Arts organization oversight: letting this guy on the board

Flip Side: Broke or nearly broke, your nonprofit must be audited. So the question during this important board meeting is: Does Keith Richards count as a composer?
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Composer K.R. (Wikipedia)

Flip Side: Broke or nearly broke, your nonprofit must be audited. So the question during this important board meeting is: Does Keith Richards count as a composer?

Arts organizations rotate between two financial states: nearly broke and broke.

When nearly broke, they spend to enhance their art. This makes them broke. When broke they launch fundraising drives. This restores them to the state of nearly broke. Then the cycle begins again.

I have served on audit committees of arts organizations. The annual audit meeting should last one minute:

Audit chair: What is it this year – broke or nearly broke?

Auditor: Nearly broke. There is a small cash balance.

Artistic director: We will spend all that and more on artistic initiatives. We'll be broke in a year. Then we'll launch a new fund drive.

Audit committee member: I move to adjourn.

Audit Chair: All in favor, aye. Meeting adjourned.

However, a condensed meeting would not enable accounting firms to run up a bill. Therefore the profession insists on long, tedious audit meetings before rendering their opinion on the financial statements. (Arts organization must obtain a clean audit opinion before asking donors to restore them to the state of nearly broke.)

As the accountants drone on with pronouncements by the Financial Accounting Standards Board and other soporific subjects, the duty of an audit committee member is to appear alert, interested, and knowledgeable.

Here is how I handle these challenging assignment:

Appearing alert: While auditors report breaking news on FASB Statement No. 158 (Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)), I appear to be alertly taking notes.

Actually, I am listing the alphabet vertically on my yellow pad.


I then randomly select a sentence from the auditors presentation, for example, "Subsequent assets, liabilities, and non-controlling interest of variable interest entities ..."

I appear to be highly focused as I align this sentence with the alphabet, thus:


Then I choose a category – composers, painters, baseball players, etc. – and try to match the initials. Choosing composers, I would list:

AS – Arnold Schoenberg
BU – none
CB – CPE Bach
DS – Dmitri Shostakovich
EE – Edward Elgar
FQ – none
GU – none
X – none
YI – none
ZE – none

With composers, I consider a score over five to be good. However, it may be lousy. What do I know? I have no comparative data since I know of no one else who admits to occupying their time this way.

Appear interested and knowledgeable: After finishing one round of the alphabet game, I ask a question.

I select, at random, an obscure footnote. It might say, for example:

Pursuant to paragraph 20 of FASB Statement 117, dividend, interest, and other investment income shall be reported in the period earned as increases in unrestricted net assets unless the use of the assets received is limited by donor-imposed restrictions.

I then ask the auditors: "I've heard rumors that the Financial Accounting Standards Board is reconsidering their position on paragraph 20 of FASB Statement 117 regarding donor-restricted funds. Can you comment on this?"

Whatever the answer, I pause and think, often stroking my chin. Actually, I am considering whether I can accept "Keith Richards" as composer K.R.

It's my game. I can make the rules. And he is a composer. But if I accept rock composers, will six still be a good score? This requires some thought.

After at least one minute of silent thought, I remark, "Well, let's move on."

I then start another round of the alphabet game. Using a very difficult category, mathematicians, I appear intently involved.

After this round, I ask another question. I try to ask questions that cannot be answered. Today I would never ask about exposure to sub-prime mortgages because someone might have thought about it.

Rather, I ask, "Since our endowment fund holds stocks in a number of multinational companies, what is our exposure to depreciation of the Polish Zloty?"

When I get the answer, "I will have to get back to you on that," I opine, "There are two schools of thought about the Polish Zloty. I lean toward the former."

Then I start another round of the alphabet game.

At the next meeting, fearing that someone might have prepared an answer regarding the Polish Zloty, I will ask about the Icelandic Kroner, Thai Bhatt, or Omani Rial.

If I can complete eight rounds of the alphabet game, I consider the meeting a success.


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