2. Nonprofit Organization and
Effective Management –
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 for Tax Exempt Status:
5. 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
Handout: Nonprofit Sample Bylaws
Handout: Conflict of Interest Policy
7. 5 Ways to
Better Board Meetings
Board Meetings don’t have to be TORTURE!
Have an Agenda
Be Prepared
Know your Audience
Keep it Short!
Keep track of what happens
Handout: Sample Agenda
8. 5 Ways to
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 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
9. 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 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)
10. 5 Important Duties of
Board Members
3 “traditional” – 2 “extra”
Duty of Care (Due Diligence )
Duty of Obedience
Duty of Loyalty
Duty to the “Mission”
Duty to the well-being of the
organization
Handout: 8 Questions Asked by Nonprofit Boards
11. 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
5 Important Duties of
Board Members
12. 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
5 Important Duties of
Board Members
14. 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
15. 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
16. 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
17. 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
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
Nondiscrimination
Does not apply to
all employers
APPLIES FOR
GOVERNMENT
FUNDING!
18. 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!
20. 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?
22. Accountability
Financial ControlsFinancial 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
23. 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
24. 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
26. 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
27. 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.
28. Risk Management – D&O Insurance
D&O
Insurance
covers
Breach 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
29. Risk Management Plan
Types 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
Goodwill
Handout – Risk Management Policy
30. Risk Management - People
Poor economy has resulted in an increase
in criminal conduct against nonprofits
Embezzlement by employees
Embezzlement by officers
Fraud from “outsiders”
Phrase of the Day – “Trust But Verify”
31. 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
32. What are the most common types of fraud?
16.20%
9.60%
28%
15.10%
16.90%
10.60%
2.40% 11.50%
Skimming
Larceny
Billing
Expense
Check
Payroll
Cash Register
Cash on Hand
2010 Global Fraud Study, Association of Certified Fraud Examiners
33. How is Fraud Punished?
Termination of employment = 72%
No punishment = 7%
Quit/disappeared = 8%
Referral to law enforcement = 72%
Prosecutor declines to prosecute =25%
(Note – numbers total greater than 100%
because more than one action is taken)
“An Investigation of Fraud in Nonprofit Organizations: Occurrences
and Deterrents,” Greenlee, Fischer, Gordon and Keating, 2006, Hauser
Center for Nonprofit Organizations
34. What is the likelihood of recovering funds? (1)
Nothing recovered = 50%
Partial recovery = 16%
Complete recovery = 34%
Small organizations are much more likely to
be a victim of occupational fraud
Lack of anti-fraud controls in smaller
organizations contributes to vulnerability
WHO IS MORE LIKELY TO BE VICTIMIZED? (2)
1. “An Investigation of Fraud in Nonprofit Organizations: Occurrences and
Deterrents,” Greenlee, Fischer, Gordon and Keating, 2006, Hauser Center for
Nonprofit Organizations
2. 2010 Global Fraud Study, Association of Certified Fraud Examiners
35. 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!
36. PR for Nonprofits
Public 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, termi
nation
• If board member:
resignation, remo
val
•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
37. 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!
39. 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
Handout – Where to Go for More Information
40. Thank you for your
attention!
Any Questions?
Miriam Robeson, Attorney
Today’s materials are available on
Miriam’s Website:
http://blog.lawlatte.com/
