Author Archive | Nancy Griffith

Stacy Bauer is COSE’s Volunteer of the Year

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We are thrilled to congratulate Stacy Bauer, winner of this year’s Volunteer of the Year Award presented by COSE.  Stacy has been very involved in COSE since joining in 2011, participating in many activities supporting Cleveland’s business community, including COSE’s Ambassador program.

Join us in congratulating Stacy on this well-deserved honor!

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The Nonprofit Board/Staff Relationship

I do a lot of speaking and coaching on the topic of board governance and board responsibilities.  I also do a lot of ballroom dancing, and lately it occurred to me that the relationship of ballroom partners is a great example of how the relationship between a nonprofit’s board and staff should work.

In ballroom dance, the gentleman determines the step and the general direction in which it will go.  This is not accomplished by using an iron grip to force the partner to do a certain step or go a certain way.  It is accomplished by keeping a good connection with the partner, staying aligned with your center, and giving the partner room and permission to do her part of the job.

The woman, in turn, is responsible for executing the step, filling up the space offered by her partner, and giving the step shape and style.  This is not accomplished by making independent decisions about what step should be done or what direction should be taken.  It is accomplished by keeping a good connection, responding to the movements of the partner, and maximizing the opportunities your partner gives you.

When each partner does his or her job, it supports the other partner and the partnership.  The dancing flows, creativity grows, steps are more powerful and shapes are stronger.  Yes, sometimes one partner or the other might go further than expected and the couple may get off balance, but they regroup and use the opportunity to find the right balance for them as a team.  Mutual trust and individual confidence are the keys to success.  Along with hours and hours and hours of practice, but that’s another topic!

dancersTake a look at this picture and try to imagine how either of these dancers could achieve this line without the other.

Think about this dynamic in terms of the nonprofit board and staff.  The board determines the mission and vision of the nonprofit.  They are responsible for good communication with the CEO and staff (the connection), to ensure programs and services are aligned with the mission (staying aligned with center), and for giving the staff the room and opportunity to do their work by effectively delegating the running of the business (giving room and permission).

The staff is responsible for keeping the board informed of successes and challenges (the connection), responding to the strategic direction set by the board (the partner’s movements), and maximizing the opportunities presented to the organization for its programs and services.

When the board and staff each do their jobs, and each allow the other to do their jobs, the organization is strong and dynamic, powerful, and successful.  Yes, sometimes the relationship may get off balance, but with a good connection, staff and board can regroup and regain focus.  Mutual trust and individual confidence are the keys to success.

Remember your role, have confidence in your partner, and maximize your opportunities, for the good of the whole.

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Define Your Charitable Purpose

We receive many calls from people thinking about starting a nonprofit organization to help solve a particular problem or address a particular issue.  The idea is that a nonprofit will allow people to raise money to fund a defined need.  Sometimes, though, the very real problem or issue to be addressed isn’t one that can be funded with a charitable organization.  For example:

  • Something that will benefit a single individual, like a wheelchair ramp to provide easy access to the individual’s home, or
  • Expenses that are someone’s personal or parental obligation, like fees for sports or other extracurricular activities.

hatinhandWhen considering the need for a new nonprofit organization, keep in mind that the charitable purpose must be broad and the organization’s work must benefit a whole community, not just the members of the nonprofit or a specific individual.

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Help From the IRS

irspubsDid the title of this post catch your attention?  Yes, the IRS really can be helpful to nonprofits with many commonly asked compliance questions.  The IRS publishes tons of material each year, much of it very technical and very much geared toward tax professionals.  But they also publish some very clearly written, plain language documents that can help us as nonprofit board members and staff leaders.  These documents are referred to as IRS Publications (as opposed to Forms, Technical Advice Memoranda, Opinions, etc.), and are easily accessible by searching the IRS website.  You can enter the publication number if you know it, or just search by keywords.

Some of the most common issues and questions for charitable organizations are addressed by the following:

  • Publication 526, for rules regarding charitable contributions.
  • Publication 557, for information on how to obtain and keep your tax exempt status.
  • Publication 1771, for rules on receipts and acknowledgements of gifts and contributions.
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Creating a New Non-Profit

orgThere are a lot of issues to consider when you’re thinking about starting a new non-profit organization to run your community or charitable activities.  One of the first is, are you prepared to run a business?  When you start a new organization, keep in mind there are lots of filing and compliance requirements, both with the IRS and with your state, that will apply no matter how small you are, and that last for the life of the organization.  To avoid trouble, you’ll need to take your new organization seriously, and run it like a small business.

Speaking of small business, also keep in mind that your non-profit status is a tax election.  Successful non-profits are still run like a business.  And they make money, too!  A non-profit organization simply can’t distribute its proceeds to individuals such as shareholders or partners.  All of a non-profit’s proceeds must to be used for its charitable purposes.

The form of your non-profit business organization matters, too.  While the IRS does allow various forms of organizations, such as partnerships or LLC’s, to achieve non-profit status, choosing this type of form will create lots of complications and add lots of time to the process of achieving your tax exempt status with the federal government.  So when you form your organization at the start, choose the basic corporate form in your state.  It will save time and aggravation, and allow you to run and grow your charitable business over time.

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Duties of Non-Profit Board Members — Duty of Compliance

In addition to the nonprofit board members’ duties of care and loyalty, directors also have a duty of compliance with laws and legal standards. The duty of compliance has often been referred to as the duty of obedience, but “compliance” is the more common term in modern governance discussions. Obviously, the duty to comply with legal standards requires the board to ensure the organization is acting within the scope of relevant law when operating its programs.  The duty to comply with legal standards also includes the following, sometimes overlooked, responsibilities as well:

Filing tax returns accurately and on time.  In most cases, a staff member or outside firm will prepare necessary tax returns.  It is the responsibility of the board, or a delegated committee of the board, to review and approve those returns.  Ensuring procedures are in place in the organization to keep complete and accurate financial records and to monitor due dates is part of the compliance responsibility.

Registation and annual filings with state attorneys general.  Many states, including Ohio, require annual reports on fundraising activities or financial performance.  Often these reports will be required in each state in which the organization operates or solicits contributions.

Registrations for planned giving compliance.  Many states, especially New York, California, and Florida, require additional registrations and/or reports from organizations soliciting planned gifts in the states.  If you actively solicit planned gifts, especially gift annuities or charitable trusts, make sure you check on any specific state law requirements for registration, reporting, disclosure or documentation.

Lobbying activities.  Most nonprofit organizations achieve their tax-exempt status under IRC Section 501(c)(3), which specifically prohibits such organizations from engaging in most lobbying activities.  Since political alliances are often vital relationships for an organization, it is very important to have policies in place to ensure board members and staff do not engage in any activities that would be considered prohibited lobbying activities when they are acting as representatives of the nonprofit.

complianceIn most organizations, staff members will have day-to-day responsibility for legal compliance.  Sometimes, in smaller organizations, board members themselves may assume a hands-on roll.  In either case, the ultimate responsibility to ensure compliance rests with the board.  Governance best practices suggest that all compliance activities and due dates be reviewed annually, along with specific assignments for responsibility for any required tasks.

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Important May 15 Deadlines Approaching

990For our nonprofit clients — don’t forget that May 15 is tax day!  All nonprofit organizations need to file some type of tax return with the IRS.  We continue to see many smaller organizations neglect this requirement.  Even if your annual gross receipts are less than $50,000, your organizations still needs to file the annual epostcard with the IRS.  Failure to do so can — and in lots of cases has — resulted in a loss of tax exempt status.  The postcard is very simple, and the only piece of financial information required is a confirmation that your gross receipts don’t exceed $50,000 for the year.

Ohio nonprofits that solicit charitable contributions also need to file their annual financial report with the Attorney General’s office. This, too, can be done on line, and requires only very simple financial information to complete.

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Duties of Non-Profit Board Members — Duty to Manage Accounts

In this blog series, we’ve already explored a non-profit board member’s duties of care, loyalty and compliance.  Now we’ll look at the duty to manage accounts.

Directors of non-profit organizations have the duty to be good stewards of the organization’s assets, and the responsibility to ensure that adequate financial resources are available to accomplish the organization’s mission.  Keep in mind, though, that ensuring financial accountability doesn’t just involve reviewing financial statements.  The duty to manage accounts requires the board to:

Establish a budget.  Creating the organization’s budget and monitoring performance relative to that budget will help the board evaluate what programs the organization should offer to most efficiently promote its charitable purpose.

finsstmtsMonitor investments.  It is important to regularly review investment statements and understand the information presented.  Investment policies should reflect a risk tolerance appropriate for the organization, and should take into account necessary spending policies.

Retain records of all income and expenses.  The IRS requires organizations to be able to document all information presented in the annual Form 990 filing.  The board should ensure good records retention policies and procedures are in place. Oversee fundraising.  The board has the duty to promote the organization’s financial sustainability by ensuring there are adequate sources of support.  Director’s own financial support is a very important part of a director’s service on a board, but interestingly, there is no legal duty to fundraise or contribute.

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Duties of Non-Profit Board Members — Standard of Accountability

In previous posts, we examined the legal duties of non-profit board members — the duties of care, loyalty, compliance, and management of accounts.  Given these duties, exactly what is the standard of care required?

In Ohio, the standard of care as a matter of state law.  Section 1702.30 of the Ohio Revised Code states:

“(B) A director shall perform the duties of a director, including the duties as a member of any committee of the directors upon which the director may serve, in good faith, in a manner the director reasonably believes to be in or not opposed to the best interests of the corporation, and with the care that an ordinarily prudent person in a like position would use under similar circumstances.”  O.R.C. 1702.30(B).

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Directors are entitled to rely on outside information from reasonable and reliable sources.  For example, directors may rely on investment reports from the organization’s investment managers, financial reports from its accountants, legal advice from its attorneys, etc.  Directors are also entitled to rely on information and recommendations presented by committees.

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