Posts

Did you miss the most recent edition of my monthly newsletter, GoFisch? It “swam” (punny, get it?) into inboxes on Valentine’s Day and fittingly featured how estate planning is a way of saying “I love you.” While Valentine’s Day has come and gone, every day is a great day to show your friends and family you care, so give the highlighted posts about different aspects of estate planning (like final disposition of remains and testamentary trusts) a read.

This GoFisch edition also included:

  • An exciting policy special for nonprofit organizations running through March 15. Read more about the 10 For 990 deal here.
  • A love-inspired curated Spotify playlist to play while you work through your estate plan.
  • Iowa-based nonprofit & philanthropy news.
  • Must-read GoFisch blog post highlights.

Like what you read? Don’t forget to subscribe to GoFisch and tell your friends! You can also scan through previous editions of the newsletter here.

two boardroom tables

If you’ll think back to the early 2000s, in the aftermath of the Enron scandal (among others such as Tyco, Global Crossing, and WorldCom) the climate of distrust and dramatic malfeasance demanded reform of corporate accounting, governance, and other business practices. Accordingly, U.S. Congress passed the Sarbanes-Oxley Act, a law name that’s easier to remember than the actual full legislation name: The American Competitiveness and Corporate Accountability Act of 2002. In summary, the legislation required adherence to certain governance standards by corporate management, and expanded the role the governing board plays in financial and auditing oversight and procedures. It also applied standards of operation to public accounting firms.

Sarbanes-Oxley’s intended consequences were multitudinous, including closing accounting loopholes, increasing accountability and disclosure requirements, rebuilding public trust in American corporations, and increasing penalties for corporate and executive wrongdoing.

Although Sarbanes-Oxley was passed with publicly-traded companies top mind, there are two provisions that are explicitly relevant to tax-exempt organizations: the whistleblower policy and document retention and destruction protocol.

Whistleblower

A whistleblower policy is not technically mandated for nonprofit organizations, but it makes smart sense to adopt such a policy. Why? First off, it encourages stakeholders in the organization to bring attention to problems in the early stages where issues may be more solvable. It’s also important for state and federal liability purposes and ensuring organization executives, board members, and other stakeholders understand their right to report as well as the implications of inhibiting such reporting.

https://www.gordonfischerlawfirm.com/nonprofit-board-collective-responsibilities/

Section 1107 of Sarbanes-Oxley makes it a federal crime to knowingly take any action with the intent of retaliation against a person who has reported truthful information to law enforcement relating to any current or possible federal offense. Violators of this provision are subject to fines and/or imprisonment for up to 10 years.

An ideal nonprofit whistleblower policy should both set a process for complaints to be addressed and include protection for whistleblowers. A well-written whistleblower policy can encourage an appropriate, swift response of investigation and solutions to complaints.

Form 990, the annual information report the majority of nonprofit organizations are required to file, states the following in its instructions:

A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported.

Record-keeping

 

macbook on table

The acts of document retention and destruction are also covered under Sarbanes-Oxley. Section 802 of the Act defines the criminal penalties for tampering with documents in relation to federal investigations and bankruptcy. It reads:

Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.

You read that right. Violators of this provisions can be fined and/or imprisoned for up to 20 years.

Additionally, Section 1102 of Sarbanes-Oxley makes it a crime to tamper with a record or otherwise impede an official proceeding. Violators of the provision may be fined and/or imprisoned up to 20 years if they “corruptly” alter, destroy, mutilate, or conceal a record, document or other object, or make an attempt to do so, with the intent to impair the object’s integrity or availability for use in an official proceeding. (Note, the term “corruptly” is not defined, but your organization can and should use best judgement on the word.)

Your nonprofit should include specifics related to these Sarbanes-Oxley provisions in a document retention and destruction policy. This policy should clarify what types of documents should be retained, how they should be filed, and for what duration. It should also outline proper deletion and or destruction techniques to ensure compliance and reduce liability risks.

Get Policies Set in Place: 10 for 990 Policy Special

https://www.gordonfischerlawfirm.com/nonprofit-policy-special-10-form-990/

Nonprofit organizations should have relevant and updated policies in place that provide guidance for compliance with these Sarbanes-Oxley requirements. I’m offering the 10 for 990 nonprofit policy special where I’ll draft 10 policies related to annual reporting on Form 990 for only $990. Two of the policies included—whistleblower and document retention and destruction—specifically address requirements under Sarbanes-Oxley.

Seize the opportunity to get strong policies in place before filing Form 990 by contacting Gordon Fischer Law Firm today. Additionally, if you have specific questions about Sarbanes-Oxley compliance don’t hesitate to contact Gordon via email (Gordon@gordonfischerlawfirm.com) or by phone (515-371-6077).

talking at a table

If you’re like me, you love watching team sports be it baseball in the summer, basketball through the winter, or curling and volleyball during the Olympics! For a shot at winning, each of the team members must expertly perform their position. While not as exhilarating to watch, nonprofit boards are similar to team sports; the board of directors (the team) can only be successful if each of the individual members (just like individual athletes) play their positions well. That means individual board members must hold one another accountable for the overall outcomes of the nonprofit organization. In this way, there is shared responsibility of the individual board members for their actions, for the good of the board as a collective entity.

While each nonprofit can vary in structural organization, let’s review what a typical board of directors is collectively responsible for. (Note: directors can be known by other names, such as trustees, regents, directors, or a council.)

Governing with Compliance Top of Mind

cooperative on rock

The board has a responsibility of compliance.

First off, it’s important to remember that the nonprofit board is the ultimate governing authority of the tax-exempt organization. The board is therefore responsible (and can be held legally liable) for what happens within and to the nonprofit. Compliance is the word to keep in mind. A board makes certain the organization is compliant with local, state, and federal laws, as well as its own policies and procedures. Nonprofit policies are invaluable documents that provide structure and guidance in operations and decision-making. They supersede the individual team members’ opinions for the good of the nonprofit as a whole. Without updated and relevant adopted policies, nonprofit boards have a significantly difficult time achieving a solid standard of compliance.

Download my free guide for nonprofit leaders on policies and procedures your organization needs. Then, check out my special deal on nonprofit policies related to Form 990 (annual information return) such as gift acceptance, investment, conflict of interest, and whistleblower policies.

Money on the Mind

Speaking of important policies, nonprofit boards have a responsibility to approve some compensation decisions. Boards are involved with compensation decisions to various extents, from approval of just the top executive’s salary, to all staffers’ compensations—it just depends on organizational structure. However, at the very least, board members should be involved with compensation points asked about on Form 990. (Again, a great reason to snag the 10 for 990 deal!)

Keep a Quorum

The board has the responsibility to maintain a quorum for meetings. Your nonprofit’s bylaws (a foundational document a part of formation) should define a quorum—the minimum number of voting members present—needed to hold a meeting. How do you decide on a quorum? It’s the minimum number of board member who should be reasonably able to attend a meeting. Maintaining a quorum means a majority of voting members are making decisions on behalf of the organization. If a quorum is left to be too flexible, the organization runs the risk of a few members (not the majority) making executive decisions.

Three Ds

The board’s responsibilities can be summed up in the easy to remember “three Ds”: duty of care, duty of loyalty, and duty of obedience. This isn’t just a useful pneumonic device, these are the legal standards (as defined by case law) to which a board’s actions are collectively held.

  • Duty of care: This means that board members are expected to actively participate in making decisions, resolving issues, and participate in planning.
  • Duty of loyalty: Board members must put the interests of the nonprofit ahead of their own personal and professional interests. This means that even merely potential conflicts of interest must be studiously avoided. (Your nonprofit MUST have a conflict of interest policy dispersed, reviewed, and signed by each board member.)
  • Duty of obedience: Compliance with all local, state, and federal regulations and laws applicable to the nonprofit, is an essential responsibility for board members.

Mission Ready

Ultimately the board has the responsibility to keep the organization committed and focused on its stated mission. This is encompassed within the three Ds. In working to uphold the tax-exempt purpose of the nonprofit it’s important all board members recognize their individual responsibilities, and those of the board as a whole, overlap. If the board fails to uphold its duties, in some situations, an individual on the board could be found legally liable (and typically served with fines and/or other restrictions).


Questions about collective responsibilities and how they apply to a nonprofit board you’re involved with? Want to schedule a board training or orientation to brief board members on their legal and financial duties? Need to get those important policies asked about on Form 990 in place? Don’t hesitate to reach out via email or by phone (515-371-6077).

heart in pages of book

Welcome to the newest post in the 25 Days of Giving series. Have questions or a topic  related to charitable giving you want covered as a part of the series? Contact us!

You want your favorite charity to be wildly successful. Whether you’re working for the nonprofit as staff, serving on the board of directors, or assisting as a donor or volunteer, you want your nonprofit to have every chance to reach its goals and objectives. 

The Internal Revenue Service (IRS) strongly encourages nonprofits to adopt specific governance policies to limit potential abuse, protect against vulnerabilities, and prevent activities that would go beyond permitted nonprofit activities. The IRS also audits nonprofits, just as it audits companies and individuals, and having these policies in place can only help you should you be audited. Finally, and perhaps most importantly, having solid policies and procedures in place will provide foundation for soliciting, accepting, and facilitating charitable donations. 

Each nonprofit is unique, and accordingly policies and procedures needed will vary for each. For instance, a non-operating private foundation will likely need a different set of documents than a public charity. However, most nonprofits will want, at the very least, to consider having the following policies in place. 

Articles of Incorporation

Articles of incorporation are necessary to even form a nonprofit corporation; the document is filed with the state and accompanied by a filing fee. This policy can be known by other monikers as “certificate of incorporation,” “articles of organization,” or “charter document.” Think of this as the constitution of the organization. While it can be fairly short, there are some necessary elements in the articles that are required for federal tax-exempt status. Those elements include a statement of purpose, legal address, emphasis on not-for-profit activities, duration, names and address of director(s), and a dissolution clause, among others. You may want to check out the IRS’ sample charter.

Board Roles and Responsibilities

Nonprofit board members are generally tasked with two major responsibilities of support and governance. A board’s rules and responsibilities document should outline the requirements and responsibilities of board members. Some examples of basic components include fundraising participation, determining the organization’s mission and direction, selecting and regularly evaluating the nonprofit director/CEO, and protection of public interest. A policy regarding board roles and responsibilities should encourage nothing short of ethical and legal integrity within board members.

 

boardroom chairs

Bylaws

If you’ve ever been part of any board or committee, you’ve definitely heard reference to the bylaws and received a copy upon joining the organization. Nonprofit bylaws serve as the internal operating methods and rules that specify things like the election process of directors, employee roles within the nonprofit, and operational manners of meetings. Specific language in the bylaws is not required by federal tax law, but some states may require nonprofits to have written bylaws to be considered tax exempt. This document can most often be used to resolve uncertainty between board members and takes the guesswork out of operations.

Code of Ethics

Just as it sounds, a code of ethics document puts in place a set of guiding principles for behavior, decisions making, and activities of those involved in the nonprofit, including board members, employees, and volunteers. While principles innate to your organization such as honesty, equity, integrity, and transparency may be understood by all involved, this formal adoption allows those involved to make a formal commitment to ethical actions and decisions. Sometimes this document is known as a “statement of values,” or “code of conduct.” Many organizations post their code on their website to demonstrate accountability and transparency.

Compensation Policy

Competitive compensation is just as important for employees of nonprofits as it is for for-profit employees. Having a set policy in place that objectively establishes salary ranges for positions, updated job descriptions, relevant salary administration, and performance management is used to establish equality and equity in compensation practices. A statement of compensation philosophy and strategy which explains to current and potential employees and board members how compensation supports the organization’s mission can be included in the compensation policy.

Confidentiality

A nonprofit’s board members have a duty of confidentiality due to their fiduciary obligation to the organization. This duty is there regardless of any written policy or not, but it’s certainly a best practice to clarify and explain why and how confidentiality is important to the specific organization. A confidentiality policy can include elements such as the following:

  • definitions of what matters are considered confidential
  • determination to whom the policy applies
  • statement that board members do not make any public statements to the press without authorization
  • a process by which confidential material may be authorized for disclosure

secret mouth

Conflict of Interest

This is arguably one of the more essential policies a nonprofit board should adopt. A conflict of interest policy should do two important things:

  • require board members with a conflict (or a potential conflict) to disclose it, and
  • exclude individual board members from voting on matters in which there is a conflict.

Note the IRS Form 990 asks whether the nonprofit has such a policy as well as how the organization manages and determines board members who have a conflict of interest. This policy is all too important as conflicts of interest that are not successfully and ethically managed can result in “intermediate sanctions” against both the organization and the individual with the conflicts.

Document Retention

A document retention policy doesn’t mean that EVERY piece of paper and digital report should be kept for a specific duration. But, consider if a document is unknowingly tossed by a nonprofit employee and is later needed in a legal matter. That can cause irrevocable damage. So, ensure all board members, staffers, and volunteers are trained and have a copy of the document retention policy, which should clarify what types of documents should be retained, how they should be filed, and for what duration. This policy should also outline proper deletion/destruction techniques.

Employee Handbook

An employee handbook is another one of the more common nonprofit documents. A quality handbook should clearly communicate employment policies and enforce at-will provisions to all employees. Employment laws are complicated and complex. An employee handbook written/reviewed by a licensed attorney is a good legal step toward avoiding employment disputes. (Yes, just as you need a lawyer to write your estate plan, you’ll need a lawyer to craft/review your employee handbook.) Review your employee handbook regularly, as an out-of-date or poorly written handbook can leave the organization open to employment ambiguity and conflicts.

Financial Policies and Procedures

This document specifically addresses guidelines for making financial decisions, reporting financial status of the organization, managing funds, and developing financial goals. The financial management policies and procedures should also outline the budgeting process, investments reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing will take place.

Endowment

This resolution concerns funds (and the interest from these funds) that are kept long term. It  generally aids the organization’s overall operations. An endowment policy should consider the purpose of the endowment, how the endowment will benefit the mission of the nonprofit, management practices of the endowment, disbursement policies, and investment strategy. (This blog post from GuideStar offers five steps to starting an endowment.)

Gift Acceptance

Gift acceptance is yet another policy the IRS considers to be a best practice for any tax-exempt nonprofit, and the gift acceptance policy can help set acceptance policies for both donors and the board/staffers. There is no federal legal requirement, but this policy does allow you to check “Yes” on Form 990. If well-written and applied across the organization, the policy can help the organization to kindly reject a non-cash gift that can carry extraneous liabilities and obligations the organization is not readily able to manage.

Outstretched hand

Investments

One way a Board of Directors can fulfill their fiduciary responsibility to the organization is through investing assets to further the nonprofit’s goals. But, before investment vehicles are invested in, the organization should have an investment policy in place to define who is accountable for the investment decisions. The policy should also offer guidance on activities of growing/protecting the investments, earning interest, and maintaining access to cash if necessary. Many organizations hire a professional financial advisor or investment manager to implement investments and offer advice. This person’s role can be accounted for in the investment policy.

Whistleblower

Nonprofits, along with all corporations, are prohibited from retaliating against employees who call out, draw attention to, or “blow the whistle” against employer practices. A whistleblower policy should set a process for complaints to be addressed and include protection for whistleblowers. Ultimately this policy can help insulate your organization from the risk of state and federal law violation and encourage sound, swift responses of investigation and solutions to complaints. Don’t just take it from me, the IRS also considers this an incredibly helpful policy:

“A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported. (Instructions to Form 990)

Policies = Powerful

While these documents may sound like a lot of work, the time and energy you place into ensuring your nonprofit is set up for success will pay off in the long run by saving you legal and IRS fees, internal conflict, violations, and compliance issues. Plus, you can enlist a qualified nonprofit attorney to do the leg work for you! 

You may say, “My organization already has a great set of policies in place!” Which is great. But, you should continuously update them as needed/wanted. A policy from 2002 may have been perfect at the time, but could be in dire need of updates.

I’d advise making policies the main subject of a board meeting to review what policies have been adopted, which policies need revisions, and which policies you’re missing altogether. If you’re not sure where to start, or how policies should be drafted, read, or enacted, I would be happy to offer you a free one-hour consultation. You can also take me up on my 10 for 990 policy special.

I’m here to assist in drafting or revising your set of nonprofit policies, so don’t hesitate to contact me via email or phone (515-371-6077). We’ll schedule your free one-hour consultation and make a plan to set your organization up for success!

(Note this article is provided for general information only and not intended as legal advice for your specific nonprofit organization. Again, please contact me to discuss your organization’s unique needs.)

nonprofit board members discussing duties

In wise words attributed to Voltaire (and the Spider-Man comic book), “With great power, comes great responsibility.” Never have these words been more true than when it comes to serving on a nonprofit’s board of directors. Being asked or elected to serve on a board can be a huge honor, but it also comes with great legal and fiscal responsibilities.

Legal Duties

Let’s start with three of the major legal duties:

  • Duty of care: This means that board members are expected to actively participate in making decisions, resolving issues, and participate in planning.
  • Duty of loyalty: Board members must put the interests of the nonprofit ahead of their own personal and professional interests. This means that even merely potential conflicts of interest must be studiously avoided. (Your nonprofit MUST have a Conflict of Interest Policy that each board member signs.)
  • Duty of obedience: Compliance with all local, state, and federal regulations and laws applicable to the nonprofit is an essential responsibility for board members.

Additionally, these three major legal duties ensure the organization is committed and stays true to its stated mission.

 

nonprofit board room

Financial Duties

Board members must act as fiduciaries by closely overseeing the nonprofit’s finances. Board members are tasked with reviewing financial reports (i.e. donations received and expenses), evaluating policies (such as a cash handling policy or a gift acceptance policy), and approving budgets. They must also take into account the resource needs of the organization, in addition to accountability to donors, parties served, and the general public.

Whether you’re donating your time and serving on a nonprofit board, or running a nonprofit and are training the board (sometimes called “managing up,” and not an easy thing to do), it’s important the aforementioned duties are fully explained and understood by all parties.

Let me suggest two good and very practical ideas. First, consider providing a board orientation, once a year, where the entire meeting is devoted to an outsider explaining and discussing with the board the full extent of its legal and fiscal duties. Second, consider drafting and distributing a “job description,” not only for your employees, but also for your board members. Put in writing what you expect of the board, including the legal protection they must offer.


Working with nonprofit leaders is one of my passions and a critical part of my main mission to promote and maximize charitable giving in Iowa. If you’re on the board of, or work for a nonprofit that is facing challenges, or if you simply want to be prepared to avoid challenges, don’t hesitate to reach out. 

I can be contacted at anytime by phone (515-371-6077) or email to schedule a free consultation.