A Nonprofit Background Check Can Save Your Organization

A Nonprofit Background Check Can Save Your Organization

When putting together a team to supervise your money, it helps to know who you’re dealing with…

Nonprofit organizations can do great work in promoting community growth, providing assistance to those in need, and raising money to fund research in the name of bringing solutions to some of the globe’s most comprehensive issues. These organizations must be above reproach, and as such, their board members must be individuals of the highest integrity. That’s why it’s imperative nonprofit organizations establish policy that dictates board members are subjected to a comprehensive background check.

It’s true that there is no requirement for a nonprofit organization to establish a board of directors, but an overwhelming majority of nonprofits do so. This is often a necessity, as many banks will not establish an account for a nonprofit without supervisory leadership. Donors also consider this leadership essential to ensuring their donations are spent wisely and in the best interest of the cause. In addition, organizations that issue grants are more interested in nonprofits in which their monetary awards are also well-managed, due mostly in part to the fact they must answer for how their monies are allocated.  Small business journal, Chron, put it best, “The board’s duties are fiduciary. This means the board is trusted to act in the best interests of its organization, regardless of personal interest.”

A board of directors for a nonprofit is designed to promote progression within an organization by virtue of diverse management and comprehensive collaboration. Because an organization’s supervisory leadership can depend on their ability to serve their cause, that board must have impenetrable integrity. Therefore, even nonprofits cannot afford to skimp on background checks for leadership.

When establishing a board of directors, there are often misconceptions on what a comprehensive background check encompasses. The term “background check” is an umbrella term that can refer to one or all of a list of screening processes that both organizations and corporations use to verify the employability of an individual. This can include a report that offers details on a person’s criminal and employment history, and a review of their financial history.

A nonprofit background check is the first step in protecting your organization, but not every executive sees it that way. It’s not uncommon for nonprofits to cherry pick through the wide range of areas that a comprehensive background check includes, either to save time and/or money, or because only one or two areas of such a report are a priority for board leadership. Areas of high priority include criminal history, sex offender registry, or a basic credit report. Even if a nonprofit checked all of these boxes when conducting a background check, that would still not rise to the standard of comprehensive when verifying a potential board member’s history.

A comprehensive background check includes:

  • Verification of a candidate’s social security number
  • Work history
  • Credit check
  • Driving records
  • Criminal records
  • Information on registered vehicles
  • Relevant court documents
  • Reference quality
  • Asset ownership
  • Military service records
  • Criminal registry information, such as sex offender registry

This list can sound staggering to the member of staff charged with appropriating an organization’s policy to screen a board candidate’s background. Screening a candidate’s background requires thorough research and a cross-reference of information against multiple open sources, such as public records, human sources, and social media. Even if the cost of obtaining supporting documents were not high, the labor hours to internal employees with day-to-day responsibilities can directly contribute to operational losses within a nonprofit organization.

These comprehensive screenings are crucial to the integrity of a nonprofit. After establishing a board of directors, any previously unknown and unflattering information regarding their history that may come to light cannot only be embarrassing for an organization but can negatively impact the support and assistance those nonprofits receive from donors and grant-awarding bodies. If information regarding a red flag in a board member’s history was publicly available (and not sealed by a court of law, or expunged from their record), and negligence occurs on behalf of the board’s supervisory capacity, there can be legal consequences as well. This is why corporations often run comprehensive background checks on their board of directors, or any other supervisory leadership. If for-profit corporations cannot afford to skimp on their background checks, there is no-doubt that nonprofits have even more at stake, including the opportunity to serve their cause.

Operational losses are why it can be prudent to retain an independent investigator to conduct background checks for a nonprofit organization. Firms like those of private investigators or risk assessment specialists can provide another layer of integrity when considering a candidate for board leadership. An external investigator’s independence and autonomy mean they have no stake in the results of a board candidate’s screening, and therefore only have loyalty to the truth. This is where nonprofits can consider candidates with the reassurance they have performed their due diligence, and have done so with the assistance of an objective third-party. All background screenings must be compliant with the Fair Credit Reporting Act legislation in disclosing the screening to the candidate.

From poor credit to criminal history, no detail is too small when it comes to establishing a board of directors for a nonprofit. Nonprofits may have marketing campaigns, but board diversity and integrity are how they attract monies from grant entities and major donors. That is why a comprehensive background check is an investment for nonprofits that will provide the security of due diligence with the integrity of independent screening.

A DIVERSE BOARD COULD HAVE PROTECTED THERANOS

A DIVERSE BOARD COULD HAVE PROTECTED THERANOS

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Elizabeth Holmes was once the shooting star of Silicon Valley. With a lifelong hatred of needles, she set out to turn the world of healthcare on its ear by developing a more efficient and inexpensive way to draw and test blood in order to screen for serious diseases. In a world where access to affordable healthcare is a hot-button issue, Holmes was slated to become a revolutionary of her own making, with
Forbes magazine dubbing her the “youngest self-made woman billionaire.” Now, Holmes is a pariah in Silicon Valley and heads are left spinning in the wake of the Securities and Exchanges Commission having issued a 24-page document revealing just how her duplicity left investors in Theranos’ research out $9 billion dollars.

To litigators and legal commentators, Holmes’ fall from grace is a familiar narrative. Intention to defraud aside, they say the roads in Silicon Valley are paved with ambitious young entrepreneurs who are more than willing to stretch the truth in order to sell their business. They have the determination to succeed and the naivety their deception will be forgiven once their investors are flush with wealth from returns. Since this has happened before and will likely happen again, how was Holmes able to mislead investors under the radar of Theranos’ board of directors? A breakdown of the board’s composition might hold the answer.

Prior to the release of the SEC complaint, the members of the Theranos board of directors had impressive backgrounds that might leave little doubt in their abilities to supervise the good of the company. There were former politicians such as U.S. senators and former cabinet members, who dealt with high-stakes situations every day in their capacities. There were former executives with previous experience in making decisions and placing trust in competent individuals. But despite their differences in resume, they all had one glaring similarity: They were all white men, over the age of 65. Research has shown while their backgrounds might have been impressive, their homogenous nature may have played a huge role in preventing them from identifying Holmes’ fraud before it was too late.

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According to
Prof. Andras Tilcsik, who holds the Canada Research Chair in strategy, organizations, and society at the University of Toronto’s Rotman School of Management, diverse boards are what prevent problems in large companies, “Companies with more gender diversity on their boards, for example, are less likely to reissue financial statements because of error or fraud. Diverse groups also tend to consider more factors when making a decision. Racially mixed juries deliberate longer, share more information, discuss a wider range of relevant factors and even make fewer mistakes when recalling facts about a case. Ironically, lab experiments show that while homogeneous groups do less well on complex tasks, they report feeling more confident about their decisions.” What the research is telling us is this: The more a person looks like us, the more we are willing to trust them. The attention to detail that might have been shown by a more outwardly diverse board was not shown by the Theranos board of directors in the case of Elizabeth Holmes. The similarities shared between members of the Theranos board likely created a false sense of security and allowed Holmes’ deceptions to go unnoticed.

 

Diversity in expertise prevents boards from becoming too comfortable with business practices and makes them open to new ideas. Given the research on homogenized groups, it is reasonable to think this group of white men with an average age of 76 may never have questioned the veracity of Holmes’ research and her promises to deliver the next big thing in medical technology. This has happened before and is likely to happen again, because while the source of the fraud is often dealt with and forgotten, there is no examination of how board composition can enable fraud.

Carie McMichael is the Communications and Media Specialist for Lauth Investigations International, writing about investigative topics such as missing persons and corporate investigations. To learn more about what we do, please visit our website.