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:
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.
