EDUCATION DEPARTMENT / THE UNIVERSITY
OF THE STATE OF
The Honorable the Members of the Board of Regents
Theresa E. Savo
Draft pamphlet “Statement on the Governance Role of a Trustee or Board Member”
December 20, 2006
Issue for Decision
Should the Board of Regents approve the revised pamphlet “Statement on the Governance Role of a Trustee or Board Member”?
Requested by members of the Board of Regents to reflect emerging issues in Board governance.
This item will brought to the Subcommittee on Audits at its January 2007 meeting for review and approval for forwarding for final action at the Full Board meeting.
This pamphlet was initially released by the Board of Regents and the Commissioner in November 2001.
A team of SED staff represented by all program areas have revised the pamphlet “The Statement of the Governance Role of a Trustee or Board Member”. The major changes to this document include the following:
· An enhanced section on Duty of Loyalty/Conflicts of Interest which references sample policy statements from the New York State School Boards Association (NYSSBA) and the Internal Revenue Service (IRS) websites;
· Additional information for Board members or Trustees who lack knowledge or experience in fiscal governance;
· Appendix B “Best Practices for Boards to Follow” has been updated;
· Appendix F has been added which outlines how to report Fraud, Waste, and Abuse.
Staff recommend that the Board of Regents approve the revised pamphlet on the “Statement on the Governance Role of a Trustee or Board Member” as submitted.
Timetable for Implementation
Board of Regents
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As a trustee or board member, you have assumed an oversight role with your institution’s service to the community, which includes protecting the public interest. This is a very important role because, as a trustee or board member, you and your colleagues are responsible for the overall direction, operation, assets, and fiscal well-being of your institution. The assets of the institution are held in trust for the people of the State with trustees/board members acting as fiduciaries. As an employee/volunteer, you must be willing to donate the time and attention to ensure that senior managers are fulfilling the institution’s charter and/or legislative mandate. Presented below are fundamental questions that trustees/board members need to ask and revisit continuously to ensure they are fulfilling their role in a responsible manner.
As a trustee/board member, you should understand the purpose and mission of your institution, which is defined by its charter, certificate of incorporation laws or by legislation. USNY institutions encompass a wide array of education purposes. In the case of organizations incorporated or chartered by the Board of Regents, you should obtain a copy of the Regents-issued charter or certificate of incorporation and by-laws. Institutions chartered or incorporated by the Board of Regents are treated as not-for-profit entities. You should familiarize yourself with the institution’s corporate status, powers, privileges, and duties, which are defined by its charter or certificate of incorporation. Independent colleges and universities derive their corporate powers from the Board of Regents as do certain non-degree granting institutions. Libraries, museums, historical societies, public television and/or radio stations also derive their corporate powers from the Board of Regents. All of these institutions are governed by a board of trustees which is legally responsible for assuring that the institution fulfills the distinctive purposes for which it was established.
On the other hand, the
State University of New York, its four university centers and various colleges
of arts and sciences, technical colleges, medical centers, and community
colleges derive their authorities from Education Law, as does the City
University of New York; all of which are part of the University of the State of
Proprietary (for profit) colleges are incorporated under the provisions of the Business Corporation Law with the Department of State and are authorized by the Board of Regents to award degrees. Any amendment to the corporate purpose of these colleges requires the consent of the Commissioner of Education.
USNY encompasses school districts and Boards of Cooperative Educational Services (BOCES), which also obtain their authority from the Education Law and other relevant statutes. As a board member, you need to know whether the school district is considered a common, union free, central, central high, or small or large city school district. There are also “special act” school districts which have been established by the New York State Legislature on the grounds of charitable institutions caring for children and youth. BOCES are voluntary associations of school districts that agree to provide education and business services in a cooperative manner for purposes of economy and efficiency. The New York State School Boards Association publishes a handbook for school board members that provide more detailed information on the role of a school board member.
What is the financial status of the institution?
One of the most important issues you need to monitor is the financial status of your institution and whether its assets are being used for the accomplishment of the institution’s mission. Scandals involving financial mismanagement of USNY institutions have been identified in the past and represent a serious violation of the public trust. As a Trustee or Board member, you should be aware of the institution’s financial status. Among the things you should request and examine are copies of periodic fiscal reports including budget and actual revenue and expenses, year end financial statements, and tax returns where applicable. Talk to executive staff and other board members about the financial condition of the institution. Request to speak to the external auditors if you have specific questions regarding the financial statements.
For what am I responsible?
You should meet with other trustees/board members to discuss their expectations of you. Read the by-laws; inquire about committees; organizational structure; financial responsibility; and conflict of interest policies. Keep in mind that being a trustee/board member requires a commitment of personal time and effort generally with no fiscal remuneration.
Although varied in purpose and mission, USNY institutions are, for the most part, government entities and not-for-profit corporations subject to the Education Law, and other laws governing not-for-profit corporations wherein trustees/board members must fulfill certain duties to the institution and the community they serve. Such duties involve care, loyalty, and obedience.
Duty of Care
A trustee or board member must act in good faith and exercise the degree of diligence, care, and skill that an ordinary prudent individual would use under similar circumstances in a like position. To conform with this standard, trustees and board members should:
· Regularly attend and participate in board meetings and committee meetings where applicable;
· Read, review, and inquire about materials that involve the institution, especially board minutes, annual reports, other reports, plans, policies, and any literature that involves the institution;
· Have a fiduciary responsibility for the assets, finances, and investments of the institution and exercise due diligence, care, and caution as if handling one’s own personal finances; and
· Use one’s own judgment in analyzing matters that have an impact on the institution.
Duty of Loyalty/Conflicts of Interest
Trustee/board members owe allegiance to the institution and must act in good faith with the best interest of the institution in mind. The conduct of a trustee/board member must, at all times, further the institution's goals and not the member's personal or business interests. Consequently, trustees/board members should not have any personal or business interest that may conflict with their responsibilities to the institution. A trustee/board member should avoid even the appearance of impropriety when conducting the institution's business. Acts of self-dealing constitute a breach of fiduciary responsibility that could result in personal liability and removal from the board.
The board of trustees/board of education should have a written conflict of interest policy that clearly sets forth the procedures to be followed in instances where a board member's personal or business interests may be advanced by an action of the board, including a provision that the trustee/board member may not participate in any decision to approve any transaction where such conflicting interests may be advanced. The policy should also include a requirement that each trustee/board member provide full, ongoing disclosure to the institution of any interest the trustee/board member and/or his or her family has in any entity that the board transacts business with. The policy should be reviewed and discussed with the institution's attorneys and auditors prior to its adoption.
In addition, there are specific provisions concerning conflicts of interest in Article 18 of the General Municipal Law (applicable to school districts, boards of cooperative educational services [BOCES], county vocational education and extension boards and public libraries), and section 715 of the Not-for-Profit Corporation Law (applicable to education corporations chartered by the Board of Regents). General Municipal Law §806 requires the governing body of each school district to adopt a code of ethics, including standards for officers and employees with respect to disclosure of interest in legislation before the governing body, holding of investments in conflict with official duties, private employment in conflict with official duties, future employment and such other standards relating to the conduct of officers and employees as may be deemed advisable.
A sample conflict of interest policy is available on the Internal Revenue Service website (http://www.irs.gov/) under Appendix A of the Instructions to IRS Form 1023.
School board members may contact the New York State School Boards Association (NYSSBA) at (518) 783-0200 or go to their website (http://www.nyssba.org/) to access sample policies 2160, School Board Officer and Employee Ethics and 9120.1, Conflict of Interest for more guidance.
Duty of Obedience
A trustee/board member has a responsibility to insure that the institution’s resources are dedicated to the fulfillment of its mission. The member also has a duty to ensure that the institution complies with all applicable laws and does not engage in any unauthorized activities.
The NYS Attorney General publishes Right from the Start-Responsibilities of Directors and Officers of Not-for-Profit Corporations, which may be obtained from the following web site:http://www.oag.state.ny.us/charities/not_for_profit_booklet.pdf The booklet contains more detailed information on the duties of a trustee/board member of a not-for-profit corporation.
What is the difference between provisional and absolute charters?
Corporations formed for the principal purpose of operating a college, university, school conducting some or the entire grades nursery through twelve, library, museum, historical society, or public television and/or radio station are created by the Board of Regents by issuance of an instrument called a charter, which sets forth the powers of the corporation. The document by which all other education corporations are created is known as a certificate of incorporation.
The initial incorporation of the educational institution is executed by the issuance of a provisional charter that is valid for a fixed term of one-to-five years. If the Board of Regents is not satisfied that the corporation can qualify for an absolute charter, it may extend the provisional charter for an additional term of years.
The process for the issuance of a certificate of incorporation is the same as that pertaining to a provisional charter. The legal effect of a certificate of incorporation is the same as that of an absolute charter.
If you are a trustee of a chartered institution, you need to be aware of the
· Whether your institution has a provisional or absolute charter from the Board of Regents;
· The specific standards that apply to your institution (see Appendix C);
· The specific powers of the corporation contained in the charter; and
· Whether the board has the number of members stipulated in its charter.
How do I distinguish between my governance role and that of a supporter or team player for my institution?
There is a fine line between governance and being a supporter of an institution. Members need to avoid meddling in managing daily affairs. Trustees/board members must balance their role as supporters for the institution’s success against their governance role as overseers of the institution’s management to ensure that assets are used properly, laws and regulations are followed, and the public interest is best served. The board needs to support the institution’s management but must also govern by holding the chief executive officer (CEO) accountable for the institution’s operations and service to the public.
In the governance role, trustees/board members should be concerned with protecting the public interest which they serve. Members exercise this role by hiring a CEO to manage the operation of the institution and evaluating his/her overall performance in providing services to the public.
In a supportive role, board members assist by fund-raising, liaison and networking with other community leaders, and providing expertise in specialty areas such as law, planning, accounting, and overall corporate management.
One of the most important responsibilities of a trustee or board member is to ensure that financial resources are being used efficiently and effectively toward meeting the institution’s goals, in compliance with applicable law and regulation, and that its assets are properly safeguarded. The area of fiscal governance is one in which board members may feel the least qualified and rely entirely on the CEO for guidance.
Trustees/board members should be cautious about relying completely on the guidance and judgment of the institution’s CEO and management. Members have ultimate responsibility for governance of the institution’s resources and their primary role of protecting the public interest. In monitoring the institution’s budget, board members should ask questions about the assumptions made in preparing the budget. What types of data are used to prepare the budget? How were estimates developed for such expenditures as payroll, supplies and materials, travel and conferences, capital outlays, etc.? Are accounting and/or management processes adequate to ensure accurate and reliable data? What will be accomplished by passing this budget? How will outcomes be measured, evaluated and reported? How will the board hold the CEO accountable for budget outcomes? How are variances from expectations handled?
Trustees/board members should also ask questions about the institutional year end financial statements. Inquire as to what they mean; what is the fiscal condition of the entity? If the auditors’ issued a management letter, request to review the letter.
Similar questions may be raised about other areas, such as the institution’s system of financial controls, processes employed to comply with applicable laws and regulations, accountability with performance results, etc. Board members should be aware of an institution’s internal control system. The existence of adequate systems of internal controls is also critical for the protection and oversight of the institutions assets. Internal controls are systems to protect the assets of an organization, create reliable financial reporting, promote compliance with laws and regulations, and achieve effective and efficient operations.
The NYS Attorney General publishes Internal Controls and Financial Accountability for Not-for-Profit Boards which may be obtained from the following web site address: The document contains more detailed information on evaluating internal control systems.
What if the institution needs more expertise with fiscal matters?
When matters of fiscal governance become very technical and require greater expertise in assessing the fiscal condition of the institution or its long-term well-being, a board should seek the advice of experts. One mechanism for giving emphasis to the responsibility of fiscal governance is to create an audit committee composed of board members who have expertise in dealing with fiscal affairs.
An audit committee is organized pursuant to a charge or mission approved by the board. It should be established in the institution’s charter, certificate of incorporation or by-laws.
· Helping set the fiscal environment or “tone at the top,” which promotes a theme of fiscal responsibility and ethical conduct among all institution staff and board members;
· Reviewing the certified financial audit report of the institution and providing input on the results to the full board;
· Assessing the effectiveness of the institution’s system of internal controls and reporting on any weaknesses;
· Assessing any risk associated with the validity and reliability of financial data; and
· Monitoring compliance with laws and regulations applicable to the institution’s operations.
These are just some of the many activities that an audit committee can pursue to assist a board in its role of fiscal governance. (Appendix D) provides links to web sites that contain more information on audit committees and other issues relevant to the duties and responsibilities of trustees and board members.
Where can I get additional help?
There are many sources available to trustees and board members needing further information and guidance on their role. Members are encouraged to seek additional guidance, evaluate the need for additional training, and contact the NYS Education Department (SED) for guidance. The offices and contact information for SED are illustrated in (Appendix E).
The procedures for the creation of education corporations by the Regents, and other related matters, are outlined in the pamphlet entitled “Education Corporations–Law Pamphlet 9.” This pamphlet is available from the NYS Education Department Office of Counsel, and is available on the SED web site: (www.counsel.nysed.gov).
Members are strongly encouraged to seek the advice of an attorney in matters involving the interpretation of laws and regulations pertaining to the institution’s operations. The information contained in this document is not a substitute for the guidance provided by legal counsel.
The appendices contain additional information that may be helpful in fulfilling your role as a trustee or board member. Their content is listed below.
Top Ten Warning Signs for Boards A………………9
Best Practices for Boards to Follow B………………10-12
Select Regulations of the Commissioner of Education Applicable C………………13
to Chartered Institutions
Links to Web Sites D………………14-15
Contact Offices in SED by Type of Institution E……................16-17
Report Waste, Fraud, and Abuse F………………18
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The State Education Department
Top Ten Warning Signs for Boards
1. Lack of available documentation on the organization’s by-laws, charter, mission statement, organization chart, and prior year financial statements.
2. Lack of independent attitude or excessive conflict among trustees/board members.
3. Infrequent board meetings. Absence of board minutes.
4. Poor board attendance at meetings.
5. Lack of access to key, fiscal, budget, program, and operations information.
6. Lack of access to the chief financial officer.
7. Existence of conflict of interest relationships or less than arm’s length transactions between the institution’s board members and organizations that conduct business with the institution.
8. Lack of internal financial controls and written policies and procedures to safeguard, promote, and protect the organization’s funds and other assets. Lack
of fidelity bonds.
9. Lack of involvement in the hiring of key employees.
10. Failure to file documents with key control agencies such as the NYS Education
Department, Internal Revenue Service, and NYS Department of Taxation and
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Best Practices for Boards to Follow
1. Be informed of the institution’s activities by:
· Discussing operations with board members and officers.
· Reviewing materials provided by the institution.
· Actively participating in meetings of the board and the committees.
· Asking questions and obtaining an understanding of the issues facing the institution.
· Attending fiscal training for board members and Trustees.
2. Establish an audit and finance committee with responsibility to periodically
meet with management and the auditors to consider:
· The adequacy of internal controls and financial reporting processes, and the
reliability of fiscal reports.
· The independence and performance of the internal and external auditors.
· Steps taken by management to address audit report findings.
· Compliance with legal and regulatory requirements.
· Steps taken by management to minimize significant risks to the institution.
· School districts and BOCES are required to have an audit committee.
· Museums, historical societies and cultural agencies are required to have an audit committee.
3. Ensure the institution is carrying out its purpose without extravagance or
waste and is not engaging in any questionable or illegal activities by:
· Requiring management to provide periodic reports on how well the institution
is fulfilling its mission and the activities accomplished for the period.
· Approving strategic plans, budgets, policies, plans of operation, development
plans and goals, contracts, implementing standards of operation, key financial and program reports, and other items.
· Holding the chief executive officer accountable for results.
· Being involved in the selection and compensation of the chief executive officer.
· Using good judgment in analyzing matters that may impact the institution.
· School districts are required to have an internal committee to review internal controls.
· Reviewing all claims.
4. Monitor the financial condition and management practices of the institution by:
· Reviewing periodic fiscal reports, financial statements, audit reports, management letter; including managerial letters, and tax returns.
· Ensuring reserve funds are used for their intended purposes.
· Verifying fund raising expenses are reasonable in relation to the amount of fund raising revenue generated.
· Ensuring net assets are positive, but not excessive.
· Verifying that deficits are being addressed with remedial action.
· Ensuring records are complete and accurate, and required reports are filed
with federal and state agencies.
· Issuing a Request for Proposal (RFP) for an external auditor at least once every five years.
5. To help ensure effectiveness, trustees/board members need to ensure boards address the
Following; consistent with statute:
· Consist of a minimum of five voting members who are independent.
· Meet at least twice a year, and more often as needed or required by statute.
· Keep complete and accurate minutes of all meetings.
· Convene an annual meeting and elections as required by law.
· Not compensate their members for services in their role as trustee or board member (see note below).
· Develop a training program for both new and experienced board members.
· Seek expert advice when needed.
· Avoid any conflict of interests or even the appearance of a conflict and maintain a conflict of interest policy for board members and employees.
· Require each member to file an annual written disclosure of any business
involvement with the institution or related parties.
· Assess the need for liability insurance to protect board members and officers
from legal liability.
· Ensure processes for selecting new members result in diversity of viewpoints and seek out individuals with commitment, skills, life experience, background, and other characteristics that will serve the institution and its needs.
· Be aware of the requirement to petition the Regents to amend the charter or certificate of incorporation to change the name, address or purposes of the corporation.
· Be aware of the laws and regulations relating to dissolution of the corporation, and not distribute, disperse or spend down any assets without going through the proper dissolution procedure.
Note: Reimbursement for expenses in the ordinary course of business does not constitute compensation. Trustees/board members who also serve as officers may receive compensation in their role as an officer (e.g., treasurer, secretary). In addition, some school districts are allowed under the law to compensate their Board Members.
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Select Rules of the Board of Regents and Regulations of the Commissioner of Education
Applicable to Chartered Institutions
……………………………………………………………………………………………………… Elementary and Secondary Schools Part 100 and Sections 170.2, 170.3, and
170.12 of the Commissioner’s Regulations
Nursery Schools and Kindergartens Part 125 of the Commissioner's Regulations
Libraries and Library Systems Part 90 of the Commissioner's Regulations ………………………………………………………………………………………………………..
Historical Societies Without Collections Section 3.30 of the Rules of the Board
and Cultural Agencies of Regents and Section 52.22 of the
Museums and Historical Societies Section 3.27 of the
with Collections Rules of the Board of Regents and Section
52.22 of the Commissioner's Regulations
Public Television and/or Radio Stations Part 26 of the Rules of the Board of Regents and Part 179 of the Commissioner's Regulations
Colleges and Universities Parts 50 through 54 of the Commissioner's Regulations
Note: This list is not exhaustive. Moreover, it does not include relevant provisions of the Education law or other laws affecting these institutions.
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Links to Web Sites
Internal Revenue Service http://www.irs.ustreas.gov/
NYS Attorney General http://www.oag.state.ny.us/
NYS Education Department http://www.nysed.gov/
Office of General Services http://www.ogs.state.ny.us/
Department of State http://www.dos.state.ny.us/
Civil Service http://www.cs.state.ny.us/
Taxation & Finance http://www.tax.state.ny.us/
NYS Office of the State Comptroller http://www.osc.state.ny.us/
American Association of School Administrators http://www.aasa.org/
Education Commission of the States http://www.ecs.org/
Educational Research Service http://www.ers.org/
National Association of State Boards of Education http://www.nasbe.org/
National School Boards Association http://www.nsba.org/
New England School Development Council http://www.nesdec.org/
New York State School Boards Association www.nyssba.org
Center for Non-Profit Corporations http://www.njnonprofits.org/
Guidestar (IRS Form 990 database) http://www.guidestar.org/
Law about Nonprofit Organizations www.law.cornell.edu/topics/nonprofits
Nonprofit Evaluation Tools http://www.innonet.org/
Urban Institute – Center on Nonprofits http://www.urban.org/
American Association for State and Local History http://www.aaslh.org/
American Association of Museums (AAM) http://www.aam-us.org/
Museum Association of New York (MANY) http://www.manyonline.org/
New York State Council on the Arts, http://www.nysca.org/
Museum Program (NYSCA)
The International Council of http://www.icom.org/
American Library Association’s Association for www.ala.org/alta
Library Trustees and Advocates
New York Library Association http://www.nyla.org/
New York State Association of Library Boards http://www.nysalb.org/
New York State Library www.nysl.nysed.gov/libdev
DISCLAIMER: These sites are provided for the user’s convenience. The State Education Department (SED) does not control or guarantee the accuracy, relevance, timeliness or completeness of web sites not maintained by SED. Further, the inclusion of such sites on this list is not intended to reflect their importance, nor is it intended to endorse views expressed, or products or services offered, on these outside sites, or the organizations sponsoring the sites.
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The State Education Department
Contact Offices in SED by Type of Institution
To obtain further guidance about the governance role of a trustee or board member, you may contact the following addresses, telephone numbers, and web sites for your respective institution.
Institution Contact Office
Public schools, School Operations and Management Services
Boards of Cooperative Office of Elementary, Middle, Secondary, and
Educational Services Continuing Education
Room 874 EBA
Nonpublic schools Office for Nonpublic School Services
Room 481 EBA
Room 462 EBA
and other Cultural agencies Room 3097 CEC
Libraries and library systems Division of Library Development
NYS Education Department
Room 10C50 CEC
Public, independent, and propriety Office of Higher Education
colleges and universities, licensed NYS Education Department
private and registered
2 M West Wing
Independent living centers Office of Vocational and Educational Services
for Individuals with Disabilities
Psychotherapy Institutes Executive Secretary to the State Board for Psychology
Office of the Professions
518-474-3817 ext. 150
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Report Fraud, Waste, and Abuse
The New York State Education Department is interested in information pertaining to fraud, waste, abuse, or mismanagement of local, state, or federal education funds (including information on vendors who receive education funds). Both the Board of Regents and the Commissioner of Education take these concerns very seriously.
Individuals who make an allegation are not required to identify themselves; they may remain anonymous. In such cases, the State Education Department will assess the information provided, given the constraints of an anonymous contact. Therefore, persons making a complaint may wish to provide contact information in the event additional questions arise.
Fill out electronic complaint form the following address:
· Email: www.OAS@mail.nysed.gov
· Phone: 518-473-4516
· Fax: 518-473-0259
New York State Education Department
The Office of Audit Services (OAS)