Nonprofit Governance

andFinancial

AccountabilityPresenter:

Miriam Robeson, Attorney

August 3, 2016

Nonprofit Governance and Financial Accountability–What is it?

•Focus on basics in four areas:•Nonprofit Governance•Nonprofit Compliance•Nonprofit Accountability• Threats to Nonprofit Success

Nonprofit BasicsGovernance

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 for Tax Exempt Status:

IRS Exempt StatusAnalysis of Application Path

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

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 BylawsHandout: Conflict of Interest Policy

Handout: Confidentiality Policy

Corporate Formalities

•Board of Directors•Minimum = 3 / Preferred = 5•Officers – •President•Vice President•Secretary•Treasurer

•Functional Committees

5 Tips to Better Board Meetings

•Have an Agenda•Be Prepared•Know your Audience•Keep it Short!•Keep track of what

happens

Board Meetings don’t have to be TORTURE!

Handout: Sample Agenda

5 Tips for Better 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 financial

2.Be Prepared•Read your Board Packet - Know the issues•Do your homework from previous meetings

3.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

5 Tips to Better Board Meetings4. 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. 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 copies

of minutes)

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 Questions Asked by Nonprofit Boards

5 Important Duties of Board Members1. 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

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 the Well-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

Nonprofit BasicsCompliance

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

• Payroll Tax, Sales Tax

Tax Reports and Payments

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 <

$500,000Failure to file – automatic revocation of §501 exempt

status

Preserve Nonprofit Status

• IN SOS BIZ• Verify Reports are

current• Verify Info is current

Check IN

Status• IRS Exempt CheckCheck

FED Status

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

Compliance - EmploymentEmployment 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 > $47,476For “exempt”

Fair Hiring and Nondiscrimination

Does not apply to all employers

APPLIES FOR GOVERNMENT

FUNDING!

Handout: Answers to Nonprofit Questions about New Federal Overtime Rules

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!

Nonprofit BasicsAccountability

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?

AccountabilityFinancial Governance Policies

Policies for – Handling MoneyRecording MoneyReporting Money

Handout – Nonprofit Financial Control Policy

AccountabilityFinancial Controls

Financial Procedures Manual

• Donor restrictions• Grant requirements• Commingling Funds

Restrictions documented and honored

Training program for Staff and Board

Document Retention/Destruction Policy

Handout – Document Destruction Policy

Treasurer Boards of All-Volunteer Organizations:

Eight Key ResponsibilitiesHandle the Money with High Standards

Manage the Filings

Identify and Manage Risk

Confirm Contributions

From article by Dennis Walsh published in Blue AvocadoUsed with permission

Treasurer Boards of All-Volunteer Organizations: Eight Key Responsibilities

Track Volunteer Time

Plan and Evaluate with a Budget

Prepare Timely Financial Reports

Recruit the Next Treasurer

From article by Dennis Walsh published in Blue AvocadoUsed with permission

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

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 of TIME and EXPERTISE are NOT deductible!

Handout: Top 10 Rules for Charitable Donations

Nonprofit BasicsRisk Management

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

Risk ManagementGeneral 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.

Risk ManagementD&O Insurance

D&O Insurance covers

Breach of Duty

Wrongful acts of the

boardMismanage-

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

Risk Management PlanTypes of Risk to Manage

People • Board members, volunteers, employees, clients, donors, the public.

Property • Buildings, facilities, equipment, materials, copyrights, trademarks

Income • sales, grants, contributions, sponsors, fund raising

Goodwill •reputation, stature in community, ability to raise funds and appeal to prospective volunteers

Handout – Risk Management Policy

Risk Management - People

• Embezzlement by employees• Embezzlement by officers• Fraud 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” 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

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

Nonprofits and FraudWhat to do when it happens to you!

If you suspect fraud – act immediately!

• Lock-down data• Start a formal audit process with outside auditor• Change procedures and rotate staff responsibilities

If you verify fraud

• 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

FraudAlert!

Handout – Someone Stole the Cashbox!

PR for NonprofitsPublic Relations During Fraud Crisis

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

Preventing Fraud

Have and use financial control policies

Know who handles the money

Remove temptation

Review financial information• A

LSO - have independent review of finances

Be aware that it can happen to your nonprofit!

Nonprofit Governance andFinancial Accountability

•Governance•Compliance•Accountability• Threats

Conclusion

For More Information

IRS.gov – Exempt Organizations Publication 557 – Tax Exempt Status

InfoOnline – Exempt Org Select Check

Indiana Secretary of State Indiana Department of RevenueGuidestar.orgCharity NavigatorBlue Avocado

Handout – Where to Go for More Information

Thank you for your attention!

Any Questions?

Miriam Robeson, Attorney

Today’s materials are available on Miriam’s Website:

http://blog.lawlatte.com/