduct a review (e.g. your auditor), or
3. Inspect it yourself.
Every Board needs to make sure that they are judiciously using ways 2 & 3 in addition to relying on staff reports. It’s a heck of a lot wiser to trust, when you’ve got the independent verification that everything is hunky dory.
Great reminder Gayle! Too often Boards place way too much trust in their ED and almost giving up their responsibility for oversight. It’s unfortunate when it comes back to bite them in the behind.
Sandy Rees, CFRE
This is both wise and respectful. It’s especially hard for boards, who tend to (appropriately) venerate the ED, to question the word of the ED. But it’s a lot like getting a second medical opinion. You do it not because you don’t trust the doctor, but because you want an affirmation of their decision. And you also want to be sure that you haven’t left anything unquestioned. Ideally this should be seen, in the nonprofit world, as a support system for the ED, not a way of undermining him or her
Auditors are expensive – most small orgs can’t afford to do that more than once every 2 or 3 years. But there are lots of ways to “verify”, starting with everyone understanding that it’s normal and necessary to ask questions.
Thanks, Alexandra. You are right that auditors aren’t for many organizations and even when they are, they usually aren’t tasked with uncovering fraud. Our colleague Hildy Gottlieb advises Boards to ask themselves
“what would we worry about?” Once they know, they can then figure out how they would know the answer to their concerns. This is a good starting place for insuring appropriate controls and monitoring are in place.
And the really scary part is that in very small organizations, even a little mismanagement can cause a wholesale collapse of the organization. I’ve heard two scary tales in the last few months. And that’s 2 too many!