Non-Profit 101: Protecting Your Non-Profit in Challenging Times
Five Steps to Prepare for Uncertainty
“Paperwork saves lives” – it was a frequent refrain in the back-office of the international non-profit where I served as General Counsel. It reminded us that our paperwork, ensuring finances, governance filings, and policies were in order, was critical to enabling our organization to achieve its mission, impacting—even saving—real human lives.
In a climate where the charity sector is facing increased uncertainty and scrutiny coupled with the potential loss of key funding, this has never been more true. Having paperwork in order is a key way you can protect your non-profit and help it stay focused on mission.
I’ve seen this in action many times. Sometimes it is invisible—as when an organization quietly provides timely and accurate government filings year after year, never drawing scrutiny. Sometimes it is louder—like an allegation of improper spending and sweetheart deals that is quickly put to rest by immediate production of Board minutes, conflict policy and disclosures, and contract terms. For a charity working in an environment of increased scrutiny on civil society, something I witnessed many times with international partners, survival could depend on taking care to avoid providing any non-compliance hook to hang an investigation or review hat on. For all charities, ensuring paperwork ducks are in a row before scrutiny comes is just smart risk management.
Guidance from a recent training on helping nonprofits navigate evolving issues in the sector, by the Office of the Attorney General of New York State, rang true to what I’ve seen in practice. I’ve simplified the guidance to five key steps nonprofits can take now to be prepared.
Know which federal actions apply to your organization
Does it impact funding? Beneficiaries? Programs? Is the action in question legally binding and in effect? This may require you to assign someone to monitor federal actions, as they’re changing at a dizzying pace. (Hint: The Council on Non-Profits has a good tracker to help follow relevant executive orders and legal challenges in effect, as well as other practical resources.)
Do a risk assessment
Once you know which executive orders in effect may impact you, assess whether anything within your organization is at odds with them. Review federal grants and contracts—what are the terms related to cancellation and any remedies you have? Review your organization’s policies and governance practices. Ensure Board and committee meetings are documented. (Hint: Form 990 Part 6 provides a good outline of basic good governance practices to check for.)
Make sure your documents and practice line up—with each other, and with the law
Are your purposes as documented in your tax exemption application (1023), governing documents (bylaws, articles of incorporation), annual reporting (990), and other communication materials (website, annual report) actually charitable in nature? Do they reflect what you are actually doing? (Hint: Don’t forget to complete any required Form 990 schedules; a missing schedule can be a red flag for reviewers attracting unwanted attention.)
Avoid unnecessary red flags
Don’t inadvertently create cause for concern by making missteps in common areas. (Hint: This covers a wide range of compliance concerns!) For example:
Ensure you are properly characterizing employees and contractors.
If you’re earning revenue, evaluate whether it is triggers UBIT (the “unrelated business income tax”) and report it if so.
Stay charitable: Don’t cross the line from an Advocacy organization (permitted) to Action organization (not permitted). Don’t control in any joint venture to the for-profit partner.
Don’t permit private benefit: Ensure you have reasonable compensation. Ensure you have a conflict policy, expense reimbursement policy, travel policy and appropriate review processes. If you provide grants or scholarships, ensure you have the right processes and criteria.
Report overseas activity as required and exert appropriate oversight to ensure it is all for your charitable purposes and no impermissible purposes (e.g., financing terrorism).
Don’t Lie
Making any kind of misstatement regarding a federal matter (for example, on your Form 990) could open you to investigation, and even potential criminal action. Make sure your government filings are accurate. In the event you’re subject to any kind of government inquiry, take care not to make any kind of false statement, however innocuous it may seem—just ask for the reason behind the inquiry and state that you need to speak with counsel. (Hint: If you receive an examination letter from the government, seek professional advice to ensure you learn as much as possible about what is being sought and why, and don’t volunteer documents beyond the request made.)
This can be a lot of work—and paperwork may be (unfairly, in my opinion!) shorthand for ‘boring,’ but taking care of these kinds of documents could be the critical preparation that allows your organization to continue serving your community in challenging times. The good news is it is all doable, and you’re not alone. If you’re ready to dive in, reach out to request a compliance checklist to guide you, with key areas to review and questions to ask.
We’re here to help! To schedule a free 30 minute consultation, contact non-profit law expert Jeannie Rose Barksdale – jeannierose@ch-llp.com
