legal and governance issues in funding and conducting activities abroad

Sponsored by: A Service

Of:

Legal and Governance Issues in Funding

and Conducting Activities Abroad

Jeffrey M. Hurwit

December 12, 2012


Of:

Advising nonprofits in:

• Strategy

• Planning

• Organizational Development

www.synthesispartnership.com

(617) 969-1881

[email protected]

INTEGRATED PLANNING


Of:

Affordable collaborative data

management in the cloud.


Of:

Today’s Speaker

Jeffrey M. Hurwit Attorney

Hurwit & Associates Assisting with chat questions: Jamie Maloney, Nonprofit Webinars

Hosting:

Sam Frank, Synthesis Partnership

5

Legal and Governance Issues in Funding

and Conducting Activities Abroad

Jeffrey M. Hurwit

December 12, 2012

Legal and Governance Issues in Funding and Conducting Activities Abroad Jeffrey M. Hurwit

December 12, 2012

Agenda

6

1. Introduction 2. Sector Information and Overview 3. Concept of Stewardship for U.S. Organizations Acting

Abroad • Resulting governance, board responsibilities

4. Providing Funds Abroad • Foundation grants to NGOs abroad • Homeland Security • U.S. “Friends” group distributions abroad

5. Conducting Activities Abroad


December 12, 2012

Who Gives?

7

In 2011, American donors gave $298 billion

Corporations, 5%

Foundations, 14%

Individuals, 81%

Source: Giving USA 2012


December 12, 2012

International causes supported with foundation grants, to domestic & foreign charities

8

Gates Foundation, 30%

All Others, 9%

Intl. Development, 21%

Environment, 17%

Education, 5%

Intl. Affairs, 4%

Public Affairs/Society Benefit, 3%

Arts, 3%

Human Rights, 3%

Social Sciences, 2%

Religion, 2% Science, 2%

Source: Foundation Center, International Grantmaking Update, 12/2010 (biennial publication)

Health 39%


December 12, 2012

US foundation giving, internationally

9

US Foundations gave more than

$2 billion to non-US charities in 2010.

6,387 Recipients

8,968 Grants

471 Grantors

Source: Foundation Center 2012


December 12, 2012

Location of non-US grantees in 2010

10

Country Amount Recipient

Count Grant Count

Grantmaker 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 36

Source: Foundation Center, Cross-Border Giving, Sept. 2012


December 12, 2012

Traditional Organizational Structure of U.S. Nonprofit Organizations

11

Board of

Directors

Fundraising Committee

Budget and

Finance

Committee

Nominating Committee

Other: Ad Hoc or

Program Committees

-CEO-

Executive Director

(or President)

Asst. Director

Development

(or Vice

President)

-CFO-

Asst. Director

Finance

(or Vice

President)

-COO-

Asst. Director

Operations

(or Vice

President)

Asst. Director

Planning/

Marketing

(or Vice

President)

-COO-

Asst. Director

PR/Community

Affairs

(or Vice

President)

Asst. Director

Human

Resources

(or Vice

President)


December 12, 2012

Outline of Board Roles and Responsibilities

1. Legal/Fiduciary Role A. General Responsibilities

• Governance – Oversee – Review/Evaluate/Monitor

• Leadership: In partnership with CEO and management, guide mission, direction

12


December 12, 2012

Outline of Board Roles and Responsibilities (cont.)

13

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


December 12, 2012


14

1. Legal/Fiduciary Role (continued) C. Meeting Specific Responsibilities Through:

• Board Orientation • Information Flow: Financial statements, reporting

regarding programs, operations, planning • Each director's 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


December 12, 2012


15

2. Supporting Functions • Fundraising • Planning • Public and Community Relations • Other specific and ad hoc duties and tasks as

needed


December 12, 2012

Grant Award Agreements

16

Standard Provisions

1. Grant Award 2. Term, Number of distributions 3. Use of Funds and/or Project Description 4. Reporting (Periodic, Final)

• Narrative: Accomplishments, progress toward grant purposes

• Financial: Income, expenses, budget, remaining funds 5. Recordkeeping

• Record Maintenance • Separate Fund


December 12, 2012

Grant Award Agreements (continued)

17

Standard Provisions

6. Prohibited Uses • Regranting • Legal Restrictions • Lobbying • Private Benefit

7. Compliance • Child Protection • Anti-Bribery

8. OFAC Compliance • Office of Foreign Asset Control • Under U.S. Treasury Department


December 12, 2012

Grant Award Agreement Provisions

18

Compliance with Office of Foreign Assets Control

OFAC Compliance. Grantee agrees that it will use the funds in compliance with all applicable anti-terrorist financing, sanctions, and asset control laws and regulations.

--- or ---

OFAC Compliance. Grantee verifies that neither the organization itself, nor any of the organization’s directors/governors/trustees, staff, or consultants appear on the U.S. Treasury’s Office of Foreign Assets Control Specially Designated Nationals and Blocked Persons List (“SDN List”); and that if such organization or personnel described here should appear on the SDN List, the Grantee will promptly notify Grantor and, subject to the Grantor’s further request, make immediate repayment of the grant.


December 12, 2012

Risk Factors for Charities Disbursing Funds or Resources to Grantees

19

Low Risk Medium Risk High Risk

The grantee has explicit

charitable purposes and

discloses how funds are used

with specificity.

The grantee has general

charitable purposes and

discloses how funds are used

with specificity.

The grantee has general

charitable purposes and does not

disclose how funds are used.

The charity and the grantee have

a written grant agreement that

contains effective safeguards.

For example, provisions

addressing proper use of funds

by the grantee, delineation of

appropriate oversight, and

programmatic verification.

The charity and the grantee have

a written grant agreement with

limited safeguards.

The charity and the grantee do

not have a written grant

agreement.

The grantee has an existing

relationship with the charity.

The grantee has existing

relationships with other known

charities but not with this

charity.

The grantee has no prior history

with any charities.

The grantee can provide

references from trusted sources.

The grantee’s references are

from sources with which the

charity is unfamiliar.

The grantee can provide no

references or sources to

corroborate references provided.

Source: Office of Foreign Assets Control , U.S. Department of Treasury


December 12, 2012

Risk Factors for Charities Disbursing Funds or Resources to Grantees (cont.)

20


The grantee has a history of

legitimate charitable activities.

The grantee is newly or

recently formed, but its

leadership has a history of

legitimate charitable activities.

The grantee has little or no

history of legitimate charitable

activities.

Charity performs on-site

grantee due diligence through

regular audits and reporting.

Charity performs remote

grantee due diligence through

regular audits and reporting.

Charity performs no grantee

due diligence, or due diligence

is random and inconsistent.

Grantee provides

documentation of the use of

funds in the form of video,

receipts, photographs,

testimonies, and written records

Grantee provides

documentation of the use of

funds. Documentation may only

include receipts and written

records.

Grantee provides no

documentation of use of funds.

Source: Office of Foreign Assets Control, U.S. Department of Treasury


December 12, 2012

21


The charity disburses funds in

small increments as needed for

specific projects or

expenditures.

The charity authorizes grantee

discretion within specified

limits.

The charity disburses funds in

one large payment to be

invested and spent over time or

for unspecified projects

selected by the grantee.

Reliable banking systems or

other regulated financial

channels for transferring funds

are available and used by the

grantee, subjecting such

transfers to the safeguards of

regulated financial systems

consistent with international

standards.

Reliable banking systems or

other regulated financial

channels for transferring funds

are not reasonably available for

the grantee’s relevant activity,

but the charity and the grantee

agree on alternative methods

that they reasonably believe to

be reliable, trustworthy, and

protected against diversion.

The grantee does not use

regulated financial channels or

take steps to develop alternative

methods that the charity and

grantee reasonably believe to

be reliable, trustworthy, and

protected against diversion.




December 12, 2012

22


Detailed procedures and

processes for the suspension of

grantee funds are included

within the written agreement

and enforceable both in the

United States and at the

grantee’s locale.

Detailed procedures and

processes for the suspension of

grantee funds are included

within the written agreement

but may not be enforceable at

the grantee’s locale due to

instability or other issues.

There exist no procedures or

processes for suspension of

grantee funds in the event there

is a breach of the written

agreement.

The charity engages exclusively

in charitable work in the U.S. or

in foreign countries/regions

where terrorist organizations

are not known to be active.

The charity engages in some

work in foreign

countries/regions where

terrorist organizations may be

active.

The charity primarily engages

in work in conflict zones or in

countries/regions known to

have a concentration of terrorist

activity.




December 12, 2012

Distributing Funds Abroad Through:

23

1. Expenditure Responsibility

• Additional provisions in grant award letter • Additional reporting on Form 990

2. Equivalency Determination

• Additional burden on grantee:

– Affidavits, detailed information – Difficulty for non-English speakers

• Additional burden on grantor: – Review and determination of equivalency


December 12, 2012

The 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


December 12, 2012

The 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


December 12, 2012

The 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. organization 26


December 12, 2012

U.S. Friends Organizations: Annual Work Cycle and Processes

27

Governing Body

• Raises funds

• Conducts due diligence

• Approves distribution of

funds

• Receives, reviews

narrative, financial reports

on expenditure of U.S.

funds, accomplishments

• Begin cycle again

• Plans for use of U.S.

funds

• Coordinates plan with

U.S. Friends

• Receives, expends U.S.

funds

• Provides narrative,

financial reports on

expenditures of U.S.

funds, accomplishments

• Begin cycle again

U.S. Friends of

the XYZ National Museum

Board of Directors

Awards funds after board approval

Provides reports

demonstrating use of funds for approved purposes

XYZ National Museum

Ongoing

Coordination*

* Coordinate planning,

objectives, expectations.

* Establish system of

regular communications.


December 12, 2012

Conducting Activities Abroad

28

Legal and Practical Issues

1. Legal, regulatory restrictions and requirements 2. Currency controls and money transfer issues 3. Program Oversight

• Ground support 4. Employee vs. Independent Contractor 5. Cultural Issues

• Authority, control • Disposition of charitable assets

6. Affiliate, Chapter Agreements


December 12, 2012

Related Topics not under discussion today

29

• Bylaws • Maintaining Tax Exemption • Annual Filings and Reporting Requirements • Liability • Insurance

30

Thank you for listening!

Jeffrey Hurwit Hurwit & Associates 1150 Walnut Street Newton, MA 02461 USA

T:

F:

E:

W:

+1 617-630-6900

+1 617-928-3441

[email protected]

www.hurwitassociates.com

With special thanks to Kenneth Hoffman, consultant in International Fundraising and Grantmaking, Lexington, Massachusetts, for providing the introductory slides on giving abroad.

mailto:[email protected]

http://www.hurwitassociates.com/


Of:

Find listings for our current season of webinars and register at:

NonprofitWebinars.com

legal and governance issues in funding and conducting activities abroad

Business