PUBLIC INTEREST, PUBLIC ORGANIZATION

BY STEVEN A. SAVIA, CMC

In an article several years ago, I mentioned that control and respon-sibility are critical issues in managing a volunteer department. It now seems time to more fully address those issues. A department recently experienced significant and well-publicized difficulties. An audit requested by the county uncovered a number of questionable financial transactions, potential mismanagement, and serious concerns about the board of directors’ oversight and approval responsibilities. At a minimum, it was a public relations debacle; at worst it could have become a legal nightmare. As a result, a new municipal agency replaced the department in providing protection to its coverage area inside the town. The board was basically re-placed, and in turn the chief’s reputation was smudged.

In all fairness, this is not the first department to be accused of mismanagement, nor will it be the last. So what does the leadership of a volunteer department do to address the increasing public scrutiny of its policies and financial operations? There are some things you should remember and actions you can take.

PUBLIC TRUST

First, regardless of whether the department accepts tax funding, remember that a fire department has a public trust. When a department accepts donations, it takes on a public trust similar to any nonprofit public interest organization. It has an inherent obligation to use those funds responsibly and to be accountable for those funds to be used in a manner that is in the public interest. The people making contributions have an expectation about how those funds will be used. Sometimes, those expectations are specific, such as when a donation is designated for a particular use; sometimes they are more general. Regardless, retaining the public’s trust is paramount.

Second, if a department accepts tax funding, whether directly or through a contractual relationship, the public interest is even greater. In the case of fundraising and donations, the donor financially supports the department on a free-will basis with the option of not making a contribution. But in the case of tax-supported organizations, all taxpayers are contributors with no choice in the matter.

As a side issue, some departments have argued that, with a contractual relationship, they are not accepting tax funds but are contracting with the municipal or state agency and thus are not truly a tax-supported organization. That’s a stretch at best. Even with a contract, if the department is part of a service district created by an act of a local or state legislature, it is a subdivision of the state. The department may be the producer of the services, but it is an agent of the provider, which is a public organization.

If the department is not part of a service district, or was not established by legislative act and is a corporation and yet receives funding through taxes, it is at a minimum obligated to maintain its financial records consistent with the requirements of the contracting public agency. This means it is subject to audit on the uses of the funds and may be held accountable for those funds.

The acceptance of tax funds, whether by contract, grant, or other form of contribution, implies an obligation for managing those funds. The department should employ the following key management procedures:

1. Establish a policymaking body to determine rules and procedures for administering financial resources.

2. Ensure that the person(s) handling the finances are not the same ones who are responsible for reporting on the finances.

3. Report back to the policymaking body and provide an accounting of the sources and uses of all funds during a certain period of time. These are basic accounting protocols that demonstrate a concern for the public’s trust.

ABOVE REPROACH

When I teach management courses, I often refer to another principle that is important when dealing with the public trust: the Principle of Caesar’s Wife. It’s based on the concept of not only being above reproach but also maintaining the perception of being above reproach. Violation of this principle has led to the downfall of more than one public figure. It means not only avoiding actual conflicts of interest but also avoiding the appearance of such conflicts. One way to test this is to ask, “How would this action look if it appeared in a headline in the local paper?” Just because what was done wasn’t actually a conflict doesn’t mean that the public will necessarily perceive it that way.

For example, fire departments are usually well-connected with the trades, since many members are tradesmen. When something needs to be repaired, the department often looks to those contacts. But if money changes hands in this transaction, the department should follow purchasing procedures consistent with any local government, including obtaining written bids for the work. “But that’s too bureaucratic!” you might argue and, based on the size of the job, you might be right. But most bureaucratic procedures exist to protect the public interest, provide equitable treatment, and provide the perception that fairness—not connections—is the basis for awarding work where public funds are used.

Hiring board members, department members, or relatives of members who are well- qualified to do the work may not be an actual conflict, but others will probably perceive it as one. Although not illegal, this can damage the department’s reputation to the same extent as it would if it were illegal. Nepotism can be a similar problem for volunteer fire departments; it is not unusual for multiple family members to belong to the same department. I certainly don’t want to suggest that family members shouldn’t be members of the same department. In fact, serving with a father, brother, sister, or mother can be one of the most enjoyable experiences in life. But keep in mind the Principle of Caesar’s Wife: If you’re an operational or administrative officer, be careful to avoid showing favoritism toward a family member. If you’re in a position to appoint officers, make sure any family member you appoint is not just qualified but well-qualified for the position so that no one in the department can reasonably object.

BOARD MEMBERS

Finally, for board members and officers, there is another important issue: directors and officers (D&O) insurance. I have often admonished nonprofit organization clients to ensure that board members and officers are covered by D&O insurance. Remember that your personal assets are exposed when you serve in an official capacity. “But I thought I was protected by the organizational veil,” you may say. This is not always the case. Besides, why expose yourself in any way while serving? This insurance is not expensive, and it offers peace of mind.

Consider the issues of role, responsibility, and liability of board members. Our firm works with many nonprofit boards, and in our initial presentations and workshops, we emphasize these issues. Since these are often day-long workshops, I’ll review some of the key points.

1. The buck stops with the board. Ultimate responsibility is with the governing board “But,” you say, “we only meet once a month, and the chief handles management issues.” If once a month isn’t sufficient for you to be knowledgeable about what management is doing, then meet more frequently. Another technique for being well informed is to break into committees to oversee the various activities of the department and become informed in a more detailed way. The committees can then report to the full board and be knowledgeable enough to ask management insightful and meaningful questions when they report to the board.

2. The chief and other members of management should not be voting members of the board. The board serves as what the accountants call a “mitigating factor.” In the context of our governmental system, the board is a “check and balance” to the department’s operational and financial management. It needs to question what is being done and why. At this writing, the Adelphia, Enron, and Worldcom national scandals all are reported to be instances in which the board of directors apparently did not understand what management was doing. If that is their defense, it won’t work. The board is obligated to keep asking questions until it is fully satisfied that it knows and understands the activities and operations of the organization. In the case of a fire department, the board should fully understand the origin of all funds and how the funds are spent. If a board member is not comfortable with the answers, that person should not stop probing.

3. The board can be held liable for its actions if those actions are not consistent with its charge to oversee and direct the organization. D&O insurance will protect the board and its members if the board’s actions are legal, are consistent with its own policies, and meet the obligations of any board of directors. For example, if the department submitted an application for a federal grant and received that grant, the board is accountable for ensuring that the money is spent for the purposes indicated in the grant, that matching funds were made available and spent as required, and that there was adequate accounting for the grant funds and activities.

STEVEN A. SAVIA, CMC, is a founding principal of The Sage Group, a professional management consulting and public policy research firm specializing in serving local government organizations. He started in the fire/rescue service in the Vienna (VA) Volunteer Fire Department (Fairfax County Fire and Rescue Services) more than 30 years ago and continues to be active in North Carolina. Savia has a BA and an MA and has pursued doctoral study in public policy. He is a certified management consultant and past national chairman of the Institute of Management Consultants (USA). He teaches a variety of public administration and fire service subjects at the college level.

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