#3: Stewardship
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July 2008 |
From the SDG Guiding Principles Preamble: "In our fundamental charge as stewards of resources dedicated to the public benefit, we uphold the legal obligations and fidelity to the purposes for which our philanthropic instruments were founded." |
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In This Issue
Bringing Guiding Principles to Life
We will be working throughout this year to bring our newly-adopted set of Guiding Principles to life, so that they are not just words on a page but rather guidelines for action. Our objective is to provide you with a relevant and powerful framework to help you conduct your philanthropy according to the highest standards of effectiveness and accountability. One means by which we will do this is to focus on each principle in a monthly newsletter. This month, we continue with principle #3: Stewardship. Click here (pdf) for the entire set of Guiding Principles. You can also click here to see the other Regional Associations of Grantmakers that have adopted Guiding Principles.
Several SDG members have let us know that they are bringing the Guiding Principles to their boards and engaging in conversation about how they apply to their organizations. Some members are considering formally adopting the principles themselves as a sign of commitment: in fact, the San Marcos Community Foundation adopted the principles in May! Let us know if you are considering doing so, or if we can provide any additional resources to you as you discuss the principles.
SDG Guiding Principle #3: Stewardship
We manage our resources wisely, adhering to both our legal responsibilities and the highest standards of ethical behavior, while respecting donor intent. We actively avoid excessive compensation and unreasonable or unnecessary expenses in order to maximize philanthropic purposes, not private gain.
This principle captures the ultimate outcome if the principles are fully instituted: wise stewardship. Philanthropic entities are mere stewards of the funds that they hold and are responsible to the broader community for how they expend those funds.
Suggestions for Practice
There are different ways to implement each of the Guiding Principles depending on the nature of your grantmaking entity. For example, what works for a corporate giving program may be different than what works for a small family foundation. By adhering to the spirit of these principles in a way that applies to your specific circumstances, you demonstrate your commitment to maintaining the public trust in organized philanthropy. Here, we share some suggestions gathered from our colleagues for implementing Principle #3: Stewardship.
Donor Intent
- Provide all trustees with copies of the documents creating the foundation/fund and any other written correspondence that details the donor’s goals and expectations for the fund;
- Have donor(s) talk with the board about their goals and expectations and their purpose in creating the charitable fund – documenting the conversation for future reference and generations;
- State the donor’s intent in every annual report and other appropriate funder publications; and
- If changes in society makes following the donor’s specific instructions unnecessary, incapable of fulfillment, or inconsistent with the charitable needs of the community, find related alternative grantmaking goals that reasonably honor the donor’s intent, subject to court approval as may be required.
Investments
- Make prudent investment decisions and avoid jeopardizing investments to fulfill legal and fiduciary responsibilities.
- Consider the extent to which the values and principles that guide grantmaking also inform investment policies and decisions.
- Consider socially responsible investments in line with legal and fiduciary commitments. Note: Often, corporate foundations and corporate grantmakers handle investments through their corporate finance departments or corporate treasury.
- Have a written investment policy, approved by the board, to guide investing activities regarding the balance between risk and return in the context of investment goals, adequate for the organization's size and complexity.
- Review and update the investment policy regularly.
Expenditures
- Ensure that administrative expenses (including travel expenses) fall within accepted regional and national benchmarks and are proportionate to distributed grants and grantmaking activities.
- Set compensation for chief executive officer, staff, and any others (including governing body members) who may receive compensation at reasonable levels, considering factors including comparable data of similar organizations, nature of work performed, and time and skills required. Document the basis for decisions.
- Encourage board members to serve the foundation as volunteers or for reasonable compensation and direct expenses.
- Be particularly vigilant in avoiding possible acts of self-dealing, understanding that even if a transaction results in a significant benefit to the grantmaking organization, it may still constitute a self-dealing violation.
- Adopt, implement, and annually certify a conflict of interest statement that includes:
a. Disclosure of organizational affiliations with grantees, potential grantees or
other constituents or vendors with whom the funder does business;
b. Procedures for decision-making when a board member or employee has a
real or perceived conflict of interest; and
c. Policies on acceptance of honorariums from a grantee or a potential grantee.
- Approve the organization's budget each year and assess financial performance relative to the approved budget.
- Maintain sufficient resources, including cash reserves, for effective administration of the organization, and if it solicits contributions, for appropriate fundraising activities.
Financial Management
- Adopt financial management policies and procedures that are adequate for your size, nature, complexity and mission. These should cover administrative expenditures, purchasing, gift acceptance, fundraising expenditures, endowment spending, and permitted investment and asset allocations.
- Establish an effective internal controls system of checks and balances and formalized recordkeeping.
- Ensure the governing body and staff are knowledgeable and up-to-date about basic legal, accounting, audit, and tax requirements as well as applicable provisions of federal, state, local and international laws and regulations that are relevant to the organization's activities.
- Provide the Form 990 or 990-PF and any 990-T to the entire governing body each year or ensure governing body members are familiar with the content.
- Seek competent and field-experienced legal, accounting, and tax advice when needed to support compliance.
- Develop and adhere to a risk management plan and regularly consider the need for insurance coverage and other actions to mitigate risk, taking into account the nature and scope of the organization's activities and its resources.
- Develop, adopt and disclose a whistleblower policy - a formal process to deal with reports of suspected illegal or unethical activities in the organization and to prevent retaliation.
Records Retention & Management
- Develop and adhere to a responsible record retention policy that includes guidelines for handling paper files, electronic files, and voicemail and also describes back-up procedures, archiving, and regular checks of the system's reliability. Note: The law does not require a private foundation to have a record retention and destruction policy, but having such a policy is becoming increasingly critical to protect a foundation from legal liability. Although provisions of the Sarbanes-Oxley Act of 2002 apply only to public companies, the Act has made it easier for the government to prosecute cases in which individuals and organizations (including charitable institutions and their managers) have obstructed justice by destroying documents. There are also growing calls from federal and state regulators to mandate Sarbanes-Oxley-type reforms for charities.
- Record all grant decisions, and maintain appropriate records, based on requirements of the law, such as expenditure responsibility, scholarships or grants to individuals.
- Maintain accurate financial records, prepare internal financial statements no less frequently than quarterly, and provide financial reports to the governing body, addressing any differences between actual revenues and expenses and budgeted revenues and expenses.
- Assure that any interim and annual financial statements, federal tax returns, and reports to state authorities fairly represent the financial position and financial activities of the organization and comply with the organization's governing documents through review by the treasurer, president, or chief executive.
Audits
- While not required by law for private foundations, conduct an independent audit or internal financial review of financial statements as appropriate to the size, nature and complexity of your organization.
- If a public charity or community foundation: comply with state laws and regulations for conducting and reporting an annual audit.
- If you conduct a regular independent audit:
- Have an audit committee that is not compensated. Note: Although many foundations do not have separate finance and audit committees, there is growing federal/state interest in requiring audit committees for boards of charitable organizations of a certain size. For example, the California Nonprofit Integrity Act, which passed in 2004, requires charitable corporations (but not charitable trusts) with gross revenues over $2 million to have an audit committee.
- The audit committee includes at least one person who has financial expertise, and is chaired by a trustee/ director who is not an officer of the governing body.
- Ensure that the auditor has the requisite skills and experience to carry out the auditing function for your philanthropic organization and has carefully reviewed the firm's performance.
- Make audited financial statements available and accessible to the public, preferably on your website, within a reasonable amount of time after the close of the fiscal year.
- Request the partner-in-charge be rotated every five years (if retaining the same audit firm).
Thanks to Association of Baltimore Area Grantmakers, Connecticut Council on Philanthropy, Donors Forum, Minnesota Council on Foundations, and Northern California Grantmakers for these suggestions.
Related Resources
Upcoming
SDG Programs
Click here for a complete listing of SDG Programs.
Thursdays with SDG: A National View: Current Trends in Corporate Philanthropy
August 28, 2008, 8:30-10:30am (Light breakfast served)
Location: AMN Healthcare, 12400 High Bluff Drive, San Diego, 92130
Thursdays with SDG: Be All That You Can Be: Releasing Your Inner Philanthropist
September 18, 2008, 6:30-8:30pm (Dinner served)
Location: TBD
Corporate Social Responsibility: Combining Core Business with Strategic Corporate Citizenship
September 26, 2008, 8:00-10:30am
Location: Amylin Pharmaceuticals, Inc., 9360 Towne Centre Drive, San Diego, 92121
SDG Annual Conference
Thursday, October 23, 2008
9:00am-5:30pm
Location: Joe and Vi Jacobs Center, 404 Euclid Avenue, San Diego, CA
Working Group Meetings
Workforce Funders: August 13
Homelessness Working Group: August 11
Child Welfare Funders: July 22 (Strategic Planning, Half-Day Session)
San Diego Neighborhood Funders: September 5
Family Foundation Exchange: September 9
Click here for more information about all of these SDG programs. All programs are free for SDG members except where indicated.
To RSVP, please call (619) 744-2180 or email programs@sdgrantmakers.org.
Today, the role of philanthropy is expanding and so are its
responsibilities. This online SDGrantmakers newsletter is published
by San Diego Grantmakers to help SDG members meet the challenge. Our mission is to connect, educate, develop, and inspire a diverse
group of foundations and corporations to stimulate effective
philanthropy in the San Diego region. For more information,
visit www.SDGrantmakers.org. Copies
of past editions are archived here. Contact Nancy Jamison, 619/744.2180 or nancy@SDGrantmakers.org to suggest article ideas or submit news items, or if you no longer wish to receive these mailings.
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