Originally written by George W. DuRant, CPA/ABV, CFF, ASA
Originally published in SCACPA's CPA Report magazine
Assume you have been elected to the board of directors of the not-for-profit community hospital in your hometown. This honor has been bestowed on you because of your reputation for integrity and your professional expertise as a CPA. You intend to fulfill your fiduciary duties of loyalty and care to the hospital by putting its best interests ahead of all other interests and by acting with due care in monitoring and directing hospital management.
Scheduled for vote at your first meeting is a proposal for the hospital to purchase an undeveloped tract of land owned by one of the hospital’s founders who is also the current chairman of the board. The contract for purchase has been strongly recommended by the hospital’s CEO, a much admired but intimidating executive, who asserts the land might be needed one day for an ambulatory care facility.
You know related party transactions deserve extra scrutiny, especially in not-for-profit organizations. But, the CEO has given short shrift to your concerns about the need, timing and cost of the property other than providing you with an appraisal performed by another board member indicating appraised value in excess of the price being paid.
Because it is the beginning of your tenure on the board, you are not well-informed of the hospital’s financial condition or its plans for the future. You acknowledge other board members and the CEO knowing far more about those matters than you. And, all indications are that regardless of how you vote, the board will approve the purchase relying primarily on the CEO’s recommendation.
Although your vote may be of no immediate consequence to the hospital, your vote could be of great consequence to the way other board members regard you going forward. How should you vote?