Holly Richardson: Financial responsibility for governmental nonprofits would be enhanced by SB26

There is a bill on Utah’s Capitol Hill that is generating some interest - and some turmoil in the nonprofit community. Senate Bill 26, “Governmental Nonprofit Corporation Act Amendments,” requires board members for governmental nonprofits to be trained in best practices for financial controls and for board governance.

Seems pretty straight-forward: Make sure that organizations spending taxpayer dollars actually have board members with some training on financial controls, including fraud prevention.

This bill came as a response to a report by the Legislative Auditor General in May 2018, looking at internal controls of “nonprofits associated with governments.” They found more than 1,000 nonprofits potentially related to government. That list includes organizations receiving state retirement benefits, nonprofits located at State of Utah locations, nonprofits already reporting to the state auditor and 677 nonprofits receiving $25,000 or more of taxpayer dollars.

In an effort to learn more about best practices and what controls were already in place, they conducted surveys with a variety of nonprofits. What they found was a disturbing lack of financial controls. Almost half on the nonprofits surveyed failed to segregate financial duties, an important safeguard in avoiding fraud. About a third did not have conflict of interest or ethics policies in place and 40 percent did not have procurement policies in place. The audit also identified three Utah nonprofits receiving taxpayer dollars that self-reported losing $850,000 between 2007 and 2011. They called it “diversion of assets.”

The legislative auditor ended up with a list of 26 recommendations for governmental nonprofits, including that “board members recognize their role is to be more than a ceremonial body,” that staff duties be segregated so that no one person has control over all parts of financial transactions and that board members of governmental nonprofits “regularly receive training” in board governance and other matters. Training not specific to nonprofits is already available on the State Auditor’s website. It will be a small matter for the auditor’s office to create a nonprofit-specific training.

The Utah Nonprofit Association is having some heartburn over this bill, sending out a call-to-action email opposing it. They list a number of questions that are leading them to oppose the bill. I sent an email asking for clarification but got no response. However, I found the questions relatively easy to answer.

Here they are:

  • If a board member serves on multiple boards will they have to attend training each time for each organization? No. 

  • Does the training have to be repeated each year? No. Once per term.

  • When does the training certificate expire? At the end of the board member’s term.

  • How will rural entities cover travel and business costs for training that may be held outside their community? The trainings are all online and are offered for free.

  • Will this be an online training? Yes

  • Who do we call if we have questions about this training? The State Auditor’s Office.

  • How will the State of Utah track who is serving on boards, who needs to go through the training, and who has lapsed in their training? This is already a requirement of boards receiving taxpayer dollars. The board is responsible for complying with state law. The Lieutenant Governor’s Office assures compliance. 

  • Are “other entities” (as defined in the bill language) held to the requirement of board members being eliminated from nonprofit boards? What governing body in the State of Utah is going to enforce board expulsion? Other entities as described in the bill are held to the same standard. The LG’s office looks at whether the governmental nonprofit is compliant and when not, will refer the the non-compliant organization to the state auditor and request that the auditor withhold funds. (This is already current law.)

  • What parameters will the State Auditor use when choosing "other entities" that will be required to go through the training? State law already specifies which entities are required to report to the State Auditor. This free training will be available on the Auditor’s website and available to any organization that wants or needs to access better board training. 

Members of nonprofit boards — including governmental nonprofit boards — have a fiduciary duty to their donors. It seems a small thing to expect a basic level of training in board governance, financial best-practices and fraud prevention.

As a member of the Utah Nonprofit Association, I disagree with its director on this bill. I think it’s a great one and I hope the House passes it right on through and sends it to the governor for his signature.