nonprofit governance basics 2014
DESCRIPTION
TRANSCRIPT
Strengthening Nonprofits through
Effective Management
Sponsored by Purdue Extension
Presenter - Miriam Robeson, AttorneyJanuary 27, 2014© 2014, Miriam Robeson
Nonprofit Organization and Effective Management – What is it?
Focus on basics in four areas:› Nonprofit Governance› Nonprofit Compliance› Nonprofit Accountability› Threats to Nonprofit Success
Nonprofit Basics
Governance
Important Documents Articles of Incorporation
› Most Important Governing Document
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
Handout: Conflict of Interest Policy
Corporate FormalitiesBoard of Directors
›Minimum = 3 / Preferred = 5
Officers – PresidentVice PresidentSecretaryTreasurer
Functional Committees
5 Ways to Better Board Meetings
Have an AgendaBe PreparedKnow your AudienceKeep it Short!Keep track of what
happens
Board Meetings don’t have to be TORTURE!
Handout: Sample Agenda
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 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 facing the board
5 Ways to Better Board Meetings
4. Keep it SHORT!›1 hour or less (use “Time Checks”)›Agenda helps manage time›Robert’s Rules NOT required›If you can’t end on time – Ask the Board to help prioritize remaining agenda itemsSave some items for another meetingConsider 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 Ways to Better Board Meetings
5 Important Duties of Board Members
Duty of Care (Due Diligence )
Duty of ObedienceDuty of LoyaltyDuty 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 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
4. Duty to the Mission›KNOW - BELIEVE - SUPPORT the MissionShould 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 hardshipEnsure that programs and activities thriveEnsure the longevity of the organization
5 Important Duties of Board Members
Nonprofit Basics
Compliance
Compliance Arenas
State Federal Lobbying (IRS Restrictions) Employment UBIT
Compliance - State
• Indiana Secretary of State
Annual Business Entity Report
• Indiana State Board of Accounts• Financial Reporting for Government
Funds
Entity Annual Report (E-1)
• Indiana Department of Revenue
NP-20
Compliance - Federal
IRS – 990 Form<$50,000 – 990 N• Change in threshold
beginning 2010• 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(c)(3) status
Compliance - Lobbying
CANNOT DO
• Endorse political candidate
• Spend more than 5% of annual budget on lobbying activities
• Directly lobby legislators
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
January 1 – ONLINE
requirement for many
organizations
Federal – EFTPS (electronic federal tax
payme nt system)
State – IN-Tax
Employer conduct
“Exempt” versus “non exempt”
employees
Wages and Hours laws
Fair Hiring and Nondiscriminatio
n
Does not apply to all employers
APPLIES FOR GOVERNMENT
FUNDING!
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 Basics
Accountability
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?
Accountability - Financial Governance Policies
Policies for – Handling Money Recording Money Reporting Money
Handout – Nonprofit Financial Control Policy
AccountabilityFinancial Controls
Financial Procedures Manual
Restrictions documented and honored• Donor restrictions• Grant requirements• Commingling Funds
Training program for Staff and Board
Document Retention/Destruction Policy
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
Accountability - Charitable Donations
• What can be considered a donation?• What paperwork is required?• Donations of goods or funds > $250 require
written acknowledgement• How to handle In-Kind Donations• Magic language: “No goods or services
were provide in exchange for this donation”
Watch the Rules regarding charitable donations!
NOTE – donations of TIME and EXPERTISE are NOT deductible!
Handout: Top 10 Rules for Charitable DonationsHandout: In Kind Donation Form + Instructions
Nonprofit Basics
Risk Management
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.
Risk Management – General Liability InsuranceDon’t Leave
Home Without It!
“Slip and Fall” insurance for
basic activities
Personal Injury
Property Damage
Most places require it
Facility rental
Working with other
organizations
NOTE – Usually DOES NOT COVER MEMBERS
Risk Management – D&O Insurance
D&O Insurance
coversBreach of Duty Wrongful acts of
the board Mismanagement
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 Plansfor 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 Management PlanTypes of Risk to Manage
• Board members, volunteers, employees, clients, donors, the public.
People
• Buildings, facilities, equipment, materials, copyrights, trademarks
Property
• sales, grants, contributions, sponsors, fund raisingIncome
• reputation, stature in community, ability to raise funds and appeal to prospective volunteers
GoodwillHandout – Risk Management Policy
Financial Oversight is the review of both finances and financial practices
Ensures safe, ethical financial procedures
Protects Nonprofits and the Directors/Staff
Provides integrity and transparency to the public
Catches financial difficulties before they become financial impossibilities
Handout – 10 Tips for Keeping an Eye on Finances
Risk Management PlanWatch the Money – Watch the People
Have and use financial control policies
Know who handles the money
Remove temptationReview financial information• ALSO - have independent review of
finances
Be aware that it can happen to your nonprofit!
Handout: Sample Board Anti-Fraud Policy
Risk Management PlanPreventing Fraud
Abuse of Nonprofit Status
Improper Conduct
Executive Compensation
“Private Inurement”• Excessive
compensation• Unreasonable
Rental Agreements• Unreasonable
lending agreements
• Unreasonable sales transaction
Improving Fiscal Health
General Tips for Healthy Nonprofits
› Pay attention to finances as well as mission› Recruit Board members based on need› Embrace in-kind donations – but have a plan› Make smart decisions about facilities› Growth is not always good – watch “mission
creep” and inadequate capacity
Handout – How Small Nonprofits Can Improve
Risk Management 101Surviving in an Uncertain Economy
Step 1 – Review the Organization› How well do you meet your budget
(typical year)?› What shortfall do you anticipate?› How long can you survive at
reduced budget levels?› How are you affected by each
funding source?
Step 2 – Make a Plan› Risk Management Plan› What can you reduce and maintain
current levels of service?› What can you reduce and maintain
minimum service?› Where can you increase funding
Lapsed donors, new donors, alternate funding sources
Risk Management 101Surviving in an Uncertain Economy
Step 3 – Creative Options› New Fund Raising Opportunities Social media, networking, micro-
fundraising
› Collaborations with similar or complementary nonprofits
› Spin-off/Re-Master current activities
Risk Management 101Surviving in an Uncertain Economy
Step 4 – Acute Crisis Management› Reduction in programs
Prioritize – what MUST you retain? Reduce scope/ Increase fees
› Reduction in Staff Reduction in Staff ≠ previous service levels Reduction in Staff = do it right
› What is your “limit”? Minimum financial - resource - program -
mission
Risk Management 101Surviving in an Uncertain Economy
Handout: PR in times of Crisis – Preserving public image
A Word About Ethics
Ethical conduct of Board and Staff is essential!›No conflict of interest -- No self-dealing -- Volunteer Board
(but you can have paid staff that report to the Board)
Three areas Nonprofits Fail Ethics Issues›Failure to watch the money›Failure to watch the staff (and each other)›Failure to watch conflicts of interest
Nonprofit Corporations have the Public Trust
Protecting Nonprofit Status
Improper donor acknowledgements Donations of time are not tax-deductible
Donor “influence-buying” Improper arrangements with donors
Failing to include both spouses in joint gift paperwork
Staff/ED/Board/Volunteer accepting gifts from donors
Personal Benefit from Nonprofit Work
Ethics and Conduct – What NOT to do
Nonprofit Organization and Effective Management
› Governance› Compliance› Accountability› Risk Management
For More Information
IRS.gov – Exempt Organizations Publication 557 – Tax Exempt Status Info Online – Exempt Org Select Check
Indiana Secretary of State Indiana Department of Revenue Guidestar.org Charity Navigator Blue Avocado
