Nonprofit Compliance Conference Recap

Establishing Your Nonprofit

The first steps involve registering your organization as a nonprofit corporation with your state and obtaining an Employer Identification Number (EIN) from the IRS. Additionally, you will need to register with your state Attorney General’s office and the Department of Taxation. To qualify for tax-exempt status, you will need to file Form 1023 with the IRS to obtain designation as a 501(c)(3) public charity.

Governance and Financial Oversight

Strong governance starts with establishing clear bylaws and a dedicated board of directors. These bylaws should outline the organization’s mission, structure, and procedures for board meetings. The board is responsible for overseeing the organization’s finances and ensuring its mission is being fulfilled.

Financial Management

Developing and adhering to sound financial practices is essential for maintaining public trust and ensuring the long-term viability of your organization. The board should approve an annual budget and establish policies and procedures for internal controls. This includes separating financial duties, such as having different people responsible for opening bank statements and paying bills.

For larger organizations, establishing an audit committee to oversee the selection and engagement of an independent auditor is a recommended best practice. Regular review of financial statements by the board is crucial. Understanding these statements allows the board to make informed decisions about the organization’s financial health.

Human Resources Considerations

Nonprofits must comply with all applicable labor laws. A critical aspect of this is correctly classifying workers as either employees or independent contractors. The IRS provides guidelines to help make this distinction. Generally, employees are subject to the organization’s control over how the work is performed, are provided with equipment, and have set schedules.

Having written personnel policies and employee handbooks ensures consistency and transparency in your HR practices. These documents should include clear guidelines for setting staff salaries and benefits.

Maintaining Compliance

Obtaining and maintaining your 501(c)(3) status requires annual filing of Form 990 with the IRS. The specific form you need to file depends on your organization’s gross receipts and total assets. The IRS offers a postcard form for smaller organizations, a simpler Form 990-EZ for organizations of moderate size, and the full Form 990 for larger organizations.

Many states also require annual reports to be filed with the Secretary of State’s office. Depending on your location, you may also need to register with your state to solicit charitable donations. It is important to research and comply with any specific requirements in your state.

Recordkeeping

Maintaining accurate and complete records is essential for all organizations, but especially for nonprofits. This includes meeting minutes, committee notes, a current list of board members with contact information, and key documents such as bylaws and financial statements. A documented retention policy outlining how long to retain various types of documents is recommended.

Conclusion

By following these best practices and adhering to legal and regulatory requirements, your nonprofit can operate with transparency, build public trust, and focus on fulfilling its mission. Remember, there are resources available to help you navigate compliance. The National Council of Nonprofits and the Nonprofit Risk Management Center are excellent resources for further information and support.

Brady Ware Nonprofit Advisors want to help you fulfill your mission with financial health and compliance services and a network of nonprofit consultants who specialize in strategic decision-making.