Based upon the limited review conducted, the AG found no diversion of charitable assets by the Foundation. Nevertheless, the Closing Letter (pdf) by Belinda Johns, Senior Assistant AG to the Foundation's counsel points out that the Board did not always exercise adequate fiscal oversight. This Closing Letter is instructive for understanding what the duties of directors of nonprofit charitable organizations are with regard to adequate fiscal oversight, especially under California law.
The underlying principle of law is that the Board of Directors of an organization holding charitable assets in California has the ultimate responsibility for those assets and must manage and protect them from being diverted from the charitable purposes of the organization or, if applicable, the specific purposes for which the assets were given. The Board must see to the "protection of charitable assets" under its control. As the AG's letter points out, among other things, that means that the Board is responsible for:
- Comparing and analyzing revenues and expenses on a periodic basis to determine if the organization is meeting its budgetary goals.
- Reconciling endowment accounts and correctly identifying restricted and unrestricted funds. Board members may be personally liable for restricted funds which are incorrectly released.
- Reviewing budgets for special events. "Assessing the effectiveness of a fundraising event is essential to avoid waste of charitable assets."
- Managing fundraising activities administered by outside groups. "The board must exercise control over the representations made by fundraisers in order to assure those representations are accurate and to determine whether they include language that may restrict donations for a specific purpose."
- Supervision of Trustees and Fundraisers for Charitable Purposes Act (Gov. Code section 12580 et seq)
- California Public Benefit Corporation Law (Corp. Code section 5000 et seq.)
- Uniform Prudent Management of Institutional Funds Act (UPMIFA) (Prob. Code section 18501 et seq.)
As part of the closing of the investigation, the Board of CSU Stanislaus Foundation agreed to undertake "'board training' to assure they fully understand their fiduciary duties" under these laws. Boards of other organizations that find themselves not fully understanding their fiduciary duties could probably do no better than to initiate a similar board training by reviewing the Closing Letter and discussing how and where they can improve their management and protection of charitable assets.