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Legal and Governance Issues in Funding and Conducting Activities Abroad

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U.S. nonprofit organizations have great legal flexibility in addressing a wide range of social needs and issues, both domestically and overseas. Under U.S. law, tax-exempt organizations are permitted …

U.S. nonprofit organizations have great legal flexibility in addressing a wide range of social needs and issues, both domestically and overseas. Under U.S. law, tax-exempt organizations are permitted to fund and deliver innovative services and cutting-edge programs around the globe, even to the extent of engaging in commercial and advocacy activities that further their mission. However, laws, cultures of giving, and nonprofit business environments differ drastically from country to country, often complicating the efforts of U.S nonprofits and foundations to work abroad.

This seminar will examine legal and organizational factors involved in funding or running effective cross-border endeavors – such as schools and job training, relief, and literacy programs – and successfully partnering with NGO’s abroad. Among the topics to be addressed are:

1) The legal role of U.S. governing boards as stewards of the organization’s mission and funds abroad;
2) the importance of mutual understanding of roles, responsibilities, and lines of authority among the U.S. organization, foreign NGOs, and individuals involved;
3) The use of grant award letters, MOU’s, or other forms of joint venture agreements, as well as a schedule of reporting requirements, in clarifying expectations and measuring accomplishments;
4) Common on-the-ground pitfalls in program implementation, including currency control and money transfer issues, employee/independent contractor matters, ensuring program oversight, and homeland security compliance and concerns.

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  • 1. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012A Service Of: Sponsored by:
  • 2. INTEGRATED PLANNING Advising nonprofits in: www.synthesispartnership.com • Strategy • Planning (617) 969-1881 • Organizational Development info@synthesispartnership.comA Service Of: Sponsored by:
  • 3. Affordable collaborative data management in the cloud.A Service Of: Sponsored by:
  • 4. Today’s Speaker Jeffrey M. Hurwit Attorney Hurwit & AssociatesAssisting with chat questions: Hosting:Jamie Maloney, Nonprofit Webinars Sam Frank, Synthesis PartnershipA Service Of: Sponsored by:
  • 5. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 5
  • 6. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Agenda1. Introduction2. Sector Information and Overview3. Concept of Stewardship for U.S. Organizations Acting Abroad • Resulting governance, board responsibilities4. Providing Funds Abroad • Foundation grants to NGOs abroad • Homeland Security • U.S. “Friends” group distributions abroad5. Conducting Activities Abroad 6
  • 7. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Who Gives?In 2011, American donors gave $298 billion Corporations, 5% Foundations, 14% Individuals, 81%Source: Giving USA 2012 7
  • 8. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 International causes supported with foundation grants, to domestic & foreign charities Social Religion, 2% Science, 2% Sciences, 2% Human Rights, 3% Arts, 3%Public Affairs/Society Benefit, 3% Intl. Affairs, 4% Gates Foundation, 30% Education, 5% Environment, 17% Health 39% All Others, 9% Intl. Development, 21%Source: Foundation Center, International Grantmaking Update, 12/2010 (biennial publication) 8
  • 9. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 US foundation giving, internationallyUS Foundations gave more than$2 billion to non-US charities in 2010. 6,387 Recipients 8,968 Grants 471 Grantors Source: Foundation Center 2012 9
  • 10. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Location of non-US grantees in 2010 Recipient Grantmaker Country Amount Grant Count Count Count Switzerland $460,305,637 78 155 48 England $249,620,163 599 808 137 Haiti $201,250,293 39 170 108 China $118,019,838 417 723 49 South Africa $105,368,074 224 340 44 India $86,742,354 418 567 62 Canada $79,286,737 349 531 127 Kenya $65,114,359 131 177 34 Mexico $55,642,077 193 277 53 Brazil $49,397,090 167 232 36Source: Foundation Center,Cross-Border Giving, Sept. 2012 10
  • 11. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Traditional Organizational Structure of U.S. Nonprofit Organizations Board of Directors Fundraising Budget and Nominating Other: Ad Hoc or Committee Finance Committee Program Committee Committees -CEO- Executive Director (or President) -COO- Asst. Director -COO- Asst. DirectorAsst. Director -CFO- Asst. Director Planning/ Asst. Director HumanDevelopment Asst. Director Operations Marketing PR/Community Resources (or Vice Finance (or Vice (or Vice Affairs (or Vice President) (or Vice President) President) (or Vice President) President) President) 11
  • 12. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Outline of Board Roles and Responsibilities1. Legal/Fiduciary Role A. General Responsibilities • Governance – Oversee – Review/Evaluate/Monitor • Leadership: In partnership with CEO and management, guide mission, direction 12
  • 13. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Outline of Board Roles and Responsibilities (cont.)1. Legal/Fiduciary Role (continued) B. Specific Responsibilities • Hire/support/evaluate/discharge CEO • Review and approve annual budget • Review and approve major organizational decisions, commitments, and plans including expenditures, loans, and leases • Evaluate progress toward program and financial goals • Ensure the continuity of org. through devt. and recruitment of executive staff • Conduct affairs of the board including board development, transition, and effectiveness 13
  • 14. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Outline of Board Roles and Responsibilities (cont.)1. Legal/Fiduciary Role (continued) C. Meeting Specific Responsibilities Through: • Board Orientation • Information Flow: Financial statements, reporting regarding programs, operations, planning • Each directors exercise of informed, independent judgment • Board meetings, agendas, minutes, documentation • Appropriate board organization & continuity • Appropriate committee structure • Protecting assets of organization • Determination of board-executive staff relationship; delegation of management authority 14
  • 15. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Outline of Board Roles and Responsibilities (cont.)2. Supporting Functions • Fundraising • Planning • Public and Community Relations • Other specific and ad hoc duties and tasks as needed 15
  • 16. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Grant Award Agreements Standard Provisions1. Grant Award2. Term, Number of distributions3. Use of Funds and/or Project Description4. Reporting (Periodic, Final) • Narrative: Accomplishments, progress toward grant purposes • Financial: Income, expenses, budget, remaining funds5. Recordkeeping • Record Maintenance • Separate Fund 16
  • 17. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Grant Award Agreements (continued) Standard Provisions6. Prohibited Uses • Regranting • Legal Restrictions • Lobbying • Private Benefit7. Compliance • Child Protection • Anti-Bribery8. OFAC Compliance • Office of Foreign Asset Control • Under U.S. Treasury Department 17
  • 18. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Grant Award Agreement ProvisionsCompliance with Office of Foreign Assets ControlOFAC Compliance. Grantee agrees that it will use the funds incompliance with all applicable anti-terrorist financing, sanctions, andasset control laws and regulations. --- or ---OFAC Compliance. Grantee verifies that neither the organizationitself, nor any of the organization’s directors/governors/trustees,staff, or consultants appear on the U.S. Treasury’s Office of ForeignAssets Control Specially Designated Nationals and Blocked PersonsList (“SDN List”); and that if such organization or personnel describedhere should appear on the SDN List, the Grantee will promptly notifyGrantor and, subject to the Grantor’s further request, makeimmediate repayment of the grant. 18
  • 19. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012Risk Factors for Charities Disbursing Funds or Resources to Grantees Low Risk Medium Risk High Risk The grantee has explicit The grantee has general The grantee has general charitable purposes and charitable purposes and charitable purposes and does not discloses how funds are used discloses how funds are used disclose how funds are used. with specificity. with specificity. The charity and the grantee have The charity and the grantee have The charity and the grantee do a written grant agreement that a written grant agreement with not have a written grant contains effective safeguards. limited safeguards. agreement. For example, provisions addressing proper use of funds by the grantee, delineation of appropriate oversight, and programmatic verification. The grantee has an existing The grantee has existing The grantee has no prior history relationship with the charity. relationships with other known with any charities. charities but not with this charity. The grantee can provide The grantee’s references are The grantee can provide no references from trusted sources. from sources with which the references or sources to charity is unfamiliar. corroborate references provided. Source: Office of Foreign Assets Control , U.S. Department of Treasury 19
  • 20. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012Risk Factors for Charities Disbursing Funds or Resources to Grantees (cont.) Low Risk Medium Risk High Risk The grantee has a history of The grantee is newly or The grantee has little or no legitimate charitable activities. recently formed, but its history of legitimate charitable leadership has a history of activities. legitimate charitable activities. Charity performs on-site Charity performs remote Charity performs no grantee grantee due diligence through grantee due diligence through due diligence, or due diligence regular audits and reporting. regular audits and reporting. is random and inconsistent. Grantee provides Grantee provides Grantee provides no documentation of the use of documentation of the use of documentation of use of funds. funds in the form of video, funds. Documentation may only receipts, photographs, include receipts and written testimonies, and written records records. Source: Office of Foreign Assets Control, U.S. Department of Treasury 20
  • 21. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012Risk Factors for Charities Disbursing Funds or Resources to Grantees (cont.) Low Risk Medium Risk High Risk The charity disburses funds in The charity authorizes grantee The charity disburses funds in small increments as needed for discretion within specified one large payment to be specific projects or limits. invested and spent over time or expenditures. for unspecified projects selected by the grantee. Reliable banking systems or Reliable banking systems or The grantee does not use other regulated financial other regulated financial regulated financial channels or channels for transferring funds channels for transferring funds take steps to develop alternative are available and used by the are not reasonably available for methods that the charity and grantee, subjecting such the grantee’s relevant activity, grantee reasonably believe to transfers to the safeguards of but the charity and the grantee be reliable, trustworthy, and regulated financial systems agree on alternative methods protected against diversion. consistent with international that they reasonably believe to standards. be reliable, trustworthy, and protected against diversion. Source: Office of Foreign Assets Control, U.S. Department of Treasury 21
  • 22. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012Risk Factors for Charities Disbursing Funds or Resources to Grantees (cont.) Low Risk Medium Risk High Risk Detailed procedures and Detailed procedures and There exist no procedures or processes for the suspension of processes for the suspension of processes for suspension of grantee funds are included grantee funds are included grantee funds in the event there within the written agreement within the written agreement is a breach of the written and enforceable both in the but may not be enforceable at agreement. United States and at the the grantee’s locale due to grantee’s locale. instability or other issues. The charity engages exclusively The charity engages in some The charity primarily engages in charitable work in the U.S. or work in foreign in work in conflict zones or in in foreign countries/regions countries/regions where countries/regions known to where terrorist organizations terrorist organizations may be have a concentration of terrorist are not known to be active. active. activity. Source: Office of Foreign Assets Control, U.S. Department of Treasury 22
  • 23. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Distributing Funds Abroad Through:1. Expenditure Responsibility • Additional provisions in grant award letter • Additional reporting on Form 9902. Equivalency Determination • Additional burden on grantee: – Affidavits, detailed information – Difficulty for non-English speakers • Additional burden on grantor: – Review and determination of equivalency 23
  • 24. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012The Relationship between U.S. “Friends” Groups and the Organizations they Support 1. U.S. Legal Requirements • U.S. supporting or “Friends” organization must be independent of supported organization • Supported organization may not control U.S. Friends organization or dictate its operations • Majority of the board of directors of U.S. Friends organization may not be comprised of leaders or board of directors of supported organization 24
  • 25. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012The Relationship between U.S. “Friends” Groups and the Organizations they Support (cont.) 2. Prohibition Against: Funds from U.S. simply flowing or passing through to supported organization 3. U.S. Board Must: Exercise stewardship in “granting” funds to supported organization 25
  • 26. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012The Relationship between U.S. “Friends” Groups and the Organizations they Support (cont.) 4. Recommendation for Successful Relationship between Organizations • Maintain required legal separation while at same time have close working relationship • Ensure both organizations understand the requirement of independence under U.S. law • Develop an operating system by which: – U.S. board approves distributions – Supported organization expends funds as mandated – Supported organization reports on expenditures, accomplishments to U.S. 26 organization
  • 27. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 U.S. Friends Organizations: Annual Work Cycle and Processes Awards funds after board approval U.S. Friends ofthe XYZ National Museum XYZ National Museum Ongoing Board of Directors Coordination* Governing Body Provides reports demonstrating use of funds for approved purposes• Raises funds • Plans for use of U.S.• Conducts due diligence funds• Approves distribution of • Coordinates plan with * Coordinate planning, funds U.S. Friends objectives, expectations.• Receives, reviews • Receives, expends U.S. * Establish system of narrative, financial reports funds regular communications. on expenditure of U.S. • Provides narrative, funds, accomplishments financial reports on• Begin cycle again expenditures of U.S. funds, accomplishments • Begin cycle again 27
  • 28. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Conducting Activities Abroad Legal and Practical Issues1. Legal, regulatory restrictions and requirements2. Currency controls and money transfer issues3. Program Oversight • Ground support4. Employee vs. Independent Contractor5. Cultural Issues • Authority, control • Disposition of charitable assets6. Affiliate, Chapter Agreements 28
  • 29. Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit December 12, 2012 Related Topics not under discussion today• Bylaws• Maintaining Tax Exemption• Annual Filings and Reporting Requirements• Liability• Insurance 29
  • 30. Thank you for listening! Jeffrey Hurwit Hurwit & Associates 1150 Walnut Street T: +1 617-630-6900 Newton, MA 02461 F: +1 617-928-3441 USA E: jhurwit@hurwitassociates.com W: www.hurwitassociates.comWith special thanks to Kenneth Hoffman, consultant in International Fundraising andGrantmaking, Lexington, Massachusetts, for providing the introductory slides on giving abroad. 30
  • 31. Find listings for our current season of webinars and register at: NonprofitWebinars.comA Service Of: Sponsored by: