Board Members as Consultants

ConsultantServicesLast week’s posting, Ethics and the Board of Directors, generated a number of comments, and I want to take the opportunity here to address some of the thoughts and ideas that readers expressed to me. I offered a case example of the treasurer of the agency who was conducting the annual certified audit and was receiving a payment for his services generated the most comments. Let me expand on the ethical implications of using board members as volunteers consultants whether they are pro bono or receive a payment for their services.

The functions of the board of directors include providing financial and legal oversight and being accountable for the overall administration of the organization. The purpose of a finance committee, which reports to the board, is to review the financial status and operations of the agency on a timely basis. It is for this reason that many finance committees will meet regularly, reviewing the receipts and disbursements as well as each month’s financial activity in relationship to the budgetary year. The members of the committee will not only review the annual audit but will also plan for the budget for the coming year. In many cases the committee will engage in longer range planning that focuses on the organization’s financial sustainability.

Whether or not the board member who is an accountant is reimbursed or is volunteering, it is a conflict of interest for him or her to conduct the agency’s annual certified financial audit. It is a conflict to be responsible for the financial oversight and simultaneously analyze the fiscal operations of the organization. Doing so would mean that the accountant would have to certify that his or her own functions were in compliance with the accepted code of financial operations.

The purpose of an audit is to attest to whether the organization’s fiscal practices are or are not in accordance with the uniform code of standard accounting practices. The main reason for having an independent audit is evident in the word independent. It reflects the principle that a person cannot implement the financial affairs of an organization and simultaneously attest to the level to which the organization adheres to the highest professional standards.

This issue not only applies to the financial operations of the organizations but is also relevant to the role of legal consultants. The organization’s professional and volunteer leadership is committed to providing the highest level of service to its members and clients. However, when legal issues arise it is impossible for a lawyer who is a board member, and clearly identified with the organization, to maintain a perspective that allows for an independent, unbiased understanding of the legal issues.

A general misconception is that lawyers and accountants who are board members will be more involved and careful when dealing with their fiscal and legal issues than will outside consultants. However, in the area of oversight the opposite is true.

Board members exercise their role most effectively when they use their knowledge of the agency and their professional skills to identify financial or legal issues and practices that warrant further analysis. The major contribution they can make is to clear what the issues are and then pointing out the need for additional professional expertise. It is at this point that they should ethically recuse themselves from dealing with the concerns beyond their role in the governance and oversight of the organization as a member of the board of directors.

An independent audit or a legal opinion rendered by the relevant independent consultant is valuable because the auditors or consultants have no involvement with or commitment to the nonprofit that would influence their opinion, cloud their judgment, or create a conflict of interest. It is precisely this independence from the organization that allows them to adhere to the highest professional standards and not feel they are compromising their responsibilities in rendering the highest level of professional service.

When board members provide professional services that exceed their involvement in offering oversight, then they are compromising both the ethical standards guiding their practice and their commitment to the organization where they serve in a volunteer capacity. For this reason many boards have adopted a conflict of interest statement that members are asked to sign before they begin service on the board. This document reminds them of the importance of avoiding these situations from the perspective both of their professional practice and of the nonprofit they are serving as a volunteer.

Stephen G. Donshik, D.S.W., is a lecturer at Hebrew University’s International Nonprofit Management and Leadership Program and has a consulting firm focused on strengthening nonprofit organizations and their leadership for tomorrow. Stephen is a regular contributor to eJewish Philanthropy.