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Frequently Asked Questions
(updated March 05, 2008 )

This FAQ page will grow as I have time. If you have a question, drop me an e-mail.

FAQ Contents

Are there any guidelines on how much an organization should have in a reserve fund?

What is the procedure for handling confidential matters?

What is a "Consent Agenda" and how will it make our meetings go faster?

What is the difference between a constitution and bylaws?

 

Q: Are there any guidelines on how much an organization should have in a reserve fund?

A: What would happen if you didn’t have enough cash to pay your employees, your rent, your taxes, or your other obligations for the next few months? Or perhaps you might need some extra cash to take advantage of an unexpected opportunity which will significantly contribute to your mission. For most organizations it is important to have a reserve fund in case fundraising efforts fall short, earned income fails to materialize, or funding programs are cut back or eliminated. The big question is “how much is reasonable to keep in reserve?” Although several organizations have suggested guidelines or standards for the reserve funds (see below), they range from as little as three months to as much as three years.

This is one of the many situations where it’s better to look at your own organizational needs than at any outside standards. Consider, for example, an organization I once worked for. The organization gets 80 percent of its budget from an annual government grant. For reasons incomprehensible to anyone, the grants don’t get processed until five months into the fiscal year. This organization would be in deep trouble if it didn’t have a reserve sufficient to cover its costs for at least six months. But even that might not be enough. What would happen if the government decided to cancel the funding program at some point during those five months? In that case, the organization would need sufficient reserves to enable it to conduct an orderly shut-down or to find a new source of funding. It would not be unreasonable therefore, for this organization to have a reserve large enough to carry it for much longer so it is able to cover any severance payments or other costs related to shutting down. [note: This is a good reason for organizations to develop more sustainable sources of revenues – but that’s another issue].

In my view, the wisest approach is to prepare a few scenarios including the worst possible case and calculate how much you would need to deal with each scenario.

Here are some questions that will help you to determine how much cash you should build in a reserve fund.

  • How much do you rely on annual grants for your operating funds? When do you find out how much you will receive and how long does it usually take to receive the funds?
  • Can your organization get a loan? If you are mostly government funded, you may not be able to get a bank loan without a written commitment from your funder as to the amount of the funding that has been approved. I have found that these can be hard or impossible to get.
  • Do your funders have rules about reserves? Many United Ways, for example, have adopted a three-month reserve policy. If you need a six-month reserve, you’ll have to have persuasive documentation to convince the United Way to exempt you from their policy.
  • How dependent are you on funds raised from special events or seasonal activities? How vulnerable are those events to shortfalls based on things beyond your control? Although you cannot predict a catastrophe like by SARS or hurricane Katrina, you need to plan for worst-case scenarios and then decide on how much risk you are willing to accept.
  • Are you anticipating any major changes in your expenses? Some organizations, for example, have faced massive increases in insurance premiums and transportation costs. How well have you planned for major equipment replacement or building repairs?
  • What is the current state of your reserve fund? Do you have one or are you just starting to create it? How much can you afford to put into your reserve fund this year?

When you have considered these questions, write your decisions into a policy on reserves so that the rationale and logic is clear and can be communicated to future boards of directors, donors, and funders.

For a good discussion on how to calculate your reserve requirements, see the FAQ (Frequently Asked Questions) page of the Alliance for Nonprofit Management. http://www.allianceonline.org/faqs.html From the topic list, choose “financial management”. Then go to question 19.
 

 

Q: What is the procedure for handling confidential matters?

A: When a board of directors must discuss matters of a confidential nature, such as personnel or property issues, it may do so in a private session called an executive session or “in camera” (from the Latin legal term meaning “in chambers”). A typical procedure for convening an executive session is as follows:

  1. A board member moves that the board go into executive session. If the motion is adopted by a majority of members, all present who are not members, or essential to the matter to be considered, may be excluded from the meeting.
     
  2. The secretary records in the minutes that the motion was carried. If there is some compelling reason to do so, the secretary may include the time and the names of the members present.
     
  3. The board conducts its confidential business. Anyone not a board member must be invited by the board to attend. In a board that is highly polarized, the question of who gets to attend the executive session may be a contentious issue. Therefore, it is a good idea to be prepared with a bylaw or policy specifying the procedure for inviting a non-member into an executive session. The policy may give the Chairperson the power to invite non-members or it might require a separate vote on who will be invited.
     
  4. Minutes of the executive session are confidential. The secretary takes minutes but keeps them separate from the public minutes. In some organizations, the original minutes of executive sessions are given to the organization’s lawyer for safe-keeping. These minutes are protected by lawyer-client privilege.
     
  5. The board reviews and approves the confidential minutes the next time it goes into executive session. If copies are distributed, the secretary collects them before the end of the executive session and destroys them immediately. (It's a good idea to bring a shredder to the meeting!) If there is only one copy, the secretary reads the minutes aloud and the chair asks for corrections and/or approval.
     
  6. When the executive session is adjourned, the “public” minutes should record that the executive session has concluded. Some organizations record the motion that ends the executive session.
     
  7. If, while in executive session, you have decided that secrecy should be lifted from a decision, the secretary records the decision in the “public” minutes. Otherwise, all directors are bound to respect the confidentiality of the session
     
Q: What is a "Consent Agenda" and how will it make our meetings go faster?

At every board meeting, at least a few items come to the agenda that do not need any discussion or debate either because they are routine procedures or are already unanimous consent. A consent agenda (Roberts Rules of Order calls it a consent calendar) allows the board to approve all these items together without discussion or individual motions. Depending upon the organization, this can free up anywhere from a few minutes to a half hour for more substantial discussion..

What belongs on the consent agenda?
Typical consent agenda items are routine, procedural decisions, and decisions that are likely to be noncontroversial. Examples include:

  • Approval of the minutes;
  • Final approval of proposals or reports that the board has been dealing with for some time and all members are familiar with the implications;
  • Routine matters such as appointments to committees;
  • Staff appointments requiring board confirmation;
  • Reports provided for information only;
  • Correspondence requiring no action.

How are consent items handled?
A consent agenda can only work if the reports, and other matters for the meeting agenda are known in advance and distributed with agenda package in sufficient time to be read by all members prior to the meeting. A typical procedure is as follows:

  1. When preparing the meeting agenda, the president or chairperson determines whether an item belongs on the consent agenda.
  2. The president prepares a numbered list of the consent items as part of, or as an attachment to the meeting agenda.
  3. The list and supporting documents are included in the board’s agenda package in sufficient time to be read by all members prior to the meeting.
  4. At the beginning of the meeting, the chair asks members what items they wish to be removed from the consent agenda and discussed individually.
  5. If any member requests that an item be removed from the consent agenda, it must be removed. Members may request that an item be removed for any reason. They may wish, for example, to discuss the item, to query the item, or to register a vote against the item.
  6. Once it has been removed, the chair can decide whether to take up the matter immediately or place it on the regular meeting agenda.
  7. When there are no more items to be removed, the chair or secretary reads out the numbers of the remaining consent items. Then the chair states: “If there is no objection, these items will be adopted.” After pausing for any objections, the chair states “As there are no objections, these items are adopted.” It is not necessary to ask for a show of hands.
  8. When preparing the minutes, the Secretary includes the full text of the resolutions, reports or recommendations that were adopted as part of the consent agenda.

How to start using a consent agenda
In order to start using a consent agenda, the board should first adopt a rule of order allowing for the consent agenda process. Parliamentarian Colette Collier Trohan CPP-T, PRP www.cctrohan.com  suggests the following rule:

“A consent agenda may be presented by the president at the beginning of a meeting. Items may be removed from the consent agenda on the request of any one member. Items not removed may be adopted by general consent without debate. Removed items may be taken up either immediately after the consent agenda or placed later on the agenda at the discretion of the assembly.

It is important to make sure that all directors know what items belong on the agenda and how to move items to and from the consent agenda. For this reason, instruction on using the consent agenda should be part of the board orientation program.

 
What is the difference between a constitution and bylaws?

A source of confusion for many board members is the difference between the organization’s constitution and bylaws. There is good reason to be confused because depending upon your organization’s location and history, your organization may or may not have a constitution.

It was once common practice, and remains so in some jurisdictions, to divide the basic rules of an organization into two documents. The constitution was meant to be a short document defining the primary characteristics of the organization -- its name and purpose. The second document, called the bylaws, defined how the organization would be managed. Typically, the bylaws would cover the structure and operating rules of the organization, including the responsibilities and authority of the board of directors, officers, and committees.

Both the constitution and bylaws were seen as so important that special rules were required to change them. The board of directors would have to advise the members well in advance of any proposed changes, and would not be allowed to change them without permission of the members, and in some cases, the government. The rules in the bylaws were seen as less permanent than those in the constitution and were therefore easier to change. Amending the constitution, for example, might require approval by two-thirds of members while amending the bylaws might be done by a simple majority.

Today, it is common to combine the constitution and bylaws into one document named simply “Bylaws”, although some jurisdictions (notably British Columbia) still require two documents. Your provincial or state corporations act will specify whether a separate constitution is required and what topics must be covered in the bylaws. The statute will also set certain rules that cannot be contravened by your bylaws.

Bylaws are divided into “articles” covering duties and responsibilities of the board and its officers, procedures for decision-making, and general “housekeeping matters”. The following topics will be among those included in the bylaws of most nonprofit organizations:

  • name of the organization;
  • purpose (also called the “objects”);
  • qualifications for membership and for directors;
  • number and structure of the board of directors;
  • powers and duties of board members, officers, and certain committees;
  • location of the head office; • procedures for selection, resignation and removal of directors;
  • voting procedures;
  • procedures for dealing with conflicts of interest;
  • minimum number of board meetings;
  • timing of the Annual General Meeting;
  • procedure for amending the bylaws.

Board members can be held personally liable if someone is harmed due to the board’s failure to comply with the organization’s bylaws so it is important for every director to be familiar with the bylaws and obey them. It is also important to keep your bylaws from becoming outdated.

If you are a newly forming corporation, don’t rely on your lawyer or anyone else to draft bylaws without your participation. If you simply copy someone else’s bylaws, you may find yourself saddled with structures and procedures that hamper your efforts to fulfill your mission.

 
 

Nathan Garber & Associates
Training and Consulting for the Nonprofit Sector
1071 Richmond Street, London, Ontario, Canada  N6A 3K1
tel: (519) 670-4256  skype: nathan.garber

Nathan@GarberConsulting.com