Gouvernance - Partie 2
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Gouvernance - Partie 2

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Introduction to Community Development

Getting Organized

Governance – Part 2

Governance – Part 2

Boards Of Directors And Other Governance Structures

Board of Directors must be established if a group wished to incorporate as a not-for-profit organization. Unincorporated groups may also establish a Board of Directors is they feel a need for a formal organizational structure, in which certain members take on a governance role. Depending on the nature of the group and the activities they plan to take on, there are other governance structures that may be more appropriate than a Board of Directors. It may be that a committee, appointed or elected by the members, would be an effective governance body.
If the group is just getting started, it may be useful to establish a Steering Committee, made up of members with the necessary skills and experience to guide the group through its initial development stage. If the primary activity of the group is one major project, perhaps a Management Committee would be appropriate. If there are a number of working committees or activities being undertaken by members, another type of governing committee to consider is a Coordinating Committee. Perhaps the committee will have a combination of functions, such as a Planning And Coordinating Committee. Regardless of the type of governance structure the group decides to put in place, it is important that Terms of Reference are established so that it is clear what duties, responsibilities and scope of authority the members expect of the committee.
A sample Terms of Reference for a Coordinating Committee is provided in Reference pdf.

Governance – Part 2

Key Governance Roles

The organization's constitution or bylaws generally state how many board members there will be, the procedures by which they are elected and terminated, and the executive offices.
Usually there are four executive positions on a Board of Directors:
1. Trusteeship ensuring that all financial matters are handled properly and that all legal requirements are met.
2. Policy defining what the group will do, establishing broad directions and limitations as to how it will achieve its objectives, how the group will conduct its business and how it will relate to other important bodies (e.g., staff, sponsors).
3. Planning strategic planning for the long term direction and sustainability of the group.
4. Evaluation ensuring that the group is operating effectively, its activities are running smoothly and the desired outcomes are achieved.

It is up to the group to collectively decide how it is going to be governed, and to set its own expectations of its governing body. The following information is geared to Boards of Directors, as they have legal requirements and common practices. Much of the information can also be applied to other governance structures as well, should the group choose to do so.

Directors are placed in a position of trust by the members, and are obligated to act in the best interests of the organization. They are expected to carry out their work with these in mind:

Governance – Part 2

Duties of a Director

Honesty

Disclose the whole truth, avoid fraudulent or misleading transactions, no misappropriation of funds or property, no improper loans.

Good Faith

Always have the best interest of the organization in mind and do not exceed the limits of your authority.

Loyalty

Must put the interest of the organization above personal interests.

Conflict of Interest

There are several ways that conflicts of interest can arise; e.g., if a Director uses his/her role as Director to negotiate a contract that benefits the Director financially, but is not a fair deal for the organization.
Another is if the Director serves on two different boards which have a financial relationship or are in competition. It is also possible for conflicts of interest not to involve financial gain, but political or social advantages. Conflicts of interest must be disclosed, and the Director must not participate in any discussion of matters that relate to that conflict.

Duty of Care

Directors take care to perform their duties conscientiously, in keeping with their level of skill, knowledge and authority. The standard test of care is what a "reasonably prudent person" would do under the same circumstances.

Duty of Diligence

Directors must become acquainted with all aspects of the organization including the business that is transacted, policies and the delegation of responsibilities. They must attend board meetings regularly and read the materials provided.
If an illegal act is planned at a Board meeting, an absent Director may be found liable because (s)he failed to attend and dissuade the other Board members; those that are in attendance may be found liable unless they immediately voiced their dissent.

Duty of Skill

Directors must use whatever level of skills they possess to safeguard the interests of the organization.

Duty of Prudence

Directors must be practical and cautious, exercising sound judgement

Duty of Continuance

A director cannot avoid liability by resigning; he or she is responsible for acts committed or neglected while in office. (London Community Resource Centre, 1996)

(London Community Resource Centre, 1996)

Governance – Part 2

Board Structure

The organization's constitution or bylaws generally state how many board members there will be, the procedures by which they are elected and terminated, and the executive offices.
Usually there are four executive positions on a Board of Directors:

The President

• provides leadership
• facilitates the work of the Board
• oversees general operations
• authorized signing officer for cheques and contracts
• calls and usually chairs meetings (some groups rotate the task of chairing meetings)
• ensures adequate information is provided to Board members
• encourages and facilitates the participation of all Board members
• ensures accepted rules of order are followed.
• ex-officio member of all committees (ex-officio means "by virtue of office or official position")
The Vice-President

• carries out the duties of the President in his or her absence or disability
• may be assigned other duties by the Board
• authorized signing officer•
The Treasurer

• responsible for the management of the organization's finances
• reports on the financial status of the organization to the Board
• ensures other financial reports are submitted as required
• authorized signing officer
The Secretary

• responsible for the preparation and maintenance of the official documents of the organization, including the Board minutes
• custodian of the corporate seal (if the organization has one)
Past President

• ex-officer member of the Board
• provides assistance to the incoming Chair as needed
Committees of the Board

All committees should have written terms of reference that state their purpose, objectives, scope of authority, responsibilities, activities, reporting relationships and membership composition. They report directly to the Board, but may involve staff or other volunteers in addition to Board members. Committees that are common to many Board of Directors are:
• Executive Committee consists of the Executive Officers of the Board, as listed above
• Nominations Committee prepares the slate of nominations for Board positions, to be presented for election at the Annual General Meeting
• Standing Committees long term committees that carry out specific functions; common ones are personnel, fundraising and communications
• Ad Hoc Committees short-term committees that are formed to carry out specific tasks, then disband; e.g. to develop a new brochure or to relocate the office.

Governance – Part 2

Policy

It is the job of the Board to develop policy for the organization. This is a true leadership function, and one that the Board should embrace. These policies should be broad in scope and therefore reduce the need to deal with many single items and issues. Policies should be separate from procedures. In organizations with paid staff, the Board is responsible for governing (policies), not managing (procedures). In organizations that do not have staff, it is still important to distinguish between Board (governance) activities and operational and management tasks carried out by volunteers. They may in fact be the very same individuals, but their role is very different. The Board should never allow itself to become a "rubber stamp" for documents initiated and prepared by staff or by one or two Board members; this is an abdication of their duty.

Governance – Part 2

In his book "Boards that Make A Difference" Carver describes four types of policies:

Ends

Policies that focus on the ends to be achieved are important for ensuring that the organization produces results that are effective and economically justifiable.

Means

These policies focus on "how" the results are to be achieved; they set limits on the types of activities to be undertaken based on the values espoused by the Board.

Board-Staff

In organizations with paid staff, policies are required to establish the relationship between the Board and staff and to ensure the staff act in ways that are prudent, ethical and effective.

Governance Process

* rollover the highlighted factors to see more detail

The Board needs to set policies regarding how it conducts its business, how decisions are made and how to organize itself to be effective in its governance and leadership roles.

Carver identifies seven characteristics of effective policies:
• explicit
• literal
• brief
• current
• readily available
• comprehensive
• move from large to smaller policy issues.
Governance – Part 2

Liability

Board members are responsible for the well-being of the organization. If the organization
has financial losses, or is implicated in criminal activities or unethical conduct, the Board of Directors is accountable. Claiming ignorance is not an acceptable excuse. Board members are legally obligated to use prudent judgement in their dealings with organizational matters, just as they would with their own personal matters.
If you are elected or appointed to a Board of Directors, you as an individual are potentially liable for any errors, wrong-doing or negligence of the Board. If you are on the Board as a representative of another organization, you may have some protection from liability from the organization you represent, if they are insured for this type of occurrence, but you should check whether this is the case or not.

Governance – Part 2

There are many areas that could potentially put Board members in a position of liability for error or wrong-doing:

purchases

If you are purchasing an item for the organization, ensure that you have clear authority to do so, and that the amount you are authorized to spend has been stated. If you make a decision on your own to purchase something for the organization, the organization is not obligated to reimburse you.

contracts

It is very important that if you sign a contract on behalf of the organization that it is clear that it is the organization that holds the contract, not you as an individual

criminal acts

Board members can be found guilty as individuals for criminal acts, for example, using organizational funds for personal use. If an organization is found guilty of a criminal act, such as fraud, any Board members that allowed or were aware of the act, would probably also be held liable as individuals.Must put the interest of the organization above personal interests.

scope of authority

Boards of Directors can fall into danger if they exceed their scope of authority, either as an organization, which might happen if they take on activities that are not identified in their Letters Patent, Constitution or By-Law, or as individuals, if they act in the name of the organization but without being granted that authority by the Board.

legislation

Organizations must meet all applicable acts, statutes and associated regulations. If the organization is incorporated under the Ontario Corporations Act Part III: Corporations without Share Capital (i.e., not-for-profit), Board members should review the Act from time to time, as it lays out the basic requirements for bookkeeping, meeting procedures and documents to be filed with the provincial government.

income tax

As a not-for-profit, the organization will be exempt from income tax, but information must be filed with the federal government annually regarding the source and expenditures of funds.

personnel

Board members are ultimately responsible for the financial and management practices relating to any staff employed by the organization. For example, if an organization declares bankruptcy, the Board of Directors is liable for wages and vacation pay for staff, for a specified period of time. All applicable payroll deductions must also be paid. Other areas of liability may occur as a result of employee dismissal or human rights violations.

trustee or agent

If a Board or Board member holds funds or property on behalf of another individual or organization, or are authorized to act on behalf of another, they must exercise the highest standard of care in their role as trustee or agent.

Governance – Part 2

Given the potential for personal liability, potential Board members should carefully consider the scope of activity of the organization, its management and ethical practices, and the extent of protection provided to Board members. There are several measures that can be incorporated into the organization to limit the liability of the Board.

Indemnification

Usually there is a clause in the organization's by-law that states that Board members will be indemnified (i.e. be compensated for) any personal losses that result from carrying out the duties and responsibilities of a Board member in a proper and reasonable manner.

Insurance

The way that the Board ensures it has the ability to indemnify Board members from personal loss is to take out a Directors and Officers Errors and Omissions Policy. The organization should also have a general liability insurance policy, which covers loss or damage to the property of the organization and personal injury claims, but the D&O policy provides coverage for claims that result from financial and management practices.


Disclosure

Board members have a responsibility to both declare conflicts of interest and raise questions about others' activities if there is a reason to suspect that they may have a conflict.

Membership Ratification

There are some items that are required to be approved by the members of the organizational, e.g., annual financial statements, the appointment of the auditor, the election of the Board of Directors, and changes to the by-laws. The Board may ask for particular acts or decisions to be ratified by the members, as a means of showing that they were acting in good faith and made the same decisions as a majority of the members would have in the same circumstance. Some organizations ask for a resolution from the members at the Annual General Meeting to approve the decisions that the Board of Directors made on their behalf over the course of the preceding year.

Governance – Part 2

Here are some tips for you as a Board member to help avoid liability:

a. Attend all Board meetings: if you must miss one, ensure that you read the minutes before the next Board meeting.
b. Read all the minutes of meetings and ensure they are accurate and that any errors in one set of minutes are recorded in the minutes of the following meeting.
c. Insist that the minutes contain any disclosures that were made and the result of any recorded votes are stated.
d. Read all the background materials that relate to items on which you will be voting.
e. Review the constitution and bylaw and raise any questions of conflict with proposed acts.
f. Ensure appropriate management and internal controls are in place.
g. Monitor expenditures and, for charities, the issuance of charitable receipts (make sure they are not inflated and are issued in accordance with federal regulations).
h. Ensure that committees of the board report to the board and do not exceed their authority.
i. Ensure that the auditor meets the qualifications stated in the Corporations Act and the organization's by-law. Review both the audited statements and the auditors' letter to the board which may contain statements of concerns and important recommendations.
j. Keep your own notes at meetings. It may be important at a later date to be able to show that a course of action was considered and rejected, or it may indicate your understanding of the situation at the time.
k. Keep all minutes and important documents in a binder or folder for easy access when needed.
l. Insist on obtaining a legal opinion when you feel there is a question of the legality of a proposed act; and on other professional opinions if you feel it is necessary.
m. Insist on a recorded vote if you think the matter could result in a future claim of error or wrongdoing.
n. Vote against any proposed expenditure or commitment that the organization may not be able to meet.
o. Resign from the board if you feel that it is not acting in a responsible manner and in keeping with the wishes of its members.

Governance – Part 2

Financial Management - Budget

Before you obtain any sizeable amount of funding, it is important to create a budget that itemizes all your anticipated revenues and expenditures. The budget should reflect the goals and priorities of the organization. As you estimate the costs of the activities involved in your project remember to think ahead to your future activities and what they will cost.
Spend the time to research actual costs and, if you are operating an office, projected increases in rent and utilities. As you think through all the items, identify which are the most essential. If you had to cut back, what could you change or omit that would have the least detrimental effect on the organization's activities? If you receive funds from a number of different sources for different projects, it is wise to show them separately in your budget and reports, along with consolidated versions that combine them together. Budgets are not written in stone; as your circumstances change; e.g. you receive a new grant to operate a new project, you should update your budget accordingly (e.g., when you receive a new grant to operate a new project).
A sample budget is shown in resources pdf
The Board of Directors or, if there is no board, the members, approves the budget and any subsequent revisions. Financial reports should contain both the budgeted amount for each item and the actual amount spent. Directors should carefully compare these two figures and request explanations for any significant variations

Governance – Part 2


Governance – Part 2
Who's involved in financial management?

a) Treasurer: Your group should designate a treasurer to monitor and record all financial transactions. Accurate records are essential, so if you don't have someone in your organization that is skilled in bookkeeping, you may need to hire someone who is. The Treasurer must still oversee the finances and check the work of the bookkeeper.
b) Signing officers: Your group should have at least two signing officers to sign cheques. Some groups select up to four officers in case one or two of the other officers cannot be reached or are not available.
c) Board members and/or group members: Almost everyone in the group is involved in financial management at some level. The group makes collective decisions regarding project planning and financial matters. Also, everyone must be responsible for the money they spend. Keep all receipts and financial transactions so that the Treasurer can keep precise records.
d) Auditor: Have your books audited annually to make sure your records are accurate. The auditor is someone who is not involved in the group's financial matters on a regular basis and is usually, although not necessarily, a chartered accountant.

Governance – Part 2

Financial Record-Keeping

The most important task involved in financial management is keeping accurate records of every financial transaction. Records must be kept in order for the group to fulfil their role as stewards of the group's assets, which is especially important if other people's money is involved; e.g., from grants or donors. Attention to the financial status of the organization will help the group to ensure that their goals are being met effectively. Accurate and comprehensive reports are also needed to provide credibility with funders and the general public.

Governance – Part 2

Below is a list of steps that the treasurer and group members should follow to make sure that every financial move is chronicled

a. Separate the financial duties among two or more people to reduce the opportunities for fraud; e.g., the person who receives money should not be the same person that deposits it into the bank; the person that does the bank deposit should not be the same as the one that receives the bank statement; the person requesting a payment be made should not be the same as the person who signs the cheque.
b. Open a chequing account (ask if the financial institution waives the bank fees for non-profits), for which a monthly statement is issued.
c. Make all payments by cheque, except perhaps small ones that can be handled through a petty cash system.
d. Signatures of two authorized signing officers should be required on each cheque.
e. Deposit money as soon as you get it.
f. Inform the treasurer of any financial transactions in which any group member is involved.
g. Any unbudgeted expenses must be approved by the board.
h. The treasurer should keep proper books of account, either manually or using a computerized accounting program.
i. Provide documentation for every financial transaction (i.e. invoices, receipts, cheque stubs, etc.).
j. The Treasurer reports on the financial status of the group at all its regular meetings; the report is included in the minutes of the meeting.
k. Track and report all expenses, revenues and the net profit of each special event.
l. Record the GST paid on supplies and services as non-profit organizations are eligible for a refund of a portion of the GST paid.
m. In addition to large financial transactions, your group will inevitably have to make small purchases. On these occasions you may prefer using petty cash rather than writing a cheque. For transactions involving petty cash, use the following steps:
n. Determine the cost above which you will use cheques to pay for items and below which you will only use cash (e.g., many groups choose to use petty cash for items at or below $20).
o. Write a cheque, payable to the Treasurer or whomever (s)he appoints, for the amount of money you want to keep in the petty cash box..
p. Keep the cash in a locked petty cash box to which the Treasurer (and/or whoever (s)he appoints) has the key.
q. Keep a separate journal for petty cash transactions.
r. Keep all receipts.
s. When petty cash is low, add up receipts; a cheque in this amount will be written, cashed and placed in the petty cash box. The receipts must be kept and the petty cash journal entries recorded in the organization's books of account.
t. The money in the petty cash plus the total of the receipts should equal the original amount of the fund.

Governance – Part 2

Financial Reports

There are two main types of financial reports that the group should review on a monthly basis:
a) Income and Expenses Report (also known as a Profit and Loss Statement)
• Report the revenues from each source and the expenditures for each budget item for a specified time period, usually one month, plus a comparison with the budgeted amount for the year up to the end of that month, and the budget for the whole year.
• Revenues include deposits, donation of goods and services and bartered revenues.
• Revenues and expenditures can be shown either on a cash basis; i.e. the actual amount received or spent during that time period, or on an accrual basis; i.e. revenues are distributed evenly across the months in which they are to be spent; lump sum annual expenditures such as insurance are spread evenly across the months covered by the insurance policy.
If there are several projects with separate budgets, separate income and expense reports should be prepared for each project, plus a consolidated report for the whole organization.
A sample consolidated Income and Expenses Report is shown in the resources pdf

Governance – Part 2

Financial Reports

There are two main types of financial reports that the group should review on a monthly basis:
b) Balance Sheet
• Assets cash in bank, petty cash, prepaid items, accounts receivable (money that is owed to the organization), pre-paid expenses, and capital assets such as vehicles, furnishings, equipment and goods for sale.
• Liabilities money that is owed by the organization to others.
• Equity equals assets minus liabilities; divided into various funds. A reserve fund may be established that is only to be used for emergency or winding down the organization. A designated fund may be set aside for a particular purpose, e.g., to purchase to computer. Retained earnings are the surplus from the previous year, and net income is the surplus so far this year.

A sample balance sheet is shown in the resources pdf

Governance – Part 2

Cash Flow Statement

This is a management tool that provides a month by-month projection of the cash requirements of the organization. As the year progresses, replace the monthly projections with the actual revenues and expenditures for the months, and revise projections as necessary to ensure they are as realistic as possible. By keeping track of all the inflows and outflows and projecting as accurately as possible, you will be able to identify impending problems and solve them before they become critical.


Governance – Part 2

Fraud and Theft Prevention

Unfortunately, some volunteers steal from their organizations. The following suggestions for avoiding fraud and theft have been taken from a tip sheet put out by the Major Fraud Unit of the Durham Regional Police, called "Is Your Treasurer Stealing? Crime Prevention Tips for Not-for-Profit Organizations".
In investigating missing funds and account irregularities, Fraud Squad detectives have sometimes found that their investigations have been hampered by the absence of clear accounting records. When there is no clear process for recording transactions and regular procedures for balancing the books, there is a temptation to not account for all transactions or to divert funds.
The basic accounting system can be computer based, or hand-written on readily available accounting forms. The system should be as simple as possible, so that the books can be understood by all board members and can be passed from one treasurer to the other as duties change.


Governance – Part 2

Watch for these signs that could indicate a problem with theft or fraud:
• only one person is in charge of the money in your organization
• your organization is in worse financial shape than last year, although your income and expenses haven't changed a lot
• your organization can't pay its bills, or is faced with case shortages that have never happened before
• your treasurer can't explain your poor financial position
• your treasurer refuses to let anyone else look at, or work on the books
• other members are asked to sign blank cheques, or blank lottery license reports
• your treasurer says that (s)he can't explain the group's poor financial condition, or says "don't worry, we're in great shape!"
• cash deposits are being received late at the bank, or the deposits are smaller or larger than they should be.


Governance – Part 2

Tips for Controlling Your Finances:

Watch for these signs that could indicate a problem with theft or fraud:
• Have job descriptions and spending limits for your decision-makers.
• A budget should be struck at the start of the year or project.
• Pay for everything by cheque and avoid using cash. It you absolutely need a petty cash fund, keep it small and set a dollar limit for cash payments (e.g. nothing over $10.00). Get receipts for everything and account for all expenditures properly in your books of account.
• Two authorized signing officers should sign each cheque.
• Never sign blank cheques or other documents.
• Limit the number of persons allowed to accept payments.
• Take cheques instead of cash whenever possible.
• Use multi-part receipts.
• Separate the duties: the person receiving cash should not deposit it, and the person reconciling the bank account shouldn't sign the cheques.
• Whenever possible, write a cheque to the supplier, rather than reimburse a member who has incurred an expense.
• Each time money changes hands, record the amount and have the recipient sign for the money.
It is your responsibility to seek advice if you are unsure of the adequacy of your bookkeeping systems. It is better to be safe than sorry!

Introduction to Community Development

End of Unit:
Getting Organized - Governance – Part 2
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