Q: I serve on the board of a nonprofit serving at-risk youth, run by a charismatic former gang-banger who made good. The organization is well respected in the community, and is supported by both private funding and public contracts. A staff person came to me alleging serious legal violations, including nonpayment of staff and sales tax, both going back many years. The sales tax is generated through an auto repair shop the nonprofit runs to provide the youth valuable work experience. I speak for the whole board when I say we had no idea. We realize this is a critical issue and that we need more information.
The staff person is willing to speak with the board, on the condition that the meeting is kept confidential. Some board directors say that they are uncomfortable setting such a meeting without letting the ED know of the allegations and the meeting in advance. That prospect terrifies the staff person, even with the promise that this person’s name will not be disclosed. Given that the staff is small, and this individual is the only one with sufficient knowledge and backbone to bring this issue forward, the person says the ED would know immediately who complained. While whistleblowers are protected by law, and we have a whistleblower policy, everyone agrees that the ED is arrogant and vindictive, and there’s no telling what he would actually do. He has even intimidated board directors in the past, causing several to leave.
In the past, when we’ve asked the ED for financials, we haven’t gotten them. What are the board’s options?
A: Let’s start with what isn’t optional – failing to act immediately. As board directors you have a fiduciary responsibility to ensure the financial health of the organization. This includes seeing to it that payroll and sales tax is paid in a timely manner. Sanctions for failing meet this obligation, spelled out in Section 6672 of the IRS Code, are tough. “Responsible persons” – read board directors – are personally liable for all required withholdings that haven’t been paid. While there are some protections in the Code where staff handle the day-to-day responsibilities for these payments, those protections disappear once the board becomes aware of the situation. The fact that you called for a meeting is evidence that you are aware. You must act quickly.
I understand that your ED is intimidating. Steel yourself with the fact that the board’s job is to ask the difficult questions and ensure that the community’s faith in and support of the organization have not been misplaced. Remember that even though he is the founder, he works for and at the pleasure of the board. And, if all this is not sufficient motivation, remember that it’s your personal reputations and money on the line.
So, what are your options. If you want to hold off on the meeting with the staff person, you could try one more time to ask the ED for detailed financial information, reminding him that you have requested this in the past and you are merely following up. But, given your description of the situation, I doubt you will get it. That, by the way, is a huge red flag in and of itself. Such a red flag gives you more reason to take this to the next level.
The plan you forge for moving forward might begin with determining who in your state to contact regarding whistleblower protection. Follow up with a call to the appropriate department for guidance. Call, too, both your insurance company and lawyer for advice. Be sure to mention to each that the ED is a vindictive former gang member and people are afraid of him. Your objective when making each call is to better understand how to protect the staff person, the board directors and the organization. What protections are afforded by corporate law? Are you sufficiently covered under your insurance? What do your bylaws say about indemnification? If your insurance policy excludes situations like this, and you promise to indemnify, do you have enough money in the organization’s coffers to cover court costs if the whistleblower gets harassed and/or fired and sues, or if one or more of the board directors gets threatened? If you don’t have a financial cushion, how will you handle such an eventuality?
Since you have public contracts, I assume you have regularly been audited. The first step might be looking back at the opinion letters that have been submitted with the audits. If they don’t reveal anything amiss, you can share your suspicions with the auditor and ask if there were any possible indicators or inconsistencies that didn’t make it to the opinion letter. You can also call for a new audit, requesting that special attention be paid to payment of payroll and sales tax. You do not need the ED’s permission to pursue this. It is in your purview.
Determine how to spin this for your funders and the public, then get out in front of it. The situation will get out, one way or the other. You want to control the dialog.
Actually, the point about potential exposure is one thing you can hold over the ED. Perhaps a few of the directors can meet with him, tell him you are hearing rumors from a number of sources, and that you are concerned for the public face of this very important organization that he birthed and has so brilliantly led. Stress that you want to make sure that nothing touches its sterling reputation. Ask for his help in figuring out how to deal with it.
In the long run, if you don’t get satisfaction, you may have to terminate the ED and prepare for the fallout.