Corporate FormalitiesArticles of Incorporation - IndianaTax ID number - from IRSStatement of purposeBylaws/Governing DocumentConflict of Interest PolicyOfficers/Board of DirectorsBudget (4 year prior or 3 years future)IRS Form 1023 - Tax ExemptApplication – required for §501(c)(3)statusMinimum Documents for Tax Exempt Status:
Important Documents Bylaws Should be readily available Should be reviewed and updated every 5 years Should “work with” the Board Conflict of Interest Policy Sign every year For new and returning board membersHandout: Nonprofit Sample BylawsHandout: Conflict of Interest Policy
5 Ways toBetter Board MeetingsBoard Meetings don’t have to be TORTURE! Have an Agenda Be Prepared Know your Audience Keep it Short! Keep track of what happensHandout: Sample Agenda
5 Ways toBetter Board Meetings1. Have a (written) Agenda Keeps the meeting focused and moving Include routine and special items Consent Agendas save time Have handouts for reports and financial2. Be Prepared Read your Board Packet - Know the issues Do your homework from previous meetings3. Know your Audience What does YOUR Board expect from meetings? “Show and Tell” versus “Just the Highlights” Level of detail expected in reports Board Meetings should be RELEVANT to the time, place,issues facing the board
5 Ways toBetter Board Meetings4. Keep it SHORT! 1 hour or less (use “Time Checks”) Agenda helps manage time Robert’s Rules NOT required If you can’t end on time – Ask the Board to help prioritize remaining agenda items Save some items for another meeting Consider a special meeting to handle special matters5. Keep Track of What Happens at Meetings Have someone take notes and prepare minutes Keep track of who is assigned to which tasks Document who makes motions and note “nay” voters Record action taken on Board matters (HINT: sometimes the government will ask for copiesof minutes)
5 Important Duties ofBoard Members3 “traditional” – 2 “extra” Duty of Care (Due Diligence ) Duty of Obedience Duty of Loyalty Duty to the “Mission” Duty to the well-being of theorganizationHandout: 8 Questions Asked by Nonprofit Boards
1. Duty of Care - Due Diligence Board Members are required to be INFORMED Must know - financial, government status, projects andoperations No excuse for ignorance Includes a duty to train successors about their duties!2. Duty of Obedience Do what you are required to by the order of the Board, thepolicies of the organization or the law3. Duty of Loyalty Support the Board - even when you don’t agree with it’sactions (or politely resign) Don’t talk about Board matters outside the Board room Always act in the organization’s best interest5 Important Duties ofBoard Members
4. Duty to the Mission KNOW - BELIEVE - SUPPORT the Mission Should be able to recite the Mission - anytime, anywhere (otherwise, why are you on the Board?)5. Duty to the Well-Being of the organization It is the responsibility of the Board of Directors toensure the financial and philosophical well-being of theorganization The Board of Directors MUST: Manage the organization through financial hardship Ensure that programs and activities thrive Ensure the longevity of the organization5 Important Duties ofBoard Members
Compliance - State•Indiana Secretary of StateAnnual Business Entity Report•Indiana State Board of Accounts•Financial Reporting for Government FundsEntity Annual Report (E-1)•Indiana Department of RevenueNP-20
Compliance - FederalIRS – 990 Form<$50,000 – 990 N•Change in thresholdbeginning 2010•On-line ONLY•Due 5 + 15 after end offiscal year•NO extensions of time!>$50,000 – 990 EZ/990• Due 5 + 15• 6 month automatic extension• For most nonprofits – 990 EZ• Minimal property or realestate• Normal gross receipts <$200,000• Total Assets < $500,000Failure to file – automatic revocation of §501(c)(3) status
Compliance - LobbyingCANNOT DO•Endorse politicalcandidate•Spend more than 5%of annual budget onlobbying activities•Directly lobbylegislatorsCAN DO•Hold Candidate forum•Educate the public onthe issues importantto the nonprofit•Encourage like-minded supporters tocontact theirlegislators
AccountabilityThe Buck Stopswith the BoardBoard reports to•Donors•Government•Sponsors•GrantorsAre you GoodStewards of theresources thepublic entrusts inyour care?
Accountability -Financial Governance Policies Policies for – Handling Money Recording Money Reporting MoneyHandout – Nonprofit Financial Control Policy
AccountabilityFinancial ControlsFinancial Procedures ManualRestrictions documented and honored• Donor restrictions• Grant requirements• Commingling FundsTraining program for Staff and BoardDocument Retention/Destruction PolicyHandout – Document Destruction Policy
Transparency – Credibility to PublicRequired disclosures•Tax returns•Organizational Documents•Articles of Incorporation•Bylaws•Funds used for lobbying•Application for Exempt StatusRecommendeddisclosures•Annual report•Basic Financial Statement•Report of Activities•Mission/VisionRegularly provide information to the Public
Charitable Donations Watch the Rules regarding charitabledonations! What can be considered a donation? What paperwork is required? Donations of goods or funds > $250 requirewritten acknowledgement Magic language: “No goods or services wereprovide in exchange for this donation” NOTE – donations of TIME and EXPERTISE areNOT deductible!Handout: Top 10 Rules for Charitable Donations
Risk Management for NonprofitsBest Practices to PreventFinancial Crisis Identify Risk Ranks Risk Identify Policies to manage risk Implement protections Implement procedures in event ofcrisis
Risk Management – GeneralLiability Insurance Do you NEED Insurance? What are your risks? Events Location/Premises Goods and Services Insurance is recommended to protect thenonprofit in the event of a claim for harmto person or property.
Risk Management PlanTypes of Risk to Manage• Board members, volunteers,employees, clients, donors,the public.People• Buildings, facilities,equipment, materials,copyrights, trademarksProperty• sales, grants, contributions,sponsors, fund raisingIncome• reputation, stature in community,ability to raise funds and appeal toprospective volunteersGoodwillHandout – Risk Management Policy
Risk Management - PeoplePoor economy has resulted in an increasein criminal conduct against nonprofitsEmbezzlement by employeesEmbezzlement by officersFraud from “outsiders”Phrase of the Day – “Trust But Verify”
Issues of Fraud and the Nonprofit Sector “Headline News” creates an inaccurate picture Impression of more fraud than actually exists Impression of “we’re not like that” fosterscomplacency Ignorance of Full PR Impact of fraud in “headlinenews” Every dollar lost to fraud = lost ability toachieve mission Every fraud headline > public scrutiny ofnonprofits Every fraud headline < public donations tononprofits
What are the most common types of fraud?16.20%9.60%28%15.10%16.90%10.60%2.40% 11.50%SkimmingLarcenyBillingExpenseCheckPayrollCash RegisterCash on Hand2010 Global Fraud Study, Association of Certified Fraud Examiners
How is Fraud Punished? Termination of employment = 72% No punishment = 7% Quit/disappeared = 8% Referral to law enforcement = 72% Prosecutor declines to prosecute =25%(Note – numbers total greater than 100%because more than one action is taken)“An Investigation of Fraud in Nonprofit Organizations: Occurrencesand Deterrents,” Greenlee, Fischer, Gordon and Keating, 2006, HauserCenter for Nonprofit Organizations
What is the likelihood of recovering funds? (1) Nothing recovered = 50% Partial recovery = 16% Complete recovery = 34% Small organizations are much more likely tobe a victim of occupational fraud Lack of anti-fraud controls in smallerorganizations contributes to vulnerabilityWHO IS MORE LIKELY TO BE VICTIMIZED? (2)1. “An Investigation of Fraud in Nonprofit Organizations: Occurrences andDeterrents,” Greenlee, Fischer, Gordon and Keating, 2006, Hauser Center forNonprofit Organizations2. 2010 Global Fraud Study, Association of Certified Fraud Examiners
Nonprofits and FraudWhat to do when it happens to you!• Lock-down data• Start a formal audit process with outside auditor• Change procedures and rotate staff responsibilitiesIf you suspect fraud – act immediately!• All of the above, PLUS• Confront the perpetrator (employee, officer, outsidecontractor)• Copy and compile evidence in a separate, protected andconfidential file• Contact the police, if appropriateIf you verify fraudHandout – Someone Stole the Cashbox!
PR for NonprofitsPublic Relations During Fraud CrisisIf Fraud orembezzlementfinds yourNonprofit,•How thepublic hearsabout andperceives theincident candrasticallyaffect thenonprofit’sability tomove beyondthe event.DO NOTHIDE orMinimize theseriousnessof the event•If you arecontacted bythepress, answer!- if you don’tget your storyout, no onewill, andspeculation willreplace factsHave a planof action forresponse• If employee:suspension, termination• If board member:resignation, removal•Note appearance ofimpropriety isenough to take actionfor a boardmember, but moreevidence is needed totake action against anemployeeHandout – Public RelationsDuring Nonprofit Crisis
Preventing FraudHave and use financial controlpoliciesKnow who handles themoneyRemove temptationReview financial information•ALSO - have independent review offinancesBe aware that it canhappen to your nonprofit!
For More Information IRS.gov – Exempt Organizations Publication 557 – Tax Exempt Status Info Online – Exempt Org Select Check Indiana Secretary of State Indiana Department of Revenue Guidestar.org Charity Navigator Blue AvocadoHandout – Where to Go for More Information
Thank you for yourattention!Any Questions?Miriam Robeson, AttorneyToday’s materials are available onMiriam’s Website:http://blog.lawlatte.com/