Standard 1.1‑3 on Fiscal Matters

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Standard

The governing body should ensure the financial integrity and viability of the legal aid organization.

Commentary

General Considerations

The governing body should ensure that the organization achieves its budget goalsand that its funds are spent and accounted for in a way that fully meets the organization's responsibility to its clients, its funding sources, and the public. Budgeting and fiscal policy should consider relevant state and federal guidance as well as funder requirements and basic accounting principles.The governing body should rely on a senior manager, or the equivalent, to help ensure that the organization effectively meets its responsibilities for budgeting, financial planning ,and accountability. Larger organizations should consider having a chief financial officer for the organization.

Budgeting and Financial Planning 

The governing body's fiscal responsibilities begin with the adoption of a budget that commits available resources to the organization's priorities. Budget responsibilities involve more than mechanical approval of broad spending categories and perfunctory review to ensure that income and expenditures balance. The governing body should approach the budget as the mechanism through which it implements major policy decisions on the organization's direction and operation. For example, decisions about the organization's personnel budget may substantially affect its capacity to serve particular geographic areas or address specific substantive legal issues.

Budget planning provides the opportunity to monitor the organization's receipt of projected revenue, assess future resource needs, and plan for expected changes in available resources. Foreseeable expansion or reductions in resources should be anticipated in current budget decisions to ease the transition to a new level of operation.

The budget should include adequate resources to ensure that the organization's staff provides high-quality legal assistance to its clients and strikes the appropriate balance necessary as it strives to achieve the goals set by these Standards. In order to encourage continued service to clients by experienced practitioners and to discourage high staff turnover, sufficient resources should be budgeted so that the organization offers adequate salaries and benefits to its staff. The organization's management is responsible for spending resources according to the budget approved by the governing body. Budget decisions, however, cannot always anticipate the precise cost of organizational activities or unforeseen contingencies. Some deviations will be unavoidable. The governing body should establish a fiscal policy or other guidelines that give management the flexibility necessary to make reasonable adjustments in response to changing circumstances. Management should provide the governing body reports on a defined, periodic basis on the organization's fiscal situation in order to assist the governing body in monitoring the organization's receipt of revenue and expenditure of funds, as a way to anticipate and correct potential resource problems.

Financial Accountability

Oversight of the organization's finances carries the responsibility to ensure that the organization's funds are spent for the purposes for which they were granted, are properly accounted for, and show no evidence of fraud or misuse of funds. The governing body should proactively ensure that the financial integrity of the organization is protected, adopting policies and procedures with adequate internal controls to ensure the reliability and integrity of financial and operating information. The governing body should ensure that the organization, its employees, and outside practitioners comply with federal and state laws governing whistleblower protection, and such laws and professional conduct rules relating to the retention and destruction of files and documents, including in electronic format.The governing body should ensure that management takes appropriate action to correct any shortcomings identified in its fiscal accounting by an audit or other financial review.

Budgets must include enough resources to keep hardware and software updated and secure, as well as to update and maintain any technology tools used by lawyers, staff, and self-represented litigants sponsored by the organization. Technology budgets must be proportional to the size of the budget and staff. Because technology changes rapidly, the budget should contain a reserve for unexpected technology changes to core tools used by the organization. 

A legal aid organization should undergo an annual independent financial audit that measures compliance with sound accounting principles and funder audit requirements. The governing body should adopt procedures that ensure the highest level of service from its auditors. It should establish an active audit and/or financial oversight committee and should periodically solicit bids from auditing firms to perform the annual financial audit.

The governing body should hire auditors who are familiar with the special audit requirements that apply generally to non-profits and are capable of meeting the specific audit requirements imposed by the organization's funders. The auditing contract should establish the work the auditors will perform and should specify in detail the particular requirements imposed by the organization's funders. The contract should include the maximum cost for the audit and should require the auditor to submit a timely report, usually within 90 days of the close of the fiscal year. 

On receipt of the financial report, the governing body, or the governing body's audit committee if one has been designated, should meet with the auditors to discuss the findings, the recommendations for responding to identified problems, and the suggestions for improving and updating the organization's fiscal systems. The audit committee should report to the full governing body, which has ultimate responsibility for the organization's fiscal health.