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.
In 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.
