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
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:
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. 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
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. 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. 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. 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. 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. 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
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. 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. Preserve Nonprofit Status
• IN SOS BIZ
• Verify Reports are current
• Verify Info is current
Check IN
Status
• IRS Exempt Check
Check FED
Status
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. 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. 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!
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?
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. 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. 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. 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. 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
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. 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. 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. 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. Risk Management - People
• Embezzlement by employees
• Embezzlement by officers
• Fraud from “outsiders”
• Phrase of the Day – “Trust ButVerify”
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. 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. 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. 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. 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!
42. For More Information
IRS.gov – Exempt Organizations
Publication 557 –Tax Exempt Status Info
Online – ExemptOrg SelectCheck
Indiana Secretary of State
Indiana Department of Revenue
Guidestar.org
Charity Navigator
Blue Avocado
Handout –Where to Go for More Information
43. Thank you for your attention!
Any Questions?
Miriam Robeson, Attorney
Today’s materials are available on Miriam’s
Website:
http://blog.lawlatte.com/
