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Having A Legal And Compliance Department Helps Nonprofits Stay On Top Of Rules And Regulations

Should Nonprofits Have a Legal and Compliance Department?

There is no legal requirement for nonprofit organizations to have a legal and compliance department; nonetheless, all nonprofit organizations are required to know and follow all state and federal laws that govern them. Not all nonprofits will have sufficient funds or staff to establish a formal legal and compliance department, especially if they’re just starting up. In this case, the board should designate someone to be accountable for legal and compliance matters, such as the board president or the executive committee. Alternatively, boards may appoint a lawyer to their advisory committee or hire one as needed.

Setting Up a Corporate Compliance Plan

The lack of compliance can lead to violations and penalties and can quickly damage a nonprofit’s reputation. Nonprofits have much to benefit by setting up a Corporate Compliance Plan. A formalized compliance plan gives nonprofits the benefit of being transparent and accountable, which will help in the event that they’re being investigated over allegations of illegal or unethical actions.

A Corporate Compliance Plan should include the following policies, which are considered best practices for good governance:

  1. Document retention policy
  2. Conflict of interest policy
  3. Whistleblower policy
  4. Code of conduct policy (unethical activity can put the organization at risk)

The individuals who are responsible for legal and compliance matters should review and evaluate the corporate governance documents with an eye on establishing standards and procedures and strengthening existing policies. The responsible party should also communicate the standards and policies to personnel to protect the organization from potential infractions.

Annual Filing and Reporting for Nonprofits

Every year, nonprofit organizations must file Form 990, Form 990-EZ or Form 990-N with the Internal Revenue Service (IRS). The organization must also follow the guidelines for acknowledging donations and conduct an annual audit and they must be transparent on grants. Filling out the proper paperwork protects nonprofits against penalties.

Do Nonprofits Need a Corporate Compliance Officer?

As a nonprofit grows, it should consider designating one of the senior managers as the Corporate Compliance Officer. This individual would be responsible for overseeing the compliance with laws and regulations for the organization and making reports to the board and staff. The Corporate Compliance Officer would also monitor the organization for potential compliance violations and investigate reports of suspected violations.

Proper Acknowledgment of Donations

Nonprofits must follow specific rules for collecting and acknowledging donations of cash, payroll deductions, pledges and donated property. Nonprofits aren’t legally required to provide a written acknowledgment of donations under $250, but it’s considered best practice to do so.

For contributions that are less than $250, the donor must have a bank statement, canceled check or credit card statement to substantiate the donation. It’s also permissible to have a written statement from the nonprofit that includes the name of the organization, the date of the contribution and the amount.

Donors that give via payroll deduction may prove their donation by a pay stub, W-2, pledge card or other document from their employer.

For donations over the $250 amount, the donor must receive a dated, written acknowledgment that includes the amount.

In the case of donated property, the written statement should include a description of the donated property and a value that’s determined by the donor. The statement should note that the nonprofit didn’t provide goods or services in exchange for the contribution (unless it did).

Gifts of stock are considered a donation of property. In this case, the nonprofit should send the donor an acknowledgment letter that describes the stock and notes that no goods or services were provided in exchange for the gift. The acknowledgment letter shouldn’t place a monetary value on the shares. The value of the stock is determined by calculating the mean of the highest and lowest quoted selling prices on the date of the gift, not including weekends or holidays. The nonprofit isn’t required to provide an acknowledgment or receipt to the donor regarding the proceeds of the sale of donated securities.

Charitable Disclosure Requirements for “Quid Pro Quo” Contributions

The term quid pro quo refers to a contribution to a charity that is part monetary donation and part goods or services provided to the donor by the organization. For example, when a donor makes a contribution to a charity and the charity provides free tickets of a similar value to a gala, golf outing, concert or other event, that is considered a quid pro quo contribution.

In this case, when the total donation exceeds $75 and the donor receives goods or services in return, the charity should provide a written statement or acknowledgment that includes a good faith estimate of the fair market value of the goods or services provided to the donor and a statement notifying the donor that they can only deduct that portion of the donation that is over the fair market value of the goods or services received.

Things That Nonprofits Are Allowed to Do

While there are many things that nonprofits aren’t allowed to do under their 501(c)(3) status, they are legally allowed to do certain other things.

Nonprofits are allowed to pay their members, officers and directors through salaries and reimbursable expenses. Nonprofits are also allowed to pay independent contractors for their services as rendered. From an advocacy standpoint, the government encourages nonprofit organizations to build a strong, grassroots campaign. It’s also acceptable and expected that nonprofit charities will advertise to promote the organization.

Storing Documents for Nonprofits

The government doesn’t define how nonprofits must organize or store their important documents. Nonetheless, the government will demand that nonprofits make certain documents accessible in the event of a legal investigation.

BoardEffect is a full-service organization that offers board management software with cloud-based, unlimited storage. The board can utilize the system to store their founding documents, articles of incorporation, bylaws, policies, records of donations and other important, confidential or sensitive board documents.

The board portal system is highly secure and yet board directors and managers have quick access to documents if they’re needed to substantiate their actions or respond to questions about legal compliance. BoardEffect is the modern governance solutions for nonprofits of all sizes.

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