Association Executive - January/February 2008 - (Page 23)

and an outside organization are related only on the basis of a common trustee that is a bank or financial institution. A volunteer exception also exists that may negate the need for a volunteer’s for-profit compensation to be disclosed. For example, if a for-profit company operates a private foundation and an employee of the company serves on the foundation’s board, the employee’s compensation would not need to be disclosed, although the board member’s employment with the for-profit company should be. The IRS provides additional explanations and clarifications regarding lines 75b and 75c, some of which are complex. Not-for-profits should consult their certified public accountant (CPA), attorney, or other professional advisers to gain a better understanding of the nuances of the requirements as they relate to their particular organization. Also, the IRS continues to provide guidance in this area and has recently released additional instructions on its website that address some of these confusing issues. on a not-for-profit board and also has business dealings with the organization. At the least, these relationships raise the appearance of a conflict of interest and could be a sign of more troubling governance problems that allow an insider to enjoy an excessive or unjust benefit. Senators Grassley and Baucus have been supportive of IRS efforts to gain a better understanding of the relationships that underpin charitable activities. In their letter to the IRS, the senators said there needs to be “a complete understanding of all related organizations—both for-profit and not-for-profit—of a charity.” They noted, “It is important that the public be able to understand the big picture of what is going on at a charity.” Strategies for Effective Compliance Despite concerns about the impact of additional disclosures, the IRS and Congress have made it clear that not-for-profits have little choice but to embrace the movement toward greater transparency. Organizations should aim do so in a way that minimizes stress and strain on key stakeholders. Here are some steps that association and nonprofit executives may need to take to more effectively address Form 990’s current and future information requirements: • Consider whether your organization needs to incorporate greater disclosure into its operations and processes. This may involve steps such as revising or expanding conf lict-of-interest policies; reviewing the processes by which the organization identifies and discloses potential conf licts; and possibly establishing new procedures to track interrelationships among organizations, board members, and other key individuals. • Guard against the appearance of conflicts or impropriety, whether perceived or real. Not-for-profits should accept the new reality that even the appearance of a conf lict of Searching for Conflicts With the latest Form 990, as well as proposed revisions to the form, it is clear that the IRS aims to improve its ability to identify monetary relationships between board members and the organizations they serve and among individual board members. The IRS can then apply data mining techniques and further inquiry to examine whether any of the disclosed relationships present conflicts of interest. Of particular interest to the IRS are questions such as whether a not-for-profit is allowing conflicts to go unchecked, whether insiders are being improperly enriched at an organization’s expense, and whether requirements for tax-exempt status are being met. For example, the IRS is likely to look more closely at situations where a business owner or professional services provider (e.g., an attorney, investment advisor, or CPA) serves interest that surfaces on their Form 990 could subject them to negative publicity and further scrutiny by the media, watchdog organizations, and the IRS. The public nature of the Form 990 is much the same as a public company’s Form 10-K. This document should be treated as such. To reduce risks in this area, notfor-profits should intensify their efforts to raise awareness among board members and staff about conf licts of interest. This can be done in conjunction with the annual signing of a conf lict-of-interest policy and as part of orientation and training sessions. • Strengthen policies and procedures that govern bidding processes and the awarding of contracts. Although it’s not forbidden for a not-for-profit to have a relationship with organizations or individuals who have ties to board members, exempt organizations must ensure they perform proper due diligence before entering into these relationships and that all details of the arrangements are above-board. Even if not-for-profits and their board members are not completely comfortable with Form 990’s enhanced disclosure requirements, ignoring them is not an option. If organizations are to meet the standards of regulatory compliance and uphold their obligations to stakeholders, they should be as forthcoming as possible about financial and governance matters. Potential donors, the public, charitable watchdog organizations, and regulators all look favorably on organizations that deliver on the promise of transparency. Geralyn R. Hurd is the executive in charge of the tax-exempt practice and Stuart J. Miller is the executive in charge of not-for-profits with Crowe Chizek and Company LLC in Chicago. She can be reached at 312-899-8419 or ghurd@ crowechizek.com. He can be reached at 312-899-5495 or sjmiller@crowechizek.com. JANUARY/FEBRUARY 2008 AS SOC I A TI ON E X E C U TI V E 23 http://crowechizek.com http://crowechizek.com

Table of Contents Feed for the Digital Edition of Association Executive - January/February 2008

Association Executive - January/February 2008 Contents From the CEO Good Governance Practices for 501(c)(3) Organizations A New Model: Helping Smaller Not-For-Profits with Their Endowment Management Inside NYSAE Book Beat Too Much of a Good Thing? Enhanced Form 990 Disclosures and Their Impact 7 Myths about Financial Planners An Executive's Guide to Responding to Third-Party Subpoenas Relationship Selling: Maximize Your Talk, Time & Tech to Keep Your Connection Strong Save the Dates Index of Advertisers

Association Executive - January/February 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.