Community Focus Statewide Impact National Network

Assessing Management & Governance:

Nonprofit Operations & Best Practices

Presented by Doug Sauer, CEO

New York Council of Nonprofits, Inc.

New York City-Albany-Buffalo-Poughkeepsie-Rochester-Oneonta

What We Will Be Covering

• The Nonprofit as a Corporation

• Governance Structures & Responsibilities

• Staff Leadership & Management

The Legal Corporation

• Corporation is created in NYS– Either through Articles of Incorporation (Department of State) or Charter

(Department of Education)

– Must have at least 3 board members

– May be a membership corporation

• Then apply for IRS tax exemption via form 1023

• All DEC grantees must be 501(c)3’s

• Two other major types are 501(c)4’s and 501(c)6’s

• Nonprofits can have subsidiaries or “related” corporations

Fiscal Sponsorship…

• Is when a 501(c)3 allows its legal & tax-exempt status to be used by another group or organization

• Key issues– Activities must be related to the 501(c)3’s mission

– The fiscal sponsor is responsible for proper use of funds and all required reporting

– Written agreement between the parties should exist

– Funders need to understand the relationship

The Mission

• The tax-exempt purposes for which resources are to be devoted– Defines scope of activities & customers

– Exempt activities flow from mission

– Unrelated Business Income Tax (UBIT)

• Official statement is in the Certificate of Incorporation or Charter, or as amended – Check IRS application, IRS Form 990 & audit-be consistent

The IRS Form 990 Series

• Promotes Disclosure & Accountability

• Used by “watchdog” organizations & donors to determine how funding decisions are made

• Compliance with best practices

• Check it out on the web – www.guidestar.com

• www.irs.gov

What Form to File

2010 Tax Year & Later (Filed in 2011 & Later)

Form to File Instructions

Gross receipts normally ≤ $50,000Note: Organizations eligible to file the e-Postcard may choose to file a full return

990-N n/a

Gross receipts < $200,000, andTotal assets < $500,000

990-EZor 990

Instructions

Gross receipts ≥ $200,000, orTotal assets ≥ $500,000

990 Instructions

Private foundation 990-PF Instructions

IRS Form 990 (con’t)

• State mission?– Has it changed, any new activities, are these activities related?

• Did the Board review audit? Review 990 before submission? % of funds used for management & general, and fundraising?

• Whistleblower policy?

• Record retention?

• Gift acceptance?

• Compensation policies for key employees & officers?

• Paid board members?

IRS Form 990 (con’t)

• Disclosures on international activities (Patriot Act)?

• Conflict of interest policy?

• Business transactions with key employees or board members or their immediate families?

• Business transactions among board members/key employees?

Charities Form 500 & NYS Auditing Requirements

• Annually Filed with NYS Attorney General– Must file if over $25,000 in contributions whose total revenue

– Must meet NYS Audit Requirements & submit:• Independent Audit if revenues over $250K

• CPA “Review” – if between $100K-$250K

• Submit Financial Report certified by Board –under $100K (CPA not needed)

– If not filed, could be fined or Charities Registration number could be suspended

– Result could be IMMEDIATE funding restrictions

Board Members & Officers are Ultimately Responsible For:

• Discharging the duties of their position in good faith and with that degree of diligence, care, loyalty, & skill which ordinarily reasonable persons would exercise under similar circumstances in like positions

Assessment Note – The legal minimum for board members is 3 .

Bylaws may state a higher number.

Board Members Are Fiduciaries

• A duty to act for someone else’s benefit

• Has special responsibilities in connection with the administration, investment and distribution of assets, where those assets belong to someone else

• Duties of Care, Obedience & Loyalty

Major Policy & Monitoring Functions

1. Board Management & Development

2. Personnel Oversight

3. Finances/Fixed Assets Oversight

4. Resource Development

5. Stakeholder/Community Relations

6. Program Services: Quality Assurance, Evaluation & Continuous Improvement

7. Planning for the Future

Policy & Implementation Spheres

Policy-making

Implementation

Board of Directors

Area of Shared Responsibilities

Executive Director/CEO

Area of Shared Responsibilities

Staff

Operating Policies

© 2010 New York Council of Nonprofits, Inc. All Rights Reserved.

Key Board Officers

• Chair (President)

• Vice-Chair

• Treasurer

• Secretary

• Executive (paid; usually ex-officio, non-voting)

Assessment Note: NYS law requires that there be someone serving as Chair, Treasurer & Secretary. The Chair cannot serve also as Secretary. Officers cannot resign their positions without qualified replacements.

• r

NYS Requirements on Conflict of Interest

• Individual Officers & Board Members must disclose “material facts” & “pecuniary gain” in decision/actions and must abstain from voting

• Payment & contracts between officers & directors are allowed so long as it is fair to the nonprofit & the officer or director does not breach his or her fiduciary duty by making a profit

Assessment Note – Payment to board members is a rare (and not best) practice & generally frowned upon by the IRS, funders & the public.

Best Practice StandardsConflict of Interest

• Higher Standard Options:– Define broadly: material & other interest; actual

& perceived

– Have any & all interests that may compromise or be perceived as such declared at earliest moment

– Prohibit any interested influence being exercise• Prohibiting attendance at meeting, lobbying ED or other board

members, etc.

Best Practice StandardsConflict of Interest (con’t)

• Do not allow any employees (including CEO/ED) to be a voting member of the board

• Allow no self-dealing by board or employees (particularly key leadership)

• Prohibit loans from the organization to staff– Note: Loans to board members are prohibited under law

• Prohibit loans from board members & staff to organization

Best Practice StandardsConflict of Interest (con’t)

• Limit or prohibit nepotism for board & staff– Hiring, supervision & contracting

– Example: policy that prohibits an employee to be in the supervisory chain of a household/family member

• Maintain “independent” board composition (i.e. no household & family relationships among board members)

Best Practice StandardsConflict of Interest (con’t)

• Bidding Policy– For set dollar amount (i.e. $5K)

– For any transactions to be done with officers, board or employees

• Board approval of all business transactions between the nonprofit and the board & employees, including those that would normally be a decision of management

• Restrictions on officers or board members applying for paid positions– i.e. Must resign from board at application or expression of interest and cannot rejoin

board for a period of time

The Not-for-Profit as Employer

• The Board of Directors is the employer of record, as any other employer, and thus has the liability exposure– CEO/ED may be delegated the responsibility to hire,

enter into employment or contracting agreements, supervise, & terminate; but does so on behalf of the Board

– Is not independent of the board

The Board as the Employer

• Is treated as any other employer would be in NYS

• Must have personnel policies

• NYS requirements– Working hours

– Personal, sick & vacation policy

– Holiday pay policy

– Posted smoking policy

• Contractual requirements, i.e. drug-free workplace

Two Major Types of Worker Classification

• Employees– At will

– Contracted • Exempt

• Non-Exempt

• Independent Contractors

Worker Classification

• Failure to appropriately determine who is & who is not an employee, or to clearly delineate the duties of contractors could have serious & costly consequences for the employer

Assessment Note: ED’s should rarely if ever

should be independent contractors.

What is an Employee?

• The degree of CONTROL, SUPERVISION AND DIRECTION are touchstone determinants

Factors that Indicate “Control”

• Determining when, where & how services will be performed

• Providing facilities, equipment tools & supplies

• Directly supervising the services

• Stipulating the hours of work

• Requiring exclusive services

• Setting the rate of pay– Providing fringe benefits

Special Rules for Performing Artists

• The Unemployment Insurance Division of the NYS Department of Labor has issued more specific guidelines on whether a person defined as a “performance artist” is truly an employee or an independent contractor

The Executive Director (or CEO)

• At-will or contract employee?

• Exercises authority as designated by the board & is accountable for overall organizational performance

• Provides vision, professional support, guidance & advice to board

• Advances & protects fiduciary obligations of organization & board

Best Practice Tip

• Define general & lasting parameters in bylaws

• Have updated, board approved job description or clearly defined contract

• Evaluate in writing annually

Artistic Directors

• Typically:– The most senior creative employees of an artistic

institution

– Responsible for motivating staff to produce the highest quality of work while maintaining the organization's mission

Open Discussion & Questions

Community Focus Statewide Impact National Network

Assessing Management & Governance:

Nonprofit Operations & Best Practices

Presented by Doug Sauer, CEO

New York Council of Nonprofits, Inc.

New York City-Albany-Buffalo-Poughkeepsie-Rochester-Oneonta