This document summarizes a presentation on nonprofit management and governance best practices. It covers topics like legal structures, the board's responsibilities as the employer, policies around conflicts of interest, and standards for classifying workers as employees versus contractors. It emphasizes that the board is ultimately responsible and accountable for the nonprofit's operations.

1. Assessing Management & Governance: Nonprofit Operations & Best Practices Presented by Doug Sauer, CEO New York Council of Nonprofits, Inc. New York City-Albany-Buffalo-Poughkeepsie-Rochester-Oneonta

2. What We Will Be Covering The Nonprofit as a Corporation Governance Structures & Responsibilities Staff Leadership & Management

3. The Legal Corporation Corporation is created in NYS Either through Articles of Incorporation (Department of State) or Charter (Department of Education) Must have at least 3 board members May be a membership corporation Then apply for IRS tax exemption via form 1023 All DEC grantees must be 501(c)3’s Two other major types are 501(c)4’s and 501(c)6’s Nonprofits can have subsidiaries or “related” corporations

4. Fiscal Sponsorship… Is when a 501(c)3 allows its legal & tax-exempt status to be used by another group or organization Key issues Activities must be related to the 501(c)3’s mission The fiscal sponsor is responsible for proper use of funds and all required reporting Written agreement between the parties should exist Funders need to understand the relationship

5. The Mission The tax-exempt purposes for which resources are to be devoted Defines scope of activities & customers Exempt activities flow from mission Unrelated Business Income Tax (UBIT) Official statement is in the Certificate of Incorporation or Charter, or as amended Check IRS application, IRS Form 990 & audit-be consistent

6. The IRS Form 990 Series Promotes Disclosure & Accountability Used by “watchdog” organizations & donors to determine how funding decisions are made Compliance with best practices Check it out on the web – www.guidestar.com www.irs.gov

7. What Form to File 2010 Tax Year & Later (Filed in 2011 & Later) Form to File Instructions Gross receipts normally ≤ $50,000 Note: Organizations eligible to file the e-Postcard may choose to file a full return 990-N n/a Gross receipts < $200,000, and Total assets < $500,000 990-EZ or 990 Instructions Gross receipts ≥ $200,000, or Total assets ≥ $500,000 990 Instructions Private foundation 990-PF Instructions

8. IRS Form 990 (con’t) State mission? Has it changed, any new activities, are these activities related? Did the Board review audit? Review 990 before submission? % of funds used for management & general, and fundraising? Whistleblower policy? Record retention? Gift acceptance? Compensation policies for key employees & officers? Paid board members?

9. IRS Form 990 (con’t) Disclosures on international activities (Patriot Act)? Conflict of interest policy? Business transactions with key employees or board members or their immediate families? Business transactions among board members/key employees?

10. Charities Form 500 & NYS Auditing Requirements Annually Filed with NYS Attorney General Must file if over $25,000 in contributions whose total revenue Must meet NYS Audit Requirements & submit: Independent Audit if revenues over $250K CPA “Review” – if between $100K-$250K Submit Financial Report certified by Board –under $100K (CPA not needed) If not filed, could be fined or Charities Registration number could be suspended Result could be IMMEDIATE funding restrictions

11. Board Members & Officers are Ultimately Responsible For: Discharging the duties of their position in good faith and with that degree of diligence, care, loyalty, & skill which ordinarily reasonable persons would exercise under similar circumstances in like positions Assessment Note – The legal minimum for board members is 3 . Bylaws may state a higher number.

12. Board Members Are Fiduciaries A duty to act for someone else’s benefit Has special responsibilities in connection with the administration, investment and distribution of assets, where those assets belong to someone else Duties of Care, Obedience & Loyalty

13. Major Policy & Monitoring Functions Board Management & Development Personnel Oversight Finances/Fixed Assets Oversight Resource Development Stakeholder/Community Relations Program Services: Quality Assurance, Evaluation & Continuous Improvement Planning for the Future

14. Policy & Implementation Spheres Policy-making Implementation Operating Policies © 2010 New York Council of Nonprofits, Inc. All Rights Reserved. Board of Directors Area of Shared Responsibilities Executive Director/CEO Area of Shared Responsibilities Staff

15. Key Board Officers Chair (President) Vice-Chair Treasurer Secretary Executive (paid; usually ex-officio, non-voting) Assessment Note: NYS law requires that there be someone serving as Chair, Treasurer & Secretary. The Chair cannot serve also as Secretary. Officers cannot resign their positions without qualified replacements. r

16. NYS Requirements on Conflict of Interest Individual Officers & Board Members must disclose “material facts” & “pecuniary gain” in decision/actions and must abstain from voting Payment & contracts between officers & directors are allowed so long as it is fair to the nonprofit & the officer or director does not breach his or her fiduciary duty by making a profit Assessment Note – Payment to board members is a rare (and not best) practice & generally frowned upon by the IRS, funders & the public.

17. Best Practice Standards Conflict of Interest Higher Standard Options: Define broadly: material & other interest; actual & perceived Have any & all interests that may compromise or be perceived as such declared at earliest moment Prohibit any interested influence being exercise Prohibiting attendance at meeting, lobbying ED or other board members, etc.

18. Best Practice Standards Conflict of Interest (con’t) Do not allow any employees (including CEO/ED) to be a voting member of the board Allow no self-dealing by board or employees (particularly key leadership) Prohibit loans from the organization to staff Note: Loans to board members are prohibited under law Prohibit loans from board members & staff to organization

19. Best Practice Standards Conflict of Interest (con’t) Limit or prohibit nepotism for board & staff Hiring, supervision & contracting Example: policy that prohibits an employee to be in the supervisory chain of a household/family member Maintain “independent” board composition (i.e. no household & family relationships among board members)

20. Best Practice Standards Conflict of Interest (con’t) Bidding Policy For set dollar amount (i.e. $5K) For any transactions to be done with officers, board or employees Board approval of all business transactions between the nonprofit and the board & employees, including those that would normally be a decision of management Restrictions on officers or board members applying for paid positions i.e. Must resign from board at application or expression of interest and cannot rejoin board for a period of time

21. The Not-for-Profit as Employer The Board of Directors is the employer of record, as any other employer, and thus has the liability exposure CEO/ED may be delegated the responsibility to hire, enter into employment or contracting agreements, supervise, & terminate; but does so on behalf of the Board Is not independent of the board

22. The Board as the Employer Is treated as any other employer would be in NYS Must have personnel policies NYS requirements Working hours Personal, sick & vacation policy Holiday pay policy Posted smoking policy Contractual requirements, i.e. drug-free workplace

23. Two Major Types of Worker Classification Employees At will Contracted Exempt Non-Exempt Independent Contractors

24. Worker Classification Failure to appropriately determine who is & who is not an employee, or to clearly delineate the duties of contractors could have serious & costly consequences for the employer Assessment Note: ED’s should rarely if ever should be independent contractors.

25. What is an Employee? The degree of CONTROL, SUPERVISION AND DIRECTION are touchstone determinants

26. Factors that Indicate “Control” Determining when, where & how services will be performed Providing facilities, equipment tools & supplies Directly supervising the services Stipulating the hours of work Requiring exclusive services Setting the rate of pay Providing fringe benefits

27. Special Rules for Performing Artists The Unemployment Insurance Division of the NYS Department of Labor has issued more specific guidelines on whether a person defined as a “performance artist” is truly an employee or an independent contractor

28. The Executive Director (or CEO) At-will or contract employee? Exercises authority as designated by the board & is accountable for overall organizational performance Provides vision, professional support, guidance & advice to board Advances & protects fiduciary obligations of organization & board

29. Best Practice Tip Define general & lasting parameters in bylaws Have updated, board approved job description or clearly defined contract Evaluate in writing annually

30. Artistic Directors Typically: The most senior creative employees of an artistic institution Responsible for motivating staff to produce the highest quality of work while maintaining the organization's mission

31. Open Discussion & Questions

32. Assessing Management & Governance: Nonprofit Operations & Best Practices Presented by Doug Sauer, CEO New York Council of Nonprofits, Inc. New York City-Albany-Buffalo-Poughkeepsie-Rochester-Oneonta