As part of their risk management strategy, many high performance not-for-profit organizations have outside legal council conduct a legal audit every three to four years. A legal audit is a review of key legal documents:
- Letters Patent
- Registers: directors, members, officers
- Minute book
- Annual meeting procedures
The purpose of the legal audit is to identify areas where the organization is not in compliance with the law and/or good practices. Usually unintentionally, organizations deviate from their objects as a result of introducing new programs or procedures or misguided management/leadership decisions.
Lawyer Bill Pashby, a partner in the firm Borden Ladner Gervais, who has completed dozens of legal audits, cites the following examples of issues that have been uncovered in not-for-profit organization legal audits:
- Deviation from objects: actions that were not in compliance with their objects as set out in their Letters Patent and therefore illegal actions
- Bylaw non-compliance with current legal practices
- Lack of quorum
- Directors not properly elected
- Required member meetings not held
- Proper minute books not kept
You may be surprised to learn that hard copy minute books are a legal requirement; e-files don’t count. You may also be surprised to learn that e-voting is not legally authorized.
While prices vary, a typical price for a legal audit is in the range of $2,000 - $3,000.
It is a good idea to complete a legal audit now and correct identified problems before someone else discovers them. This will prevent a challenge by a third party or a dissatisfied member or director (or their lawyer), which could lead to legal actions, termination of employment of the CEO, or a confused, discouraged board, bad publicity and reduced funding.
To learn more about legal obligations of not-for-profit organizations click here to view Industry Canada’s resources.
Paulette in President of Solution Studio Inc., a consulting practice that serves the not-for-profit association community. Paulette co-authored two manuscripts on risk management & not-for-profit organizations. She can be reached at 1-877-787-7714 or Paulette@solutionstudioinc.com.