Nevada Administrative Code Chapter 695B - Nonprofit Corporations for Hospital, Medical and Dental Service
Case 1: Misuse of Nonprofit Funds
Situation
A nonprofit corporation operating a local hospital used funds from its general account to pay personal expenses of board members, including travel and luxury items unrelated to hospital operations.
Relevant NAC Provisions
NAC 695B.130: Funds of the nonprofit must be used solely for corporate purposes.
NAC 695B.200: Board members have fiduciary duties to act in the best interest of the corporation.
Board Findings
Financial statements showed repeated personal expenses coded as “operational costs.”
No approval from the board’s finance committee.
Outcome
Board required to reimburse the misused funds.
CFO and involved board members placed on administrative probation.
Mandatory implementation of internal financial controls.
Key Lesson
Nonprofit funds must only be used for legitimate corporate purposes; any personal benefit to officers or directors is strictly prohibited.
Case 2: Failure to Maintain Required Reserves
Situation
A nonprofit dental service corporation had operating reserves below the level required to meet obligations to patients and providers, as outlined in NAC 695B.150.
Relevant NAC Provisions
NAC 695B.150: Corporations must maintain adequate reserves to ensure solvency.
NAC 695B.155: Corporations must file annual financial statements with the state.
Board Findings
Cash flow analysis showed insufficient liquidity for one month’s operating expenses.
No corrective plan submitted prior to inspection.
Outcome
Corporation required to submit a detailed plan to restore reserves.
Financial officer required to undergo training in nonprofit financial management.
Ongoing quarterly review of reserves mandated until compliance achieved.
Key Lesson
Maintaining financial solvency is not optional; NAC enforces proactive monitoring and corrective measures.
Case 3: Unapproved Change in Services
Situation
A nonprofit hospital corporation started offering elective cosmetic procedures without approval from the state regulator or amendment of corporate purposes.
Relevant NAC Provisions
NAC 695B.120: Nonprofit corporations must operate only within the purposes stated in their articles of incorporation.
NAC 695B.250: Material changes in operations require notification and approval.
Board Findings
Procedures were outside the stated purpose of providing essential medical services.
Patients were charged fees without proper corporate authorization.
Outcome
Corporation required to cease unapproved services immediately.
Board mandated corporate governance training for directors.
Potential penalties for revenue earned outside authorized purposes.
Key Lesson
Nonprofits cannot expand services or business lines without formal approval, even if profitable.
Case 4: Inadequate Patient Records and Compliance
Situation
During an inspection, a nonprofit medical service corporation’s patient files were incomplete, with missing consent forms and treatment documentation.
Relevant NAC Provisions
NAC 695B.300: Corporations must maintain accurate and complete records for services provided.
NAC 695B.310: Records must be available for inspection by regulators.
Board Findings
20% of patient records reviewed lacked signatures or treatment notes.
Risk of patient harm due to missing documentation.
Outcome
Corporation required to audit and complete all patient records.
Staff required to undergo training on record-keeping compliance.
Repeat violations could result in license suspension or administrative fines.
Key Lesson
Proper documentation is critical for legal compliance, patient safety, and accountability.
Case 5: Conflict of Interest Among Board Members
Situation
A board member of a nonprofit hospital corporation voted to approve a service contract with a company they owned.
Relevant NAC Provisions
NAC 695B.210: Board members must disclose conflicts of interest and refrain from voting on related matters.
NAC 695B.220: Corporations must maintain records of conflict disclosures.
Board Findings
No disclosure was made, and the contract was approved.
Board member received financial benefit from the contract.
Outcome
Contract nullified and funds returned to the nonprofit.
Board member required to resign or be removed.
Corporation required to implement conflict-of-interest policy.
Key Lesson
Conflict-of-interest rules are strictly enforced; violations risk personal liability and corporate penalties.
Case 6: Improper Dissolution or Transfer of Assets
Situation
The board of a nonprofit hospital attempted to sell equipment and transfer assets to a for-profit entity without following proper NAC procedures.
Relevant NAC Provisions
NAC 695B.400: Dissolution or transfer of major assets must follow state approval and purpose restrictions.
NAC 695B.410: Assets must remain dedicated to nonprofit purposes, unless lawfully approved otherwise.
Board Findings
Sale occurred without notice or approval from the state.
Assets diverted from nonprofit purpose.
Outcome
Sale invalidated.
Board required to report to the regulator and submit corrective plan.
Directors received formal reprimand for noncompliance.
Key Lesson
Nonprofit assets are protected for charitable purposes; unauthorized transfers are a serious violation.
Summary of Themes in NAC 695B
Fiduciary responsibility – Board members and officers must act in the nonprofit’s best interest.
Restricted use of funds – Corporate money must serve charitable/medical purposes.
Compliance and reporting – Financial, operational, and patient-related records must be accurate and accessible.
Conflict-of-interest rules – Strict disclosure and abstention from conflicted decisions.
Approval for major changes – Expansion, dissolution, or major asset transfer requires regulator oversight.
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