For our earlier SPAC post, click here.
You may recall that last November, the New York State Office of Parks, Recreation & Historic Preservation ("OPRHP") released a highly critical preliminary audit that it and an independent accounting firm had undertaken with respect to the Saratoga Performing Arts Center (“SPAC”). SPAC is an arts organization responsible for conducting performances and concerts at a major concert facility in Saratoga, New York. The audit was triggered when...
| Our Guide, Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer, is designed to help your organization avoid the sort of problem that SPAC ran into. You should buy a copy of our program for your directors today--group discounts are available. Call us at 773-325-2124 for additional information, or visit our website at http://www.charitygovernance.com. We also do on site training. |
SPAC decided that it would not renew its arrangement with the New York City Ballet, one of the major participants in SPAC’s summer series. The Parks Department undertook the audit because it had leased the facility to SPAC back in the '60s on a rent-free basis with the expectation that arts groups like the New York City Ballet would be participants in the summer series.
The audit produced a lengthy list of governance failures, including:
A. Corporate minutes were incomplete, lacked detail, and did not record vote tallies.
B. Executive compensation was too high as measured against a comprehensive benchmark study of 55 similar organizations.
C. Reimbursement policies were sloppy, leading to apparent reimbursement of personal expenses.
D. The president's wife, functioning as the development officer, was the second highest-paid employee despite documented evidence of inadequate fundraising plans efforts and results.
E. There was no long-term business plan despite the president's promise to create one after his responsibilities were significantly reduced, leaving him additional time for developing a plan.
F. Controls over cash running through the box office were weak.
G. The decision to terminate the New York City Ballet was based on incomplete financial data, which, if complete, would have shown that Ballet actually carried its weight.
H. Fundraising events and balls actually lost money.
I. Board members provided significant services to SPAC on a fee basis, but there was no evidence of a competitive bidding process.
J. The board did not receive advance notice that the decision involving the New York City Ballet was on the agenda. Not even half the directors were in attendance at the meeting where the decision was made to drop the Ballet.
K. SPAC's decision to drop the Ballet was a fundamental change in mission, and yet the board and officers never sought the input of a number of SPAC's constituencies, including its landlord (New York State).
L. SPAC fell short on building its endowment, relying too heavily on ticket sales. OPRHP found no evidence of a planned-giving program.
M. SPAC had no investment or spending policy with respect to its endowment, limited as it was.
N. SPAC did not have job descriptions for its employees.
O. The report mentioned tax law violations, but didn’t elaborate.
SPAC has since issued a formal response to the November 22, 2004 dated December 20, 2004 and the NYS Office of Parks, Recreation, and Historic Preservation issued a Final Audit Report dated March 16, 2005. In its formal response to the Preliminary Audit, the Board of Directors states:
The Board sees no advantage in engaging in a protracted audit process or debate to question or confirm a set of findings with which the Board essentially agrees.
The Board did take issue with the Preliminary Audit’s conclusions regarding the reason behind the termination of the New York City Ballet, as well as with the conclusion that the President’s compensation was excessive. The Final Audit took issue with both the Board’s assessment on these points.
In the end, good governance prevailed. Specifically
A. SPAC has instituted policies to encourage whistleblowers.
B. SPAC has instituted a formal record retention program.
C. SPAC's board created an independent audit committee.
D. SPAC' board either has or is in the process of reviewing its conflicts of interest policy.
E. A new president has been retained. Her contract was reviewed by a compensation committee, as well as by outside consultants.
F. SPAC's board is focused on fundraising, and that focus guided its retention of a new president
F. SPAC's board is focused on broadening ties with members of the community and its patrons.
Apparently SPAC decided to enlarge its board in order to increase its fundraising capacity. This is the one reform we strongly disagree with. SPAC should have used a fundraising advisory board instead. Many will disagree with us, but the primary purpose of a board is to govern, not fundraising. State statutes refer to the duty of care and loyalty. They do not refer to the duty to fundraise.
LESSON FOR OTHER ORGANIZATIONS
Instead of waiting for a disaster, why not adopt these sort of reforms today--assuming your organization hasn't done so?
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