Nonprofit Boards Focus More on Evaluating Performance, Says Report

Nonprofit boards have become more focused on scrutinizing their own performance, as well as examining the work of their groups’ senior-ranking employees, says an annual survey by Grant Thornton, an accounting and business advisory group.

Thirty percent of 465 nonprofit leaders who responded to the survey said that one of “the main ways the board’s agenda changed in 2009” was that members spent more time evaluating the work of chief financial officers.

Twenty-four percent said they paid more attention to evaluating board performance and 14 percent “became more focused on evaluating the executive director/CEO or the director of development.”

Also, more nonprofit audit committees are meeting frequently with their groups’ outside auditors, said Grant Thornton.

The moves are prompted in part by greater scrutiny of charity finances and a need for increased accountability, Grant Thornton said. The Internal Revenue Service has revised its primary reporting form for charities—the Form 990—adding new questions about governance and oversight.

More CPA’s Involved

New Form 990 disclosure requirements “cast a spotlight on executive compensation among not-for-profits by creating an easily accessible format for anyone to view this information and increased the board’s focus on review of executive compensation,” Grant Thornton said.

What’s more, “in the past few years, there has also been a clear increase in the percentage of audit committees that include at least one certified public accountant,” Grant Thornton noted. Seventy-four percent of groups had CPA’s on audit committees in 2009, up from 66 percent in 2008 and 24 percent in 2006.

“Given the complexities of internal controls and governance, we expect this percentage to continue to rise,” said Frank Kurre, national managing partner of Grant Thornton’s Not-for-Profit and Higher Education practices. “Organizations that do not have at least one CPA on their audit committee should strongly consider adding at least one professional who brings this credential and skill set.”

Boards of nonprofit organizations in 2009 also stepped up their efforts to govern themselves effectively, Grant Thornton said.

More than half—55 percent—of the groups in the poll said they had established formal policies for their board members to review the Form 990, up from 22 percent in 2008.

“There was an enormous uptick in governance activities among not-for-profit boards since 2008, due to increased scrutiny of not-for-profit organizations, instances of fraud, changes to the Form 990, and an intensified push for not-for-profit transparency,” said Mr. Kurre.

“The heightened attention resulted in a flurry of activity and policy changes surrounding the Form 990,” he said, “as well as several policy areas including whistle-blower, conflict-of-interest, records retention, investment, and executive-compensation policies.”

Grant Thornton conducted the survey in October and November of 2009.

Grant Thornton’s 2009 “National Board Governance Survey for Not-for-Profit Organizations” is available free online at http://www.gt.com/bgsurvey.