Association Executive - January/February 2008 - (Page 9)

Due Diligence Directors have a responsibility to act with due care on behalf of their organization. This responsibility requires that directors act in good faith, with the same care that an ordinarily prudent person would exercise in their position. This duty also requires that directors act in the best interests of the not-for-profit. In order to ensure that directors are fulfilling this responsibility, the IRS recommends that organizations enact policies to ensure that directors: 1) are familiar with the activities of the charity and whether they promote its mission and goals; 2) are fully informed of its finances; and 3) have complete and accurate information so that they can make informed decisions. Transparency The need for transparency is considered particularly important and includes that the organization make available to the public full and accurate information about its mission, activities, and finances. In this regard, the IRS recommends that charitable boards adopt procedures that will ensure that the organization’s Forms 990, annual reports, and financial statements are accurate and complete, posted on the organization’s public website, and available on request. Compensation Practices Successful charities should pay reasonable compensation for services without overcompensating. The IRS recommends that not-for-profits not compensate individuals on the Board of Directors, except when reimbursing them for direct expenses of their service, and that directors only receive compensation when a committee composed of non-compensated persons with no financial interest in the determination finds such compensation to be appropriate. When determining reasonable compensation for officers and staff, the guidelines urge organizations to rely on the rebuttable presumption test of section 4958. Fundraising Policy The importance of fundraising to the financial viability of many charities, coupled with the need for care and honesty to successfully raise funds, necessitates that boards adopt policies surrounding the process of fundraising. These policies should ensure that fundraisers comply with federal and state requirements, and that any materials used in fundraising be accurate, truthful, and candid. In addition, boards should keep fundraising costs at a reasonable amount, check the registration and references of paid fundraisers, and continuously monitor the performance of professional fundraisers. Document Retention Policy Keeping documents and other records is a way to evaluate the effectiveness of a not-for-profit and its programs and show compliance with tax rules. In order to achieve these dual objectives, the guidelines recommend that charities adopt a written policy that sets forth the charity’s standards for document integrity, retention, and destruction. The document retention policy should include guidelines for handling electronic documents and should include procedures for backing up and archiving documents, as well as for assessing the system’s reliability. More detailed information on how charities should approach document retention can be found in IRS Publication 4221, Compliance Guide for 501(c)(3) Tax-Exempt Organizations, available on the IRS website. The interest in ensuring that not-for-profit organizations abide by certain guidelines extends not only to the IRS and the public, but also to the organizations themselves. Being transparent, composing and abiding by codes of ethics, and making clear that individuals, and particularly directors, within an organization abide by their duty to act in the organization’s best interests, can only improve the public’s impression of the organization. Through good governance, not-for-profits can maintain public confidence, enabling them to more effectively raise monies, engage in more activities, and expand their ability to act for the public good. Financial Audits A not-for-profit’s directors act as stewards of its financial resources. In order to ensure responsible accounting for a charity’s activities, the guidelines recommend that organizations regularly examine current financial statements, including Forms 990, auditor’s letters, and finance and audit committee reports. The guidelines also recommend that not-for-profits with substantial assets or revenue obtain an independent auditor to conduct annual audits. Larger organizations should establish an independent audit committee to oversee the auditor, and they should periodically change auditing firms to ensure a fresh perspective. Mid-sized organizations should have an independent CPA conduct annual audits, and smaller charities should enlist volunteers with financial skills to review the organization’s financial information. Susan A. Cobb is counsel with Powell Goldstein LLP, 901 New York Avenue, NW, Washington, DC 20001-4413; 202-624-7344; scobb@ pogolaw.com; www.pogolaw.com. Megan A. Gajewski, a summer associate at Powell Goldstein LLP, is a 2008 law student at American University. JANUARY/FEBRUARY 2008 AS SOC I A TI ON E X E C U TI V E 9 http://www.pogolaw.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

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