A celebrity — whether they’re Hollywood stars, hometown sports heroes or local TV news anchors — can provide a big boost to the not-for-profits they publicly support. The flip side is that stars can also harm an organization by association.
Accusations connected with the #MeToo movement and other crises have recently brought down many famous people and, in some cases, caused major headaches for the charities they’ve supported.
If you think that, once your not-for-profit receives its official tax-exempt status from the IRS, you don’t have to revisit it, think again. Whether your organization is a Section 501(c)(3), Sec. 501(c)(7) or other type, be careful.
The activities you conduct, the ways you generate revenue and how you use that revenue could potentially threaten your exempt status. It’s worth reviewing the IRS’s exempt-status rules to make sure your organization is operating within them.
In recent years watchdog groups, the media and others have increased their scrutiny of how much not-for-profits spend on programs vs. administration and fundraising. Your organization likely feels pressure to prove that it dedicates most of its resources to programming. However, accounting rules require that you record the full cost of any activity with a fundraising component as a fundraising expense.
How then can you maintain an appealing fundraising ratio? That’s where allocating joint costs comes in.
Whistleblower policies protect individuals who risk their careers — or take other kinds of risks — to report illegal or unethical practices. Although no federal law specifically requires not-for-profits to have such policies in place, several state laws do. Moreover, IRS Form 990 asks not-for-profits to state whether they have adopted a whistleblower policy.
Adopting a whistleblower policy increases the odds that you’ll learn about activities before the media, law enforcement or regulators do. Encouraging stakeholders to speak up also sends a message about your commitment to good governance and ethical behavior.
Directors and officers (D&O) liability insurance enables board members to make decisions without fear that they’ll be personally responsible for any related litigation costs. Such coverage is common in the business world, but fewer not-for-profits carry it. Not-for-profits may assume that their charitable mission and the good intentions of volunteer board members protect them from litigation. These assumptions can be wrong.
Here are several FAQs to help you determine whether your board needs D&O insurance:
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Restricted gifts — or donations with conditions attached — can be difficult for not-for-profits to manage. Unlike unrestricted gifts, these donations can’t be poured into your general operating fund and be used where they’re most needed. Instead, restricted gifts generally are designated to fund a specific program or initiative, such as a building or scholarship fund.
It’s not only unethical, but dangerous, not to comply with a donor’s restrictions. If donors learn you’ve ignored their wishes, they can demand the money back and sue your organization. And your reputation will almost certainly take a hit. Rather than take that risk, try to encourage your donors to give with no strings attached.
The Greater Houston Partnership’s next Houston Young Professionals and Entrepreneurs (HYPE) event, “Explore Your Passion,” is coming up on February 20, 2019.
The event, sponsored by PKF Texas, is designed PechaKucha style where young professionals can meet, talk and interact with various not-for-profit and volunteer organizations. Young professionals will have the opportunity to network and
Signs of financial distress in a not-for-profit can be subtle. But board members have a responsibility to recognize them and do everything in their power to avert potential disaster.
Pay particular attention to:
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Raffles are popular fundraisers for not-for-profits. But they’re subject to strict tax rules. State laws on nonprofit-sponsored raffles can vary significantly, but not-for-profits must comply with federal income tax requirements linked to unrelated business income, reporting and withholding.
An operating reserve is an unrestricted and relatively liquid portion of a not-for-profit’s net assets. Securing this reserve for use in emergencies or simply when your budget falls short is critical to your organization’s security and long-term survival.
Long-Term Effort
Building an adequate operating reserve takes time and should be regarded as a continuous project. Your board of directors needs to determine your not-for-profit’s policy on building an operating reserve, the desired fund amount and the circumstances under which it can be drawn down.
Reserve funds can come from unrestricted contributions, investment income and planned surpluses. Many boards designate a portion of their organizations’ unrestricted net assets as an operating reserve.