TWEETS OF THE WEEK Uncategorized

Nonprofit Tweets of the Week – April 18, 2014

Man Praying

An important week for religion. Have a listen to Bob Marley‘s One Love while perusing this week’s tweets on nonprofits, philanthropy, governance and social enterprises:

  • Nonprofit Quarterly: Half a Century after the Civil Rights Act, Four Challenges for Nonprofits & Foundations Today http://ow.ly/vVhTI
  • Nonprofit Issues: Managing Conflicts of Interest – Charity Lawyer Blog (Ellis Carter)
  • MacArthur Foundation: Re-emerging Art of Funding Innovation: philanthropy is reintroducing risk in grantmaking - Stanford Social Innovation Review
  • Sustainable Law Group: IRS may revise proposed rules governing nonprofit political activities; will hold hearing this summer – Washington Post
  • Greg Colvin: At #17, our Top 25 comment on the draft IRS political rules is in a league of its own, see Adler Colvin countdown at http://www.nonprofitlawmatters.com
  • Emily Chan: OH: California FTB recently revoked 9k+ exemptions for failure to file 199N for 3 consecutive yrs. 199N filing info: http://bit.ly/1hM0chr
  • Foundation Center: Why Nonprofit Mergers Continue to Lag http://bit.ly/1hLFHvl
  • Gene: LLC & tax-exempt status in CA – Franchise Tax Board
  • Guidestar USA: Terrible Board Members Are Created, Not Born http://wp.me/p2fHhO-1ji
  • Debra Beck: Last in nonprofit governance competencies series: Keeping personal agendas out of boardroom http://bit.ly/1gAuZIN
  • Stanford Social Innovation Review: Ambition to Audacity: Takeaways from the 2014 Skoll World Forum @MissionMeasure SSIR
  • C. Garber Siegrist: 5 Lessons Learned from Skoll World Forum on Social Entrepreneurship – Forbes
  • Skoll World Forum: There’s no silver bullet for poverty but girls’ education comes pretty close – Malala inspired us all #Skollwf 2014: http://ow.ly/vOSSG
COLLABORATIONS & MERGERS

Dissolution and Transfer of Remaining Assets: An Alternative to Merger

 

shaking hands and transfer briefcase

Organizations may decide to merge for multiple reasons, including to better advance a common purpose or to expand the range of services offered to common beneficiaries. In a merger of two nonprofit corporations, the surviving corporation assumes all of the assets and liabilities of the disappearing (merged out) corporation. But there is an alternative way for an organization to acquire the assets of a dissolving corporation – agreeing to be the recipient of certain remaining assets of the dissolving corporation upon its dissolution.

Merger

Merging allows two corporations to fully integrate their programs, functions, and assets. Generally, in a merger between A (the surviving corporation) and B (the disappearing corporation), A automatically assumes all of the assets and liabilities of B upon the merger. Thus, the debts of B become the debts of A, and A is automatically substituted for B in any lawsuit or legal proceeding. This may be problematic if B’s liabilities cannot be identified or if B’s liabilities are more than the value its assets.

Dissolution and Transfer

Alternatively, an organization may want to consider dissolving and transferring its assets to another entity. In this scenario, when B dissolves and distributes its remaining assets to A, A generally does not automatically assume B’s liabilities. Essentially, A is able to limit the risk it takes on when acquiring B’s assets. It is important to note that although the surviving organization does not automatically assume the dissolving organization’s liabilities, there is always some risk associated with a full transfer of assets. For example, in California, successor liability could extend to A if a court determines that A impliedly agreed to assume B’s liabilities when it acquired B’s assets, the transfer amounted to a consolidation or merger of the two organizations (de facto merger), A is “merely a continuation” of B, or if the transfer was entered into fraudulently to escape liability for debts (fraudulent transfer).

Here are some factors that would create risk of the assumption of the dissolving corporation’s liabilities:

  • The boards of the dissolving corporation and the acquiring corporation (post-transfer) are substantially similar.
  • The acquiring corporation carries on the same programs as the dissolving corporation with the same employees and pursuant to the same policies, practices, and procedures.
  • The acquiring corporation acquires an operation involving the sale of products and continues to sell them under the same trade name, pursuant to the same processes, and benefiting from the goodwill created by the dissolving corporation.
  • An agreement between the dissolving corporation and acquiring corporation refers to the transaction as a merger and/or evidences their mutual intention to have the acquiring corporation assume the dissolving corporation’s debts and obligations.
  • The result of the transfer is exactly that which would occur in a statutory merger, including (1) assumption of certain obligations of the dissolving corporation that allow for the acquiring corporation to continue operating the dissolving corporation’s programs/businesses; and (2) continuity of the management, personnel, locations and operations of the dissolving corporation.

Co-authored with Gene Takagi

TWEETS OF THE WEEK Uncategorized

Nonprofit Tweets of the Week – April 11, 2014

Volunteers

 

National Volunteer Week was an eventful one which included Equal Pay Day, the Wharton | San Francisco Social Impact Conference, and the Skoll World Forum! Have a listen to Miri Ben-Ari (who was featured at the Skoll World Forum) perform We Gonna Win while perusing this week’s tweets on nonprofits, philanthropy, governance and social enterprises:

  • Hands on Network: Did you know 62.6 million Americans volunteered last year? Happy National Volunteer Week!
  • Council of Nonprofits: The Bureau of Labor Statistics reported fewer Americans volunteering in 2013. Have you seen a good analysis of why? http://bit.ly/OsGj1F
  • Bill Moyers: $431,360. That’s how much women miss out on over their careers bc of pay inequality. #EqualPayDay http://bit.ly/1mVHCFy
  • Global Fund for Women: Another must-read on #EqualPayDay by Zerlina Maxwell: Wage gap exists among women too. Equality Is equal pay for … on.thegrio.com/1qgOIn6
  • Nonprofit Issues: Use your IRS Form 990 to tell your story. Great checklist from @PANONonprofits http://buff.ly/1m4bImV
  • Nonprofit Finance Fund: What are the top challenges facing NPOs today? Explore our #2014Survey, generously supported by @BofA_Community http://ow.ly/vpjwd
  • Alice Korngold: “The top 6 reasons nonprofit board candidates choose one board over another:” Fast Company
  • Greg Colvin: We are starting a daily countdown of the Top 25 comments on the IRS proposed #501c4rules at http://www.nonprofitlawmatters.com/ today. Check it out now! [Ed. 25 - Stephen Colbert; 24 - Council on Foundations; 23 - Public Citizen; 22 - collaborative group - Sierra Club, Human Rights Campaign, League of Conservation Voters, and Planned Parenthood Action Fund.]
  • Gene: The rise of the sharing economy  LA Times | how do nonprofits fit in? Stanford Social Innovation Review 
  • Martin Montero: Dear #Skollwf community & fans,amid all the #socent & #impinv talks,breakouts,collaborations…Please reflect on this http://bit.ly/socentis

From Wharton | Social Impact Conference:

  • Bobby Turner keynote – great story about urban investing & cultural competency
  • Social impact businesses – multidisciplinary approach is critical; can’t succeed in silos; collaborate
  • Promoting charitable causes through once-in-a-lifetime experiences – @omaze – Business Insider [Ed. Watch the YouTube clip featuring Ben Affleck & Matt Damon.]
  • Julia Sze of @sonencapital talks about World Bank Green Bonds | can have premium return & favorable SRI/ESG factors
  • Economic factors aren’t necessarily determinative – need cultural competency & community engagement in impact investing
  • Philanthropy must focus on solution over innovation – Aradhana Roy
  • Only 20% of companies are writing sustainability reports in U.S. vs. 33% in developing countries – Marek Wosinski
CURRENT AFFAIRS & OPINION IRS & FEDERAL TAX ISSUES

12 Things Nonprofits Should Know About Proposed Tax Reform

change ahead

On February 26, 2014, Rep. Dave Camp (R-MI), the Chairman of the Ways and Means Committee, released a draft proposal for comprehensive tax reform. The almost 1,000 page document contains significant changes that will affect individuals, for-profit corporations, and tax-exempt entities.  Camp’s proposals will likely be debated throughout the year, but it is imperative that nonprofits stay alert to the possible ramifications of the bill’s lengthy provisions regarding charitable giving, tax exemption, and tax obligations. The discussion draft imposes the following changes:

  1. AGI Percentage Limitations  Adjusted gross income (AGI) limits on charitable giving will be altered to 40% for contributions to public charities and 25% to private foundations. This lowers the percentage limit for cash contributions, but simplifies the rules by no longer making the distinction of whether the contribution is cash or capital gain property.
  2. Two-percent Floor for Charitable Giving – A two-percent floor will be imposed for charitable donations to qualify for a deduction. This means that taxpayers may only deduct the amount of their charitable giving that exceeds two percent of their AGI.  A 2011 study by the Congressional Budget Office determined that this type of two-percent floor would likely cut charitable giving by approximately $3 billion.
  3. Excise Tax on Excessive Executive Compensation – Any compensation in excess of $1 million paid to any of the five highest compensated employees of any tax-exempt organization will incur a 25% excise tax. The compensation cap includes both salary and benefits. The rationale behind this provision is to ensure resource accountability of an organization receiving tax exemption by the Federal government.
  4. Unrelated Business Income Tax – Currently under the law, tax-exempt organizations may calculate unrelated business income tax (UBIT) based on the gross income of all business activities, minus the deductions connected with carrying on those activities. Losses generated by one activity can be used to offset the gains from another. However, under the Camp legislation, organizations will have to calculate UBIT separately for each business activity. This means that the loss from one unrelated business activity will no longer be used to offset the income from another unrelated trade or business activity. Furthermore, any sale or licensing by a tax-exempt organization of its name or logo (including any related trademark or copyright) will be treated as an unrelated trade or business.
  5. Expansion of Excess Benefit Transaction Rules – Excess benefit transaction rules will be expanded to apply to both 501(c)(5) and (c)(6) organizations (e.g., unions and trade/professional associations, respectively), and a 10% tax will be imposed on an organization whenever the excess-benefit excise tax is imposed on a disqualified person of that organization. Furthermore, the safe-harbor rebuttable presumption of reasonableness will be eliminated.
  6. Expansion of Self-dealing and Simplification of Private Foundation Excise Tax  The draft legislation imposes a new excise tax of 2.5% on private foundations for each act of self-dealing discovered within the organization and eliminates the professional advice safe harbor for foundation managers.  Additionally, excises taxes on private foundation investment income will be changed to a flat 1%.
  7. Payout Requirement for Donor Advised Funds – Donor advised funds will be required to distribute all contributions within 5 years of receipt or otherwise face a 20% excise tax on the amount not distributed.
  8. Private Operating Foundations Subject to Distribution Requirements – Private operating foundations will face the same minimum distribution rules currently imposed on private non-operating foundations.
  9. Type II and Type III Supporting Organizations – Type II and III supporting organizations will be eliminated. Thus, any current Type II or III supporting organization will have to qualify as a Type I supporting organization, another classification of public charity, or a private foundation by 2016.
  10. Social Welfare Organization Changes – Section 501(c)(4) organizations will need to notify the IRS within 60 days of formation and may seek declaratory judgments in the same manner as 501(c)(3) organizations. Furthermore, social welfare organizations will be required to list on Schedule B of Form 900 each donor contributing $5,000 or more, who is either an officer, director, or one of the organization’s five highest compensated employees.
  11. Repeal of Tax-Exempt Status for Professional Sports Leagues – While amateur sports leagues may still become tax-exempt under 501(c)(6), professional sports leagues will no longer be permitted to seek exemption.
  12. Electronic Filing of Form 990-series – Most nonprofit organizations will have to file their IRS Form 990 information returns electronically.

Although it is unclear which, if any, of these provisions will be adopted into law, nonprofit organizations should continue to monitor the debate and contemplate how these proposed changes could affect them.

For additional information:

Committee on Ways and Means

-        Comprehensive Tax Reform Site

-        Discussion Draft [Full]

-        Section-by-Section Summary

Independent Sector: Tax Reform

Nonprofit Quarterly: Draft Tax Reform Act of 2014 Proposes Profound Impact on Tax-Exempt Organizations

TWEETS OF THE WEEK Uncategorized

Nonprofit Tweets of the Week – April 4, 2014

Farming

Monday was Cesar Chavez Day, a day to think about our responsibility to provide service to our communities (Si Se Puede!). Have a listen to Bruce Springsteen‘s version of Solo le Pido a Dios while perusing this week’s tweets on nonprofits, philanthropy, governance and social enterprises:

  • CompassPoint: Celebrating #CesarChavezDay. Learn how Mexican and Filipino farmers worked to build a movement here: UFW
  • Gene: Private charity can’t replace government social programs – LA Times
  • Rob Reich: Excellent @rortybomb on whether charity can supply a social safety net. The Atlantic 
  • Nonprofit Quarterly: How to make a Matrix Map of your organization http://ow.ly/vionf
  • Gene: Nonprofits should be aware of proposed #TaxReformAct and speak out on what will be recurring points – JD Supra
  • AFJ Bolder Advocacy: From the archives: Using Social Media for Advocacy 101: Principles & Best Practices – AFJ
  • C. Garger Siegrist: So much happened – take a look:Top 5 Nonprofit Legal Issues Of The Past Year via @VenableLLP http://ow.ly/v7hxU
  • Gene: Blurring of nonprofit & for-profit sectors – Nonprofit Quarterly | What lines need to be drawn?
  • Journal of Accountancy: Final IRS regulations govern when a payer can be designated as an agent for employment tax purposes: http://ow.ly/vbZso
  • Gene: More Companies Bow to Investors With a Social Cause – WSJ – @echasan | 56% of shareholder proposals
  • McKinsey on Society: “Are you ready for the #ResourceRevolution?” NEW REPORT from @McKinsey http://ow.ly/vaW6u
EVENTS SOCIAL ENTERPRISE

Financing Social Enterprises: From Start-Up Through Exit

business chart showing success

The Boalt Social Enterprise Group, Berkeley Center for Law, Business and the Economy (BCLBE)  and the Impact Law Forum are excited to present a ground-breaking symposium on social enterprise law and finance! The symposium will explore cutting-edge legal issues faced by social enterprises in different stages of growth. We’ll hear from social enterprise attorneys, investors and entrepreneurs about the challenges of preserving mission through various stages of capital-raising and discuss creative solutions to overcome them. We will host two panels: the first on preserving mission through start-up and early stage financing and the second on overcoming challenges later stage financing and “exit” present to mission-driven social enterprises.

Here are some highlights from the April 3 symposium:

Early Stage Financing:

  • Are for-profit social enterprises seen as a new asset class to institutional investors?
  • There is a dominant perception of a tension between doing good and making money.
  • Investor assumption: to do good, the return will be lower – but this is slowly changing. See, for example, KKR Responsibility; Carlyle Group Responsible Investing.
  • Understanding who will be your compatible investors is critically important (social-profitability continuum).
  • Think about what type of money serves you in the best way (some orgs may need to say no to debt) – align w/ goals.
  • Revenue-based financing as alternative to relying just on exit strategy – attracting investors.
  • Most effective way to protect mission in for-profit social enterprise – use IP licensing (e.g., tie the rights to using the name to continued performance of social mission); also can include in charter, s/h agreements.
  • Social purpose metric – investors will want to know – simpler, fewer metrics will be more attractive.
  • Typical board of corporation – mix of founders, investors, independents. Should it be different for social enterprises?
  • Due diligence is just as complicated as with traditional companies (employment, IP, etc.); it can get especially complicated if entity needs to spin off another entity seeking the investors.

Late-Stage Financing & Exit Strategies:

  • Exits may be through IPOs (which can alternatively be a financing, rather than an exit, strategy) or merger and acquisition (75% through M&A).
  • Revolution Foods is VC-backed so will have an exit at some point; CFO wants it to be the first mission-based company to go public.
  • Institutional investors have difficulty understanding how to factor social mission into the valuation.
  • Valuation of social enterprise – ability to convert out of social purpose may add value even if never exercised.
  • Crowdfunding (JOBS Act) will have limited impact on exit strategies; compliance still difficult (state blue sky laws may be more difficult than federal laws); M&A will still be clear majority of exits.
  • Benefit corporations, flexible purpose corporations, social purpose corporation, etc. – Revlon principles (re: selling to highest bidder) may not apply, but need to think how appraisal/dissenters’ rights work into the deal.
  • Protecting social mission: Could build in social performance metric as post-closing covenant of buyer.

Panelists:

Suz Mac Cormac, Morrison Foerster
Eric Talley, Berkeley Law
Will Fitzpatrick, Omidyar Network
Kendall Baker, Revolution Foods
Mark Perutz, DBL Investors
Jan Piotrowski, Credit Suisse
Ayesha Wagle, Komaza

TWEETS OF THE WEEK Uncategorized

Nonprofit Tweets of the Week – March 28, 2014

Water

 

Last Saturday was World Water Day. Have a listen to George Frideric Handel‘s Water Music while perusing this week’s tweets on nonprofits, philanthropy, governance and social enterprises:

  • Rad Campaign: Best Ideas and Strategies to Disrupt the Nonprofit Sector http://ow.ly/uZCPl
  • YNPN: How nonprofits use social media: http://bit.ly/1npxqWU A report from Case Foundation & Social Media for Nonprofits
  • Independent Sector: Great blog by IS member @Living_Cities about how city government and philanthropy can partner to combat inequality http://ow.ly/uZHCe
  • LivingCities: The State of Philanthropy: A must read from @RockefellerFdn’s Judith Rodin. http://huff.to/1o4hk5u
  • Bridgespan: Bridgespan Classic: 10 funding models commonly used by the largest nonprofits in the United States. http://brev.is/vr28
  • Gene: Great Resource! Preventing and Investigating Fraud, Embezzlement – Public Counsel
  • Nonprofit Quarterly: This disastrous nonprofit audit provides a playbook for organizational self-destruction http://ow.ly/v4kvQ
  • Council of Nonprofits: Make sure your nonprofit uses its IRS Form 990 as a way to tell its story Tips here from @PANONonprofits http://buff.ly/1m4bImV
  • Council of Nonprofits: IRS opens up re challenges w/ processing nonprofit applications and more http://bit.ly/1iVIOFJ
  • Gene: Opening Up: Demystifying Funder Transparency | new guide from Foundation Center
  • Nonprofit Issues: Is it illegal for a nonprofit to use money allocated to a building fund for general operating purposes? http://bit.ly/nKQQv
  • Nonprofit Law News: Will Camp Tax Plan Impact Charitable Giving and Tax-exempt Organizations? http://bit.ly/NYWfZg by @BakerHostetler
  • Ashoka Changemakers: Wait, stock exchanges for social enterprises…? Yeah. Here’s why we need them: http://onforb.es/1jGzunw
  • Gene: Nonprofits must recognize both the collaborative opportunities & competition posed by for-profit social enterprise orgs – Reuters
IRS & FEDERAL TAX ISSUES

Retroactive Reinstatement Procedures: Simplified

Solutions and strategy

Generally, most tax-exempt organizations are required to file an annual return or notice with the IRS. Since 2010, the IRS has revoked the exemption of hundreds of thousands of organizations for failing to file the applicable annual return for three consecutive years. Once an organization’s tax-exempt status has been revoked, it may suffer a number of consequences including owing federal income tax and no longer offering a deduction to donors.

In January, the IRS published improved guidance for reinstatement procedures. These procedures, though more lenient, may be difficult to understand and maneuver. If your organization’s exempt status has been revoked, the first step is to determine which of these procedures fit.

Below is a chart to assist you in navigating the retroactive reinstatement procedures. Organizations applying for reinstatement within 15 months of automatic revocation should consider the first two procedures. An organization that applies for reinstatement after 15 months may skip to the third procedure.  

I. Streamlined Retroactive Reinstatement

Who May Apply
  • Organizations that were eligible to file 990-EZ or 990-N (ePostcard) for each of the three missed years that caused their revocation;

  • Organizations that are experiencing their first automatic revocation; and

  • Organizations that are able to complete and submit the proper exemption application within 15 months of receiving a Revocation Letter or appearing on the IRS’ Revocation List, whichever is later.
How
  1. Complete Form 1023 or Form 1024, Application for Exemption, depending upon whether your organization was exempt under IRC 501(c)(3) or 501(c)(4), respectively, within 15 months of revocation.

  2. Include the correct user fee.

  3. Write “Revenue Procedure 2014-11, Streamlined Retroactive Reinstatement,” at the top of Form 1023 or Form 1024 before mailing it.
Notes and Tips
  • Make sure your organization has adequate time to complete the appropriate exemption application within the 15-month grace period, as these applications require significant information.

  • In order to avoid late filing penalties, the organization should also file properly completed and executed paper Forms 990-EZ for all of the missed years for which Forms 990-EZ were required to be filed (no need to file for missed years for which Forms 990-N could be filed). The organization should write “Retroactive Reinstatement” at the top of the Forms 990-EZ .

II. Retroactive Reinstatement
( within 15 months of revocation)

Who May Apply
  • Organizations that cannot use the Streamlined Process above (such as those required to file Form 990 or Form 990-PF for any of the three years that caused their revocation, or those that were previously auto-revoked); and

  • Organizations that are able to complete and submit Form 1023 or Form 1024 within 15 months of receiving a Revocation Letter or appearing on the IRS’ Revocation List, whichever is later.

How
  1. File all required annual returns for the three consecutive missed years that caused the revocation, and for any following years. Write, “Retroactive Reinstatement” on these returns.

  2. Complete Form 1023 or Form 1024, Application for Exemption, depending upon whether your organization is exempt under IRC 501(c)(3) or 501(c)(4), respectively, within 15 months of revocation.

  3. Include two statements with the application:

    1. A statement establishing that the organization had reasonable cause for its failure to file a required annual return for at least one of the three consecutive years in which it failed to file. (See Notes and Tips for “reasonable cause” explanation)

    2. A statement confirming that it has filed required returns for those three years and for any other taxable years, including any recent years for which required returns were due and not filed.

  4. Include the correct user fee.

  5. Write “Revenue Procedure 2014-11, Retroactive Reinstatement,” at the top of Form 1023 or Form 1024 before mailing it.
Notes and Tips The reasonable cause statement should persuasively establish that the organization used ordinary business care and prudence in attempting to comply with its annual reporting requirements. The statement should include a detailed description about why the organization failed to file, how it discovered the failure, and the steps it has taken or will take to avoid or mitigate future failures. (For more information, see Section 8 of Revenue Procedure 2014-11 )

III. Retroactive Reinstatement
(after 15 months of revocation)

Who May Apply Any organization that applies for reinstatement after 15 months of receiving a Revocation Letter or appearing on the IRS’ Revocation List, whichever is later.
How
  1. File all required annual returns for the three consecutive missed years that caused the revocation, and any following years. Write, “Retroactive Reinstatement” on these returns.

  2. Complete Form 1023 or Form 1024, Application for Exemption, depending upon whether your organization is exempt under IRC 501(c)(3) or 501(c)(4), respectively.

  3. Include two statements with the application:

    1. A statement establishing that the organization had reasonable cause for its failure to file a required annual return for all three consecutive years in which it failed to file. (See Notes and Tips below for “reasonable cause” explanation)

    2. A statement confirming that it has filed required returns for those three years and for any other taxable years, including any recent years for which required returns were due and not filed.

  4. Include the correct user fee.

  5. Write “Revenue Procedure 2014-11, Retroactive Reinstatement,” at the top of Form 1023 or Form 1024 before mailing it.
Notes and Tips The reasonable cause statement should persuasively establish that the organization used ordinary business care and prudence in attempting to comply with its annual reporting requirements. The statement should include a detailed description about why the organization failed to file, how it discovered the failure, and the steps it has taken or will take to avoid or mitigate future failures. (For more information, see Section 8 of Revenue Procedure 2014-11 )

The new procedures also outline a process for organizations that have already been reinstated as of the postmark date of their applications for reinstatement, but before the effective date of Revenue Procedure 2014-11 (January 3, 2014), and have a taxable gap between their revocation and reinstatement period. For those organizations that would have satisfied the Streamlined Retroactive Reinstatement requirements, reinstatement goes back to the revocation date automatically (eliminating the taxable gap). However, for other organizations which can establish reasonable cause, reinstatement will only go back to the revocation date if such organization submits a copy of the Form 1023 or 1024 it previously filed to receive reinstatement and complies with the other requirements of the applicable section of Revenue Procedure 2014-11 (see Table Sections II and III above) on or before May 2, 2014. Note that the user fee is waived.

After your organization’s exempt status has been reinstated, it is important to remember to file timely annual returns.  An organization can be automatically revoked again if it fails to file the required returns for three consecutive years, beginning with the year in which the IRS approves reinstatement.

 

For Additional Information:

IRS: How to Have Your Tax-Exempt Status Retroactively Reinstated

Eve Rose Bornstein: New Retroactive Reinstatement Process(es)

 

TWEETS OF THE WEEK

Nonprofit Tweets of the Week – March 21, 2014

Happy

Yesterday was the second annual International Day of Happiness! Have a listen to Pharrell‘s Happy while perusing this week’s tweets on nonprofits, philanthropy, governance and social enterprises:

  • Rebekuh Eley: Here are some of the remarks from the new IRS TE/GE Commissioner at the Joint Meeting of the TE/GE Councils in Balti…http://lnkd.in/bURh92X
  • Emily Chan: Summary of key aspects of the 979-page Tax Reform Act of 2014 that would affect exempt orgs via Mondaq America
  • Gene: Recurring Accounting Issues Noted and Related Best Practices for Nonprofits from Burr Pilger Mayer
  • Law for Change: New Blog on #LawForChange – Fraud: How to Protect Your Nonprofit by Michele Berger http://law4.ch/1lSAmqy
  • Debra Beck: Nonprofit board competency 6: Accept fiduciary, accountability responsibilities http://bit.ly/1kHTPuf
  • Ellis Carter: Control and Influence – Balancing Nonprofit Governance Rights Among Stakeholders http://bit.ly/1dZrj34
  • Danielle Sachs: BREAKING! McKinsey on Society launches free online tool to help orgs develop assessment strategies. Check it: http://ow.ly/uIibe
  • Harvard Business Review: Can impact investing go mainstream? http://s.hbr.org/1cQSqRM
BOARDS / GOVERNANCE RISK MANAGEMENT

Fraud: Protecting Your Nonprofit

Protect

Following up on our earlier post on fraud in the nonprofit sector, here are some tips for preventing fraud and the diversion of charitable assets:

  1. Create a Strong Policy Against Fraud:  Organizations should create comprehensive and forceful policies that go beyond the words on paper. The policies should incorporate reporting mechanisms and real consequences for violations. The policy should also be tailored to the specific nonprofit, explained in detail to all employees when training, and revisited yearly for effectiveness. Additionally, the board of directors must ensure that fraud reports are taken seriously, and that outside legal counsel is brought in when appropriate.
  2. Implement a Culture of Honesty and Ethics:  In addition to an anti-fraud policy, organizations should prepare a code of conduct that incorporates a zero tolerance for unethical behavior by volunteers, employees, officers, and directors. This code should be trained, exhibited, and reinforced within every aspect of the organization, especially at the top in order to set the example.
  3. Encourage Whistleblowing:  Employees are unlikely to report theft or mismanagement if they believe that their jobs are in jeopardy. Implementing anti-retaliation protections and providing a fraud hotline for anonymous reporting may provide confidence to employees exposing abuse.
  4. Conduct Internal and External Audits:  Every effective policy requires oversight. The board of directors should establish an audit committee responsible for reviewing the organization’s financials, as well monitoring the anti-fraud policies. One suggestion for the audit committee is to conduct surprise or unplanned audits. In addition to supervision by the nonprofit’s management and board of directors, nonprofits may also engage in regular external audits by hiring a CPA or an attorney.
  5. Check Backgrounds:  Consider conducting background checks on new employees or volunteer leaders.  Pre-screening potential employees may be helpful in assessing whether the candidate has a criminal record, prior history of fraud, or heavy debts that may make fraudulent activity a bit more likely.
  6. Separate Cash Handling Duties:  Ensure that no single employee is responsible for handling cash, issuing checks, or reconciling financials.  Instead, require two signatures on checks and have at least two individuals count money and verify receipts.
  7. Prepare Responses:  Organizations should contemplate the consequences for and responses to fraudulent activities. This includes responding to small mistakes or grave deceptions, both privately within the organization and publicly to the community.

Stay turned for our next post on fraud, which will focus on what to do if your organization is victimized by fraud.