Posts Tagged ‘Irs’

There’s no question about it: we are seeing the most challenging economic times since the Great Depression. Every day, we read about lost jobs at this company or that, but when was the last time you heard about lost jobs and closing doors at a non-profit organization?

Well, it’s true; it’s actually happening. The non-profit sector is struggling in a big way. The timing could not be worse: we rely on so many non-profits to provide their services – from soup kitchens to health care – and the prospect of scaling back (or closing their doors) is happening when they are more desperately needed than ever in communities, both large and small, all over the country. As a point of reference, we must remember that an organization receives its IRS non-profit status only after proving its charitable benefit to the constituency it serves.

If we review the series of key events over the past months, several specific issues have combined to form that so-called ‘perfect storm’ – we have just completed the most expensive presidential campaign in the history of our country (and, before Obama could deliver his acceptance speech on election night in Chicago, many people were already very seriously concerned about the economy), state budgets have been squeezed, many of the failing private-sector organizations (even Freddie and Fannie) were large contributors to the non-profit sector, and individual donors have seen their savings drop more than any other time in their lifetime.

Let’s face it; the magnitude of the current financial situation – and its effects on the non-profit sector – is huge.

But, the purpose of this article is to provide some positive steps to help proactive non-profits achieve success (survival?) even during difficult times. True, just as in the for-profit sector, not all non-profits will survive. We cannot change that fact in a capitalistic society. However, we can encourage non-profits to exude excellence and compete successfully among their peers for precious funding dollars.

I received an email on March 26, 2009 from a group, whose information I try to follow, known as “IT Solution Journal.” The subject line read as follows: “Compliance Rules: Tools, Policies and Best Practices That Are Cost Effective”

Wow! That’s the subject near and dear to my heart: non-profit compliance in the areas of ethics, governance, and accountability. As I have stated in previous articles, I believe that pro-active compliance is a sure way for a non-profit, charitable organization to signal its commitment to excellence.

So, in part, here is what that email had to say:

“Organizations of all types and sizes, industries and professions have long been mindful of the need for legal and regulatory compliance. In the current economic environment, however, forward-thinking organizations now are shifting their focus somewhat. Mere adherence to laws and regulations is no longer enough. Thanks to tight economic conditions and a fiercely competitive business environment, proactive managers and executives are committed to implementing strategic email and Hosted Service management…”

The good news: My experience has been that non-profit organizations have been extremely resilient over the years. And, my belief is that non-profit organizations are better-suited to address a number of our most pressing problems than either the government-sector or the private-sector organizations.

And, the bad news: I am concerned that most non-profits have not been as diligent as they should with their regulatory compliance. To date, the critical document for a non-profit, charitable organization has been the IRS Form 990, filed annually. It is my opinion that this will begin to change more and more (as I have mentioned in previous articles regarding the focus that Congress has placed on non-profit compliance and the increased scrutiny it has mandated to the IRS.

Foundations are watching their endowments drop, thereby making the case for less grant funding and their boards struggle with eroding investment portfolios. The same is true with individual donors. So, how does a struggling non-profit gain an edge?

I have five suggestions:

1. Don’t panic. Now is the time for calm, cool, collected thinking.

2. Make necessary changes. If there are board members or staff members who are not serving the organization adequately, replace them. Now is the time to rally your best and brightest minds and your most ardent supporters.

3. Review your IRS compliance requirements. Make sure you have your policies in place – and, make sure you are following them. Ethics, governance, and accountability measures will speak volumes.

4. If you are fortunate to have an endowment, use it. Avoid watching the stock market numbers every day. Keep your mind focused on the future.

5. Talk to your donor base, membership base, and continue to seek grant funds. This time, however, do it from a position of excellence. Don’t be reluctant to tout the professionalism of your organization over your peers.

In conclusion, this is a time of tremendous challenge; however, it is also a time of exciting opportunities. It’s time for non-profits to compete like never before (not in petty terms) but in all things that exude excellence, confidence, and strong business acumen.

Rob Glenn is the founder and president of The Center for Ethics, Governance, and Accountability (CEGA). His organization seeks to provide non-profit organizations with compliance policies that will provide a competitive edge for grant writing, donations, and charitable support. More information about CEGA can be found at http://www.centerega.com

Author: Rob Glenn
Article Source: EzineArticles.com
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At The Center for Ethics, Governance, and Accountability (CEGA), we only add value to the non-profit sector if we can identify well-publicized problems, dissect them into meaningful pieces, eliminate confusion or misunderstandings, and make recommendations for positive change.

ACORN – with all it’s reported problems – must surely serve as an excellent ‘case study’ and represent some guidance to other non-profits with regard to issues of governance and accountability. If we can study ACORN – and turn any problems into knowledge – then we have the potential for ‘ACORN’ to serve as an ‘acorn’ in its purest analogy of growth and strength with nurture and care – all of which are required for any non-profit to remain or become a going concern, particularly in today’s economic climate.

This article seeks to identify several important issues that can be applicable to all non-profits.

This article is apolitical – issues of ethics, governance, and accountability should transcend partisan politics and generalizations.

The problems associated with ACORN have been widely publicized. We will not concern ourselves with a comprehensive review of the problems faced by the ACORN organization; but, rather, we will address two specific issues that can serve to benefit all non-profits:

1. Avoiding numerous ‘affiliate’ or ‘chapter’ offices

2. Maintaining a solid focus on the specific mission

When an organization completes its IRS Form 1023 (recently revised by the IRS in its attempt to strengthen controls on non-profit organizations) the applicant must certify its specific mission and its geographically dispersed offices, if any. These two questions, as specifically addressed in the Form 1023 application, are critical not only to the granting of the 501(c)3 status of a non-profit, but also to the establishment of governance and accountability standards to be enforced by the board of directors of the non-profit.

Before moving forward, let’s take a backward look at ACORN’s formation.

It is interesting to note that ACORN was reportedly formed in 1970, well before Congress sought to strengthen non-profit accountability in the wake of the for-profit Enron fiasco of 1991 or the non-profit United Way fiasco of 1991. The required annual filing by non-profits to the IRS is by way of its Form 990. It would be interesting to review the level of detail in the ACORN filings from years gone by. Similarly, it would be interesting to review ACORN’s Form 1023 filing to see if its mission changed over the years. While these areas of interest are beyond the scope of this brief article, all non-profit entities are encouraged to conduct a periodic review of past certifications to the IRS and make any necessary modifications to remain in compliance.

As mentioned in previous articles – and, as well known by knowledgeable non-profit employees and board members – the awarding of ‘charitable’ status by the IRS is a privilege that comes with appropriate regulations. Note particularly the requirements of Form 1023:

Among other things, Part II of the application requires that Bylaws be produced, Part III requires certification that the organization meets the criteria for charitable status, Part IV requires a narrative that describes the intended activities of the organization – “past, present, and planned” – with a proviso that the narrative must be “thorough and accurate.”

But the application does not stop there. Part V, which includes several sections, seeks to identify employment agreements, compensation justification, potential conflicting arrangements between board members, staff, contractors, etc. Specifically required is a certification as to whether or not the organization has a Conflict of Interest policy. Part VI seeks to determine if individuals or members will receive benefits from the organization. The section also includes the “past, present, and planned” language.

Part VII seeks to determine whether the organization will be taking over the activities of another organization; i.e. becoming a “successor organization.” Part VIII requires the applicant to disclose “past, present, and planned” activities that involve supporting or opposing candidates in political campaigns and/or attempting to influence legislation (i.e. ‘lobbying’).

Additional sections of Part VIII require information on the types of fundraising that an organization receives, whether it is from ‘bingo or gaming’ or other more traditional types of ‘fundraising.’ The section also requires disclosure of any contracts with fundraisers, governmental affiliation, economic development, joint ventures, foreign country operations, a listing of all states and localities will fundraising will be conducted, relationships between any recipient organization, close connections with any organizations, provision of low-income housing, etc.

As can be seen, the Form 1023 is a comprehensive document. This is as it should be; the IRS requests as much information as possible to make its determination of non-profit status.

With this background on filing requirements, let’s turn now to the two issues to be addressed in this article:

1. It is recommended that non-profit organizations avoid having numerous offices, chapters, affiliate organizations, etc. Why? Because the more offices, the more complexity, and the more difficulty in maintaining proper records, knowledge of operations, and acceptable management procedures.

2. It is recommended that non-profit organizations maintain a close watch on all activities to avoid ‘creep’ that would result in activities that are clearly beyond the scope certified in the IRS application. All staff members and board members must be able to speak with certainty when describing the mission and activities of the organization.

When the news reports of the ACORN organization are reviewed, it becomes immediately obvious why its ongoing management was challenging: offices in 75 cities; international expansion; allegations of embezzlement that occurred ten years ago; affiliation with other non-profit organizations; a political action committee (PAC); political organizing programs; alliances with Project Vote and inadequate documentation to determine non-profit and excluded activities; etc.

Of importance is the opportunity for leaders in non-profit organizations to see the specificity of IRS requirements mentioned in this article, compare against the challenges ACORN has created for itself (as widely reported), and make a determination as to how their non-profit organizations will be organized, led, and mission-based. While some may want to argue that it is easy to fall outside of the IRS regulations, the simple facts in this article seem to differ strongly. (The applicant must say what it means and mean what it says.)

From our youth, we are taught that an acorn (essentially a seed) represents a great thing for the future. Carefully planted and nurtured, an acorn can become a majestic oak tree, serving many purposes from CO2 sequestration, to shade, to food for animals, to furniture. The tree may grow in an unruly fashion, but it can be pruned. Disease may set in, but it can be treated. While care and attention can provide the nurturing necessary to see the acorn through to success, the most critical element is ‘paying attention’ to what is actually happening to the acorn.

This appears to be a major problem with the ACORN organization; formed in 1970, just when did it start to veer off course? Who was there to nurture it? What now will be the consequences? Will board members be held personally accountable?

Fortunately, every non-profit organization currently in existence today – or planning to emerge in the future – has the opportunity to be an acorn and not an ACORN. We urge all non-profits to take their charitable status very seriously and to demonstrate excellence in all aspects of their operations. So nurtured, your tree will certainly grow strong.

Rob Glenn is the founder and president of The Center for Ethics, Governance, and Accountability (CEGA). His organization seeks to provide non-profit organizations with compliance policies that will provide a competitive edge for grant writing, donations, and charitable support. More information about CEGA can be found at http://www.centerega.com Please check out the website and participate in the ongoing discussion. Your opinions and insights are invited.

Author: Rob Glenn
Article Source: EzineArticles.com
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