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Beat the bad press: Regulatory compliance 101

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Question:

What are three crucial areas to focus on in making sure your nonprofit complies with regulations?

Answer:

* Disclosure of public documents

One of the areas of compliance required by the IRS is to make three main documents available for public disclosure.

The first two are Form 990, which is your federal informational tax return, and Form 1023, a nonprofit’s application for nonexempt status.

The disclosure of a 1023 is required if your organization filed for its nonexempt status after July 15, 1987. Nonprofits filing before this date are “grandfathered,” and disclosure of the application documents is voluntary.

The third required disclosure is your IRS letter of determination. This is a document most nonprofits provide to potential funders to prove their eligibility to receive funds.

The key factor in disclosure of public documents is that you as an agency, not a third party, must disclose them.

GuideStar posting your documents doesn’t meet this requirement, but posting them to your organization’s website does – in part.

In addition to posting documents in a spot where they can be found, all organizations must provide them on request in a timely manner.

So if someone walks into my office and requests a form, one has to make that form available to be copied within a “timely manner,” which in most cases means the same day.

Having documentation readily available helps you minimize the risk of negative publicity from news sources frustrated by their difficulty in finding your filing information.

Organizations both large and small are held to these same standards of disclosure. The larger they are, the harder they fall, but the danger among smaller nonprofits is that some don’t even know disclosure requirements apply to them.

For smaller nonprofits, the concern is not so much negative press as the affirmation that a particular organization understands what it is supposed to be doing.

In an increasingly competitive philanthropic market, proof that you know what you’re doing is imperative.

* Sarbanes-Oxley compliance

Sarbanes-Oxley Act of 2002 was passed by Congress in response to scandals at companies like WorldCom with the goal of stemming abuses in financial record-keeping among corporations.

For nonprofits, complying with Sarbanes-Oxley requires attention to three main ideas and provisions.

The first provision includes protections for whistleblowers, to prevent retaliation against people who accuse corporations of fraud.

The second provision stipulates a specific, systematic method for maintaining and destroying official financial documents.

Finally, complying with “the spirit” of the act consists of ensuring integrity in your accounting practices and making sure all players who should know what’s going on with the organization’s finances are in the loop.

The federal government has not yet regulated that “spirit” in nonprofits, but some states, such as California and New York, are considering doing so.

It’s definitely in the air; there’s a lot of talk about the spirit of Sarbanes-Oxley in journals and among nonprofit regulatory boards.

Essentially, it’s clear that although it’s not mandated by law, it’s certainly mandated by best practices.

* Written internal controls and personnel policies

A well-written policy covering internal financial controls and personnel will cover most rules federal and state governments impose.

Usually there are a core set of issues that need to be addressed, but it’s not necessary to write these policies from scratch.

There are a number of resources available that already have catalogued these rules, including many state nonprofit associations and colleges.

It’s important to take these and tailor them to the specifics of your organization.

And there are plenty of agencies that provide such services for a fee.

Very little of our policy at the Family Relations Program has been written from scratch by staff members. The majority is taken from an immense variety of sources, from the Internet to conversations with board members.

So what is the most important thing in all areas of regulatory compliance?

You need to know and you need to do it.

— Compiled by Elizabeth Floyd


John McGee is executive director of the Family Relations Program, a nonprofit social service agency dedicated to breaking the cycle of child sexual abuse in Northeast Georgia.

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