Corporate Basics: Turning Fundamentals Into a Routine Matter

EMS organizations typically dedicate a lot of time and energy to routine maintenance. From pre- and post-shift checksheets to weekly vehicle inspections and monthly drills, testing and retesting equipment on a regular basis is fundamental to the EMS way of life. Yet these same organizations are notorious for their lack of attention to corporate basics. Although it is deeply ingrained on the operations side, for many squads the intensive maintenance model breaks down at the boardroom door.

Neglecting corporate basics can expose your organization—and in some cases, its directors and officers personally—to significant risks. This article discusses a few key areas of corporate basics and suggests some strategies for keeping the corporate fundamentals in good health. Setting up a routine and sticking to it is the easiest and best way to avoid the neglect that can lead to problems.

As a preliminary note, references in this article to officers mean corporate officers such as the president, vice president, secretary and treasurer. Line officers such as captains, lieutenants or crew chiefs may be, but are not necessarily, corporate officers. Whether line officers are also corporate officers is a judgment that qualified legal counsel should make on a case-by-case basis.

Also, remember that each squad is unique and that one-size-fits-all solutions are rarely the best solutions. The suggestions in this article are made for educational purposes and are not intended to be legal advice or create an attorney-client relationship with the reader.

Why Bother?

In general, keeping corporate house is just good policy. Just like equipment checks and quality improvement, a faithful adherence to periodic reevaluation and reassessment should become part of your agency’s culture.

Of course, keeping a corporation in line takes concentration, patience and a great deal of attention to detail. Many EMS services stretch resources to the max just to make calls. Few have an abundance of time, energy or personnel to dedicate to an area easily viewed as “formalities” or “legal mumbo-jumbo.” It may not be enough to say that minding corporate requirements is good policy. Here are some of the risks of not doing so:

Piercing the corporate veil—The primary function of a corporation is to provide a liability shield for the individuals owning and/or running it. A judge can set aside that shield, however—referred to as piercing the corporate veil—if the corporation is not run properly. As a rule of thumb, if you treat your corporation as if it doesn’t exist, it’s quite possible that a judge will treat it the same way. Piercing the corporate veil exposes the personal assets of directors and officers to liability.

Personal liability for not-for-profit directors and officers—Directors and officers of not-for-profit corporations are often not as protected against personal liability as they think, even when corporate formalities are observed. In New York, for example, directors can be called to account for neglecting to perform their duties in the management of corporate assets, and can face personal liability for acts constituting gross negligence or intentional misconduct. State law can provide some protection for corporate leaders of not-for-profits, but exceptions are numerous, and the consequences of violations are serious.

IRS implications—Lax organizational leadership can lead to trouble with the IRS. A tax-exempt corporation that drifts from its “exempt purpose” risks tax liability and additional monetary penalties.

In severe cases, the IRS may revoke the tax exemption and seek payment for previous years’ taxes that should have been paid.

Medicare false-claims liability—Lack of oversight of contracting and billing arrangements can lead to liability under Medicare’s false-claims rules. The penalties range from recoupment of past Medicare payments (plus double-digit interest) to permanent barring of your agency from participating in Medicare and Medicaid. If your EMS service charges for calls, the latter could result in losing more than half of your annual revenues. In addition, many third-party insurers won’t pay a provider unless the provider participates in Medicare. Exclusion from government programs is almost always a kiss of death for an EMS squad.

What To Do?

Creating a corporate compliance plan and sticking to it is the best way to avoid the neglect that can lead to risks and potential harm.

In general, corporate compliance is a plan for running and maintaining the corporate part of your organization. It does not necessarily involve regulatory compliance (making sure regulatory requirements are met) or program compliance (such as meeting Medicare and Medicaid requirements or participating in a grant-funded program); these are other, equally complex parts of a comprehensive compliance program. Corporate compliance focuses on corporate documents, board composition, descriptions of officers and their duties, and meeting minutes. These are mundane topics, but collectively they are powerful protection against corporate mishaps.

The best place to start is with the “organic” documents of the corporation. These are the certificate of incorporation and corporate bylaws. If your organization is tax-exempt, its application for exemption will be in this category as well.

The Certificate of Incorporation

The certificate of incorporation is the document filed with the state upon creating or forming the organization. This document has different names, depending on what state you’re in and what type of organization you have. A corporation usually has a certificate of incorporation, but in some states it may have a corporate charter or statement of incorporation. Limited-liability companies typically have articles of organization. Whatever the name, the purpose of the document is to serve as a public record of the formation of the entity.

Finding corporate documents can be a challenge. The best way to go about it is to contact the state agency with which the documents are filed. Sometimes copies will be maintained at the county or municipal level as well. There will be forms to fill out and a copying fee (most likely), but the result is an official copy of your formative documents.

If you find a certificate of incorporation on hand at the station, disregard it and get an official copy from the state. Relying on unofficial copies can lead to trouble if the documents have been amended or superseded.

It may also occur to you to contact the attorney who originally prepared the papers for filing. While this is an acceptable shortcut for short-term purposes, only the state can provide you with an official copy.

Once you have the documents, review them for accuracy. Circumstances change over time, and the present circumstances must be reflected in your papers. Some of the common areas that may need attention are:

Area of operation—Over time, your service area may have undergone substantial changes. Be sure that what’s in your corporate documents reflects your operating authority as recognized by the applicable state licensing or certifying agency (usually stated in your operating license or certificate).

Ability of organization to charge—In recent years, many volunteer squads have converted to paid or partially paid staffing, and have paid for their staff by charging for ambulance services. As a result, current practice may have become inconsistent with the corporate documents, which often include language describing “free” or “community” ambulance services.

Charitable purpose—Tax-exempt organizations typically have one or more clauses in their certificates that describe and limit the purposes for which they are formed and are to be operated (referred to as the exempt purpose). If an organization’s current practices differ from its exempt purpose, it may be exposed to monetary penalties and/or a revocation of its tax-exempt status.

Corporate offices—The corporate documents will set forth the location of the principal offices of the corporation. If your squad has moved since its business entity was formed, chances are the document was never amended to reflect the change.

Registered agent—Corporate documents often designate a law firm as a registered agent, or the address to which copies of legal documents will be mailed. That means that if someone sues the squad by serving papers on the state, the state will send copies to the law firm instead of the squad. If you are still represented by the same lawyer, this can be a convenient way of notifying counsel that you are being sued. But if the lawyer who drew up the papers has changed firms, retired or died, you may never get the papers. The notice would still be valid, though, and you could end up with a judgment against your agency without ever knowing about it.

Dissolution clauses—Amendments to the federal tax law in 1986 require dissolutions of not-for-profits to be dealt with in one of two ways: 1) State law may provide that, upon dissolution, the assets of a not-for-profit may be distributed only to other charitable organizations; 2) If state law does not have such a provision, the corporate charter must have them. Although most state laws have a dissolution provision, many not-for-profit organizations have added the language anyway, just to be sure. In any event, your membership may have a specific idea in mind should your agency ever dissolve—such as directing the remaining assets to a neighboring EMS squad, or to the town or village that the dissolved agency traditionally served. If your corporate documents do not have such a provision, a judge may have to determine where the remaining assets should go.

A word of caution: Do not attempt to make changes to your certificate of incorporation or bylaws without the assistance of an attorney. The potential pitfalls are too problematic to justify attempting the changes yourself.

Corporate Bylaws

A second area to focus on is the corporate bylaws. The bylaws provide a structure for carrying on the business of your corporation. (If the business entity is a limited-liability company, the structure may be contained in a document called an operating agreement, or the operating agreement may itself authorize the establishment of bylaws.)

Many EMS organizations are in the habit of amending their bylaws without having the changes reviewed by an attorney. Amendments are typically accomplished by a bylaw committee. Such a practice can result in conflicts between your bylaws and your state’s corporate laws. Although such conflicts can be and often are resolved without harm, they open up an area of vulnerability. Inconsistencies between bylaws and actual practices commonly indicate that the organization is being operated without due regard for the regulations and requirements imposed upon it by law and its own structural documents. Needless to say, this is not the image your corporate leadership wants to project to anyone, let alone state regulators.

Some particular areas in the bylaws to examine include:

Notice requirements—State laws governing corporations have minimum and sometimes maximum time frames for providing notices of regular meetings, special meetings and annual meetings. If individuals aren’t properly notified of a meeting, a vote taken at the meeting can be set aside or invalidated afterward.

Depending on how your state applies its open-meetings law, squad meetings may be subject to additional notice requirements, including, in some cases, publication in local news media. Squads subject to open-meetings laws are also limited in their ability to exclude members of the public from the meetings.

Selection of directors and officers—Check to see that your current process for selecting directors and officers is in line with the process described in the bylaws. For example, your certificate of incorporation may provide for appointment of officers by the elected directors, while current practices are for the membership to elect all officers.

Make sure the bylaws accurately describe your director and corporate officer structure. If directorships or officers’ positions have been unofficially added or subtracted over the years, see that the current duties of the various offices are agreed upon and added to the bylaws. For example, when your organization added a HIPAA chief privacy officer (CPO), it should have amended its bylaws to describe the duties and responsibilities of the position, including the person to whom the CPO reports and the scope of his or her duties. Old offices that have remained unfilled or that have devolved into token positions should be eliminated.

Indemnification of directors and officers—The laws vary from state to state on how much liability a director or officer assumes. In some states, the risks of participating on a not-for-profit board are higher than the ordinary board member might think. Ambulance companies often purchase insurance policies protecting their directors and officers from personal liability. It can be helpful to write such a requirement into the bylaws, so that future boards do not inadvertently omit the insurance.

Financial controls—Financial controls are processes put in place to minimize the likelihood that your directors or officers (particularly the treasurer or executive director/CEO) will embezzle or misappropriate the corporation’s money. In smaller squads, developing a workable set of financial controls can be difficult. Squad members will often say things like, “I’ve known Jenny since she was a girl, and she’d never steal from anybody. We don’t need a dual-signature requirement, and we sure don’t need to hire someone else to open the mail.” Newspapers and casebooks, however, are full of the stories of such unsuspecting victims. Don’t be fooled into thinking you’ll know when someone is ripping you off.

On this particular point, your corporation should maintain a fidelity bond or employee dishonesty coverage on all directors and officers. This coverage is relatively cheap. A good rule of thumb is to have coverage of $10,000 or equivalent to 10% of your annual budget, whichever is greater.

Conflict of interest policies—Failing to disclose a material conflict of interest is a serious breach of a director’s or officer’s duty to the corporation. For example, an ambulance company may not know that one of its board members is a silent partner in the landscaping business whose contract the board just approved. A director may mistakenly assume that other board members are aware of his or her interest. But unless the disclosure is made for the record, there is no way of proving that the vote wasn’t tainted. Reputable accrediting organizations and the federal government’s model compliance guidance for ambulance companies all agree that a conflict of interest policy is an essential element of corporate bylaws.

Other Organic Documents

Other major documents can become part of a corporation’s organic documents. One of these is IRS Form 1023, which is the lengthy application filled out by not-for-profit corporations seeking recognition of their tax-exempt status. Form 1023 is a public document and must be maintained by the tax-exempt organization in an accessible manner. The language in Form 1023 describing the exempt purpose can be a subsequent limiting factor on the corporation’s operations. Accordingly, proposals to alter fundamental methods of doing business (such as employing paid staff or moving to a billing model) should be evaluated against the corporation’s 1023, as well as its certificate of incorporation.

Another important form is Medicare (CMS) Form 855-B, which is filled out by ambulance companies seeking to participate under the Medicare program. Form 855 contains fundamental information about the corporation; it also has updating requirements. Form 855 should be reviewed periodically like any other fundamental corporate document. Changes in the information included on the form must be reported within a specific time period (usually 90 days).

Other documents or forms may rise to the same level as Forms 1023 and 855. Individual state requirements for corporations and ambulance service providers will be the primary determinant of which papers and documents form your corporation’s bedrock.

Other Important Documents

The familiar maxim “If you didn’t write it down, you didn’t do it” applies to the corporate world. Meeting minutes, officers’ reports and written resolutions serve as the definitive statements of corporate activity. If you meet and don’t take minutes, you may as well not have met. Good documentation is a key to defending the corporate function and decision-making process.

Meeting minutes—Everyone knows that minutes are the official records of corporate meetings. Not everyone has a good idea of what should and shouldn’t be in minutes. Many corporate secretaries have a tendency to overdo minutes. Consider the following entry: A motion regarding the ambulance was offered by John T., seconded by Dan R. Jenny M. said…and then Don S. said…and then John T. said…and then Don S. said…and then Dan R. called the question. Motion passed. This is too much and too little information at the same time. It doesn’t really say what the motion was, or what was actually decided (even if all of the details of who said what were included).

As a general rule, minutes should contain the minimum detail necessary. The back-and-forth of discussion ordinarily need not be recorded. A better entry would read as follows: Motion by John T. to authorize sale of the Ford ambulance for the asking price of $35,000. Discussion of comparable used equipment prices experienced by other squads. Motion passed 4-0, with Derek D. abstaining. This entry gives the substance of the motion, indicates what the board considered during the discussion, records the vote and indicates that one board member observed the conflict of interest rules by abstaining.

Caution: Open-meetings laws sometimes dictate the level of recording required, including when a transcript or recording must be made and when ordinary minutes are acceptable. Open-meetings laws may also specify the basis for going into executive session, what should and should not be recorded during an executive session, and what actions can be taken. If your organization is subject to an open-meetings law, each person on your board should be familiar with the law and the means for complying with it.

Officers’ reports—Most bylaws identify a duty of the corporate officers to report to the board. Depending on how your corporation is structured, reporting to the board can mean simply answering to the board for performance (or lack of performance). But it can also mean, quite literally, that the officer is supposed to submit written reports to the board. Officers’ reports need not be elaborate, but like minutes, they should accurately describe what the officer has been up to since the last meeting, and convey enough information to the board that the board can offer its guidance or decision-making authority where necessary. A good rule of thumb is that the report should take about 15 minutes to prepare and about five minutes to read.

Officers’ reports should be distributed far enough in advance of the board meeting to permit board members to read them and prepare questions. Executive directors and other officers often try to shirk this responsibility because it requires meeting advance deadlines.

Exercise caution whenever lengthy, rambling reports are presented to the board just before or during a meeting. This can be a tactic to conceal what the officer has—or has not—been up to. A concise report is informative; multiple pages of single-spaced text are virtually worthless and are a disservice to the board. Few board members have the time or willingness to plow through a long report to figure out what the executive director is up to—and they shouldn’t have to.

Resolutions—Written resolutions are an easy way to lend structure to board discussions. Many boards work off of verbal motions, which is fine for rote functions (such as accepting officers’ reports) or minute matters. If the subject of the vote is of any importance, however, a written resolution is preferable to a verbal one.

A written resolution can be passed out at a board meeting and easily edited as the discussion evolves. The matter is then clear to the secretary when the time comes to prepare minutes, and the resolution itself can be included in the official minutes. Written resolutions often include recitals (sometimes referred to as whereas clauses) that can provide valuable background and context to a board’s decision.

Job descriptions—Just because your organization is volunteer-based doesn’t mean there’s no place for job descriptions. Even in a fully volunteer squad, each person serving in a capacity other than “member” should have a clear and concise job description that includes:

• How the person gets the job (appointed, elected, ex officio, etc.);

• A detailed statement of the duties and responsibilities of the position; and

• A clear statement of the reporting responsibilities, both upward and downward.

Well-developed job descriptions can help eliminate the kind of departmental squabbles that can kill morale in your organization. Many such squabbles result from individuals assuming too much—or not enough—responsibility within the organization. Having a clear framework for who is supposed to be doing what helps avoid the territorial disputes common to EMS organizations.

Strategies for Keeping House

The first step in developing a corporate compliance strategy is to get educated. This article is a good start, but you need to know what the specific requirements are in your state. Check back issues of trade journals and state or local association newsletters for topics related to these issues. Ask your regional council or state EMS bureau to see whether hard copies of presentations given at conferences or seminars are available. (Be wary of materials printed for a national audience. Use them to get started, but remember that unless they are tailored to your state, they are of limited value.)

Once your collection reaches critical mass, start sharing. Circulate particularly useful materials among your board and line officers. Encourage information sharing and discussion. Think about your agency’s culture and how a systematic review fits into it.

Once you’ve gotten yourself and your board members up to speed, bring in an outside professional to give you a detailed presentation on the topic. Although you may have a good understanding of the issues involved, you will need to fine-tune your understanding and work through some practical questions in order to develop a solid plan. Reading up ahead of time means you will get far more out of a professional presentation than if you come into it cold.

If you find that learning about corporate formalities is dry, dull work, keep in mind that the job of a director is to steer the corporation and make decisions in the corporation’s best interest. To do this effectively, the director needs to know how the corporation works and why. Ignorance may be bliss, but only until the IRS auditors or state investigators show up. At that point, ignorance has a good chance of turning into liability.

When you start in on the real work, resist the temptation to look at everything at once. Develop a work plan describing the major areas you want or need to address, including a time frame for completing the work and a list of people responsible for each task. Share the work.

Focus on small projects, revising and updating with the overall project in mind. If you revise your medical records policy and need to move provisions to your quality assurance policy, simply make a note on your quality assurance policy and incorporate the revision when you get there. (If revising your QA policy isn’t already in your work plan, though, you’ll need to add it so the revision isn’t overlooked.)

Decide ahead of time how professionals will fit into your review efforts. If money is not an issue, you may want to outsource the entire task of reviewing and revising policies. A more economical method is to have your professional review your revisions and provide comments.

To keep your review on track, report on the topic at each monthly board meeting.

Once you are satisfied that things are in shape, shift your focus to ongoing maintenance. Meeting the long-term goal of keeping your house in order requires periodic re-assessments. Laws change frequently, and the concepts of best practices and minimally acceptable practices both evolve over time. What was state-of-the-art six years ago may now be perceived as a risky practice or even recognized as a liability.

To build the reassessment process into your corporation, amend the bylaws to assign specific reassessment tasks to officers and directors. For example, the bylaws outlining the vice president’s (or vice chair’s) responsibilities may require that: In each even-numbered year, the Vice President shall review the Corporation’s financial controls with an independent accounting professional and report his or her review to the Board at the regular March meeting (or first regular meeting thereafter). The report shall include an assessment of whether the financial controls are followed in practice and the accounting professional’s recommendations, if any, for altering or revising the current controls. Adding this provision accomplishes a number of goals. First, it emphasizes the importance of cross-checking without being overbearing on the authority of the treasurer or overly burdensome to the vice chair. Second, it “hardwires” the review. After a few years, everyone will know about and expect the report. Reviews of other areas can be scheduled in a similar fashion using other board members. The use of outside professionals, when necessary or desirable, should be coordinated through one individual or a very few individuals.

An important aspect of ongoing maintenance is educating and reeducating your board members and officers as to their responsibilities and the fundamental compliance issues the corporation faces. One way to do this is to schedule a professional presentation for board members and officers—old and new—soon after annual elections. Another way is to hand out materials prepared specifically for board members of not-for-profit and closely held businesses. These are often available from the state regulators charged with overseeing such businesses.

Work with a professional to develop a checklist of areas to be looked at and a time frame for that to be accomplished. For example, you may want your accountant to review your financial controls every other year, or every third year. Bylaws should be reviewed annually and any time they are amended. Certificates of incorporation or corporate charters should be scrutinized every 3–5 years, and any time you have a major change in operations (expansion, sale, shifting from volunteer to career staff, etc.).

Smaller organizations may be inclined to conduct reviews entirely on a do-it-yourself basis. Larger organizations may be tempted to outsource the job to hired professionals. The best review, though, is one that combines professional skills with a real working knowledge of the organization. Those familiar with the day-to-day operations of a squad will be quick to spot discrepancies between written policies and actual practices in a way that an outside professional simply could not. One strategy is to appoint a review committee and make your professional a member of that committee (as long as doing so is consistent with your organizational bylaws; most permit it). Establish a work plan and delegate the work accordingly, knowing that the more work you outsource, the higher your expenses will be.

Finally, recognize that the work associated with corporate fundamentals is never done. If you think you know it all, there is something more to learn. If you think you’ve reviewed everything, there is something else to review. Approaching the process with an open mind and a willingness to learn, relearn and relearn again will help you and all of your board members provide effective leadership for your organization.