Good Governance, Great Mission: Your role as Director

By Elizabeth Shalders

If you are a director of a Not-for-profit board, you are responsible for ensuring that your organisation achieves its mission and is legally-compliant. This is your responsibility even if you are a member of a Committee of Management or other governing body of a Not-for-profit.

Sometimes it’s hard to know what you don’t know. So we’ve compiled a list of some common errors and key issues for you to check.

1.    Mission: The board is responsible for setting the purpose (mission) of the organisation, and developing the strategy to achieve it (in conjunction with senior management).

2.    Employees: The recent 7-Eleven scandal is an example of how damaging employee-entitlement errors can be. Make sure your organisation has covered off all its obligations.

3.    Volunteers:

• Make sure your organisation has covered off on all relevant occupational health and safety requirements – these can apply to volunteers as well as employees.
• Consider requiring volunteers sign up to a code-of-conduct, so expectations are clear. This will help manage risk and limit damage to reputation if a volunteer acts inappropriately.
• Make sure systems are in place for volunteers to be trained in relevant organisational policies.
• Beware blurred lines where employees also volunteer time – if a relationship goes sour this can result in a claim for underpayment of wages for time your organisation thought was “volunteered.”

4.    Protection of vulnerable people: make sure you have good screening checks, misconduct reporting and response procedures, codes of conduct, discipline procedures, grievance procedures and systems for regular training of personnel in place to protect vulnerable people in your care. This includes, but is not limited to, children.

5.    Tax: if your organisation is not paying income tax, or is receiving concessional status as a Not-for-profit, you should check annually that you are meeting the requirements associated with this. You should not just rely on the auditor to check it.

6.    Fundraising: sourcing funds to implement strategy is key. As a board, you need to be dealing with this issue, making sure there is a pipeline of funds for the short and long-term plans of the organisation.

7.    Solvency: you are responsible for ensuring that the organisation can pay its debts, as and when they fall due. You cannot just leave it to the finance person. You should:

• Get regular reports on the financial position of the organisation.
• Ensure that you understand the reports, and get training to help you do this.
• Ask questions about the content of the reports.
• Look for red flags. For example:

i.    Difficulties getting financial information.
ii.   Successive losses.
iii.  Increasing levels of debts owed to your organisation (with doubts about obtaining payment).
iv.   Inability to get loan approvals.
v.    Threatened legal proceedings by creditors.
vi.   Loss of major funding source.
vii.  Stricter supply terms.
viii. Dishonoured or post-dated cheques.

8.    Delegations: be clear about who has authority to do what (especially when it comes to spending money). Delegations should be minuted.

9.    Contracts: be aware of situations when your organisation is likely to become legally bound – sometimes you may not realise what you are signing-up for. For a school-specific example, see Chris Morey’s article on the enforceability of enrolment forms as a contract.

10.   Constitution: read your constitution or rules, understand it, and comply with it.

11.   Intellectual property: protecting your brand is an important part of protecting your reputation, which is key to achieving your mission and being accepted in the community in which you want to operate.

12.   Risk management:

• Make sure the board reviews and endorses policies and procedures related to risk management.
• Have management regularly report to the board on its efforts to limit and manage risks.
• Put in place a risk management framework that integrates risk management into all levels of the organisation’s decision-making. This includes making decisions at board-level about the organisation’s risk appetite.

13.   Insurance: make sure your organisation has appropriate insurance coverage.

14.   Succession planning: make sure the board has put in place a succession plan, to ensure the right balance of experience and fresh thinking.

15.   Directors’ duties: these underpin everything else. Make sure you are familiar with them. Your precise obligations will vary according to your organisation’s structure, and depend on whether your organisation is registered with the Australian Charities and Not-for-profits Commission (“ACNC”), but in broad terms you should:

• Act with reasonable care and diligence.
• Act in the best interest of your organisation, and for a proper purpose.
• Not improperly use your position, or information you learn as a result of your position.
• Disclose and manage conflicts of interest – including refraining from being present or voting in some cases.
• Not allowing your organisation to operate while insolvent.

If you have any questions on the law in the Not-for-profit sector, please contact Elizabeth Shalders (Senior Associate, Head of Not-for-Profit Law) on (03) 9629 9629.