There is little question that boards have overall responsibility for ensuring a nonprofit's integrity. Take, for example, the case of a nonprofit where the former executive director and a board member conspired to steal $4 million of the organization's funds. While the board did operate within its fiduciary duties and had no personal liabilities, an attorney in the case reported: This does not prevent a state's attorney from laying blame on the board, however. Although there may be no personal financial loss, the board its individual directors and the organization can suffer significant reputational loss when integrity issues arise. http://bit.ly/REmSoC
Deloitte Inc. suggests a number of different integrity actions that directors need to take. * The board plays a role in working with the CEO to set the ethical tenor for the organization. It also promotes and monitors compliance with the laws, regulations and organizational policies.
The following actions, in my view, should apply to small and medium sized nonprofit boards:
• Review reports to ethics hotlines whistle-blower reports and trend analyses. Any nonprofit with more than 10 employees should consider having an ethics hotline. They are currently available at modest costs - probably less than $1,000 per year. Any whistle-blower reports need to be investigated by the CEO. If the CEO might be involved, the board needs to take investigative actions and/or seek outside counsel to assist the board.
• Conduct quality surveys and evaluate employee responses. Seeking information on employee attitudes toward the organization's integrity values will take professional assistance. However, nonprofit boards need to occasionally discuss the trade-off value of conducting such surveys. These surveys can give indications of how the integrity message from the board is being relayed to others in the organization.
• Monitor and evaluates public scrutiny from the media, stakeholders, clients and external watchdog agencies. Nonprofit directors need to be thoroughly familiar with their accrediting agencies and their changes in standards as they impact integrity. In addition. the CEO needs to have someone regularly scan the Internet for items related to the organization and the field in which it operates.
• Select and overview the activities of the auditors. The audits committee's activities can't be perfunctory. They must be robust. Committee members need to have transparent relationships with the external auditors. If the organization has an internal auditor, he/she needs to have direct access to the chair of the audit committee, although the person reports to the CFO for day-to-day activities.
• Understand and approve waivers to the code of conduct (which should generally be rare and should be supported by a compelling business case). The key failure of the Enron board was the code of conduct waiver it provided for a member of management to privately participate in off-balance partnerships in which Enron was involved, a clear management conflict of interest.
• It is (also) recommended that (organization) representatives at all levels affirm in writing that they understand the ethical guidelines, are fully compliant and are committed to reporting known violations. ... The board should confirm that management establishes integrity policies and that appropriate messaging is in place throughout the organization.
Overall an effective board is concerned about integrity inside and outside the boardroom ... Integrity in the boardroom is based on factors such as organizational values, the need to uphold the board's fiduciary responsibilities and a willingness to be accountable.
* Italicized items that are directly quoted from the two linked references.