Reputational Risks In Your Organization - Part 2
Checklist For Governance and Management
Checklist For Governance and Management
* Are board members furnished with financial statements and other materials well in advance of the board meetings?
* Is an agenda prepared and followed for each board meeting?
* Are minutes kept for each board meeting? * Do board members come to the meetings prepared to discuss the issues on the agenda?
* Is there a specific decision-making process, i.e., specific length of time for discussion followed by a vote?
* If a topic needs to be deferred for a vote at a later date, are there specific steps and/or information that will be gathered so that the board can take a vote when the topic is revisited?
* Are board members required to complete a Conflict of Interest letter on an annual basis?
* Does the board have specific protocols to handle conflicts of interest as they occur?
* Are board members fully briefed (usually at an orientation) about their fiduciary obligations?
* Are board members required to sign a Code of Ethics, and are they held accountable for conducting themselves in accordance with the code?
* Are board members briefed on the organization's mission and how that mission is affected by board decisions?
* Are board members briefed on the correlation between their decision-making and their fiduciary obligations as these impact the organization's mission?
* Are board members briefed on the correlation between the quality of their performance and the organization's mission?
Some common problem areas include:
Executive management reacts negatively when receiving bad news from subordinates and business units.
This results in a culture that avoids reporting bad news. When the managers in an organization are reluctant to share bad news upward, the organization will not be able to react in time to deal with a crisis situation.
The organization either does not have or does not enforce a Conflict of Interest Policy for its board and management.
Failure to have and enforce a Conflict of Interest Policy sets the tone for possible fraudulent activities and behaviors. All members of the board and members of the executive, senior and middle management, particularly those involved in financial and procurement functions, should be required to disclose real or potential conflicts of interest in writing on an annual basis.
Management and the board have not reviewed and strengthened the organization's internal controls, particularly as these relate to financial operations.
One of the most common comments by executives in the wake of an incident of embezzlement or fraud is that they never saw it coming and had absolute trust in the employee because s/he had been with the organization for so many years. Of course they stayed - they could get away with stealing!
Fraudulent financial reporting at any level and in any form is either ignored or tacitly tolerated.
How could fraud be tacitly tolerated?
By people who have no idea what they are looking at when they review the financial statement. Board members and executives who don't really understand financial reports and cannot spot negative trends or suspicious entries are tacitly tolerating fraud.
Loans and salary advances are permitted for board members and executives.
Many nonprofits and small businesses routinely make loans or financial advances to board members and employees. This is a very dangerous practice for any organization and can result in some very negative publicity.
Reports of waste, fraud and abuse are either ignored or punished.
From Enron to the University of California in San Francisco, the tales of whistleblowers being punished continues. Dr. David Kessler, former head of the Food and Drug Administration, was fired in 2007, as the Dean of the UCSF Medical School after he cited financial irregularities. Recently the US Senate Finance Committee and Sen. Charles Grassley pressured the university to conduct a financial review of its San Francisco Campus Chronicle of Higher Education, December 8, 2009. The audit by Price Waterhouse Coopers is ongoing as this is being written.
The organization's business risks are hidden from discussion with the board of directors.
If the organization's culture is one that discourages sharing of bad news, then the likelihood that the board will be kept fully apprised of business risks is very low. Business risks apply to all organizations, not just private sector ones. Nonprofits and academic institutions take business risks when they add new programs or expand their current facilities. Hiding the degree of the risk or the aspects of the risk that would trigger red flags is suspect behavior.
Copyright (c) 2010 Peg Jackson
by: Peg Jackson
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