Greenpeace: A cautionary tale of financial mismanagement
The blogosphere and nonprofit trade publications are all abuzz with the story of Greenpeace's loss of $5.2 million thanks to a reckless investment decision made by the senior financial officer who has since been fired. This costly error prompted a subsequent discovery of financial disarray and allegations of hypocrisy concerning a Greenpeace executive who commutes 250 miles via airplane. Together, these recent incidents have raised a collective concern from the community.
What's not happening at the board level?
Joan Garry, a consultant to nonprofits and adjunct professor at the University of Pennsylvania, inquires, "How could this be anything but a sign that the Greenpeace International Board of Directors was asleep at the switch?" As a financial consultant and someone who advocates for the board's central involvement in financial checks and balances, I absolutely agree. We can only imagine what might have transpired (or clearly didn't) when the financial reports were presented repeatedly at every board meeting.
Boards have to "create a structure for overseeing investment strategies and reviewing audits carefully to unearth any concerns about lax financial controls. That responsibility does not rest solely with the board treasurer. I've been at board meetings and watched the trustees fall asleep or check their email during reports on finances. If you're on a board and you're serious about preventing another meltdown, put down your iPhone and pay attention," directs Garry.
The best offense is a defense
Unfortunately, board members and their CEOs place an incredible amount of emphasis on fundraising. They focus too much on the offense rather than balancing fundraising with a defensive approach to preserve financial integrity. Boards and CEOs ask, "How do we get more board members to ask for money?" "How do we get board members to give more?" "How do we engage board members in the fundraising process if they don't like asking?" The list of questions goes on.
Conversely, we never hear questions like, "How do we make sure the board members are asking the right financial questions?" "How do we make sure everyone is following the report?" "How do we engage board members with the financials on a regular basis?" "Is our expense to fly a top executive to work consistent with our values?"
Unfortunately, the reasons why these questions remain unasked point toward the staff's desire to keep board members out of the operational minutiae. What many staff members don't realize is that even though having a financially inquisitive board may seem like unnecessary extra work during times of stability, a little healthy inquiry can go a long way in defending your cause against a massive oversight as in the case of Greenpeace. What's more, financial oversight is central to a board member's job description. S/he is a trustee of the nonprofit.
Responsibility, transparency and communication
Garry also emphasizes practices such as 1) taking responsibility together (the board, financial committee and CEO), 2) being transparent with donors and staff members (talking openly about how you'll compensate for losses), 3) communicating early and often through board and staff members (demonstrating consistent and ongoing efforts to correct your situation), and 4) communicating through the entire board and staff rather than one or two staff members (letting everyone know early and often that you're committed to corrective measures).
Learn by example, divide and conquer
The best we can do when we read disappointing stories of nonprofits that make financial mistakes like these are to learn from them. Observe how the nonprofit makes adjustments and corrects its path. At Execute Now!, we would add that you need to look internally at your systems and determine if you've separated financial responsibilities to increase accountability. Evaluate your incoming and outgoing money trail. For example, who handles the incoming mail and checks, who enters them into your system, who deposits the checks in the bank, who reports the information, and who checks and double checks the accuracy of the report? The same line of questions can be applied to outgoing funds with regard to securing vendor bids, making budget decisions, paying for staffing expenses and investing in infrastructure. Is this one person handling the financial stream without any checks and balances? If so, protect your nonprofit by splitting up the tasks and ensuring the board and/or financial committee is involved. Although we have a team approach to dividing financial responsibilities for our clients, the ultimate oversight remains at the board level.
