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TAF nonprofit governance 08-03-2016


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Basic information about becoming and maintaining nonprofit status, including best practices and compliance requirements

Published in: Government & Nonprofit
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TAF nonprofit governance 08-03-2016

  1. 1. Nonprofit Governance and Financial Accountability Presenter: Miriam Robeson, Attorney August 3, 2016
  2. 2. Nonprofit Governance and Financial Accountability–What is it? •Focus on basics in four areas: •Nonprofit Governance •Nonprofit Compliance •Nonprofit Accountability •Threats to Nonprofit Success
  3. 3. Nonprofit Basics Governance
  4. 4. Corporate Formalities •Articles of Incorporation - Indiana •Tax ID number - from IRS •Statement of purpose •Bylaws/Governing Document •Conflict of Interest Policy •Officers/Board of Directors •Budget (4 year prior or 3 years future) •IRS Form 1023 -Tax Exempt Application – required for §501(c)(3) status Minimum Documents forTax Exempt Status:
  5. 5. IRS Exempt Status Analysis of Application Path
  6. 6. IRS Exempt Status < $5K/Yr • IN Corp • Tax ID • Bi-Annual IN SOS Report • No Grants • No IRS App required < $10K/Yr • IN Corp • Tax ID • 1023 EZ • $400 Filing Fee • Bi-Annual IN SOS Report • Annual 990N > $10K/Yr • IN Corp • Tax ID • 1023 + Dox • $800 Filing Fee • Bi-Annual IN SOS Report • Annual 990N or • 990 EZ or 990
  7. 7. 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 members • Confidentiality Policy • Protect Board information • Protect people served by the Nonprofit Handout: Nonprofit Sample Bylaws Handout: Conflict of Interest Policy Handout: Confidentiality Policy
  8. 8. Corporate Formalities •Board of Directors •Minimum = 3 / Preferred = 5 •Officers – •President •Vice President •Secretary •Treasurer •Functional Committees
  9. 9. 5Tips to Better Board Meetings • Have anAgenda • Be Prepared • Know yourAudience • Keep it Short! • Keep track of what happens Board Meetings don’t have to be TORTURE! Handout: SampleAgenda
  10. 10. 5Tips for Better Board Meetings 1. Have a (written) Agenda • Keeps the meeting focused and moving • Include routine and special items • Consent Agendas save time • Have handouts for reports and financial 2. Be Prepared • Read your Board Packet - Know the issues • Do your homework from previous meetings 3. Know your Audience • What doesYOUR Board expect from meetings? • “Show andTell” versus “Just the Highlights” • Level of detail expected in reports • Board Meetings should be RELEVANT to the time, place, issues
  11. 11. 5Tips to Better Board Meetings 4. Keep it SHORT! • 1 hour or less (use “Time Checks”) • Agenda helps manage timea • 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 matters 5. KeepTrack ofWhat 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 copies of minutes)
  12. 12. 5 Important Duties of Board Members • Duty of Care (Due Diligence ) • Duty of Obedience • Duty of Loyalty • Duty to the “Mission” • Duty to the well-being of the organization 3 “traditional” – 2 “extra” Handout: 8 QuestionsAsked by Nonprofit Boards
  13. 13. 5 Important Duties of Board Members 1. Duty of Care - Due Diligence • Board Members are required to be INFORMED • Must know - financial, government status, projects and operations • 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, the policies of the organization or the law 3. Duty of Loyalty • Support the Board - even when you don’t agree with it’s actions (or politely resign) • Don’t talk about Board matters outside the Board room • Always act in the organization’s best interest
  14. 14. 5 Important Duties of Board 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 theWell-Being of the organization • It is the responsibility of the Board of Directors to ensure the financial and philosophical well-being of the organization • The Board of Directors MUST: • Manage the organization through financial hardship • Ensure that programs and activities thrive • Ensure the longevity of the organization
  15. 15. Nonprofit Basics Compliance
  16. 16. Compliance - State • Indiana Secretary of State – due every 2 years Business Entity Report • Indiana State Board of Accounts • Financial Reporting for Government Funds Entity Annual Report (E-1) • Indiana Department of Revenue NP-20 • PayrollTax, SalesTax Tax Reports and Payments
  17. 17. Compliance - Federal IRS – 990 Form <$50,000 – 990 N • Gross Receipts < $50K • On-line ONLY • Due 5 + 15 after end of fiscal 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 real estate • Normal gross receipts < $200,000 • Total Assets < $500,000 Failure to file – automatic revocation of §501 exempt status
  18. 18. Preserve Nonprofit Status • IN SOS BIZ • Verify Reports are current • Verify Info is current Check IN Status • IRS Exempt Check Check FED Status
  19. 19. Compliance - Lobbying CANNOT DO • Endorse political candidate • Spend more than 5% of annual budget on lobbying activities • Directly lobby legislators • “Soft” Restrictions, no firm thresholds CAN DO • Hold Candidate forum • Educate the public on the issues important to the nonprofit • Encourage like- minded supporters to contact their legislators
  20. 20. Compliance - Employment Employment taxes and reports must be timely filed! Federal -- 941 – Employer’s Quarterly Federal Tax Return State -- WH-1 – Employer’s State Tax Return ONLINE filing requirement for many organizations Federal – EFTPS (electronic federal tax payment system) State – IN-Tax Employer conduct “Exempt” versus “non exempt” employees Wages and Hours laws NEW FLSA Limits $500,000 Receipts > $47,476 For “exempt” Fair Hiring and Nondiscrimination Does not apply to all employers APPLIES FOR GOVERNMENT FUNDING! Handout: Answers to Nonprofit Questions about New FederalOvertime Rules
  21. 21. Compliance - UBIT • (A)Trade or business • (B) regularly carried on • (C) not “substantially related” to exempt purpose UBIT – Unrelated Business Income Tax • Apartment rental income • Store or shop unrelated to mission (coffee shop)Examples: If UBIT constitutes “substantial portion” of income, nonprofit can lose exempt status!
  22. 22. Nonprofit Basics Accountability
  23. 23. Accountability The Buck Stops with the Board Board reports to • Donors • Government • Sponsors • Grantors Are you Good Stewards of the resources the public entrusts in your care?
  24. 24. Accountability Financial Governance Policies Policies for – Handling Money Recording Money Reporting Money Handout – Nonprofit FinancialControl Policy
  25. 25. Accountability Financial Controls Financial Procedures Manual Restrictions documented and honored • Donor restrictions • Grant requirements • Commingling Funds Training program for Staff and Board Document Retention/Destruction Policy Handout – Document Destruction Policy
  26. 26. Treasurer Boards of All-Volunteer Organizations: Eight Key Responsibilities Handle the Money with High Standards Manage the Filings Identify and Manage Risk Confirm Contributions From article by Dennis Walsh published in Blue Avocado Used with permission
  27. 27. Treasurer Boards of All-Volunteer Organizations: Eight Key Responsibilities TrackVolunteerTime Plan and Evaluate with a Budget PrepareTimely Financial Reports Recruit the NextTreasurer From article by Dennis Walsh published in Blue Avocado Used with permission
  28. 28. Transparency – Credibility to Public Required disclosures • Tax returns • Organizational Documents • Articles of Incorporation • Bylaws • Funds used for lobbying • Application for Exempt Status Recommended disclosures • Annual report • Basic Financial Statement • Report of Activities • Mission/Vision Regularly provide information to the Public
  29. 29. Charitable Donations • Watch the Rules regarding charitable donations! • What can be considered a donation? • What paperwork is required? • Donations of goods or funds > $250 require written acknowledgement • Magic language: “No goods or services were provide in exchange for this donation” • NOTE – donations ofTIME and EXPERTISE are NOT deductible! Handout: Top 10 Rules for Charitable Donations
  30. 30. Nonprofit Basics Risk Management
  31. 31. Risk Management for Nonprofits • Best Practices to Prevent Financial Crisis • Identify Risk • Ranks Risk • Identify Policies to manage risk • Implement protections • Implement procedures in event of crisis
  32. 32. Risk Management General Liability Insurance • Do you NEED Insurance? • What are your risks? • Events • Location/Premises • Goods and Services • Insurance is recommended to protect the nonprofit in the event of a claim for harm to person or property.
  33. 33. Risk Management D&O Insurance D&O Insurance covers Breach of Duty Wrongful acts of the board Mismanage- ment What D&O Does Provides legal defense Pays claims What D&O Doesn’t Normal liability claims Criminal acts Directors & Officers Insurance Protects the Board and Key Staff
  34. 34. Risk Management Plan Types 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 to prospective volunteers Goodwill Handout – Risk Management Policy
  35. 35. Risk Management - People • Embezzlement by employees • Embezzlement by officers • Fraud from “outsiders” • Phrase of the Day – “Trust ButVerify”
  36. 36. 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” fosters complacency • Ignorance of Full PR Impact of fraud in “headline news” • Every dollar lost to fraud = lost ability to achieve mission • Every fraud headline > public scrutiny of nonprofits • Every fraud headline < public donations to nonprofits
  37. 37. What are the most common types of fraud? 2015 Global Fraud Study, Association of Certified Fraud Examiners 27.80% 24.90% 16.80% 16.10% 15.80% 14.80% 12.60% 21.80% 9.00% 2.80% US Business Fraud Billing Corruption Non-Cash Skimming Expense Check Tamp Payroll Cash Theft Financial Statement Register
  38. 38. Nonprofits and Fraud What to do when it happens to you! • Lock-down data • Start a formal audit process with outside auditor • Change procedures and rotate staff responsibilities If you suspect fraud – act immediately! • All of the above, PLUS • Confront the perpetrator (employee, officer, outside contractor) • Copy and compile evidence in a separate, protected and confidential file • Contact the police, if appropriate If you verify fraud Handout – Someone Stole the Cashbox!
  39. 39. PR for Nonprofits Public Relations During FraudCrisis If Fraud or embezzlement finds your Nonprofit, • How the public hears about and perceives the incident can drastically affect the nonprofit’s ability to move beyond the event. DO NOT HIDE or Minimize the seriousness of the event • If you are contacted by the press, answer! - if you don’t get your story out, no one will, and speculation will replace facts Have a plan of action for response • If employee: suspension, termination • If board member: resignation, removal • Note appearance of impropriety is enough to take action for a board member, but more evidence is needed to take action against an employee Handout – Public Relations During Nonprofit Crisis
  40. 40. Preventing Fraud Have and use financial control policies Know who handles the money Remove temptation Review financial information • ALSO - have independent review of finances Be aware that it can happen to your nonprofit!
  41. 41. Nonprofit Governance and Financial Accountability •Governance •Compliance •Accountability •Threats Conclusion
  42. 42. For More Information  – Exempt Organizations Publication 557 –Tax Exempt Status Info Online – ExemptOrg SelectCheck Indiana Secretary of State Indiana Department of Revenue  Charity Navigator Blue Avocado Handout –Where to Go for More Information
  43. 43. Thank you for your attention! Any Questions? Miriam Robeson, Attorney Today’s materials are available on Miriam’s Website: