As a non-profit organization, being aware of your exposure to risk is essential. In fact, it can sometimes take a number of years to discover areas of non-compliance. If you have discovered that you are exposed to risk and that you are currently non-compliant, what can you do to reverse this? How can you set the ship back on course and ensure that you maintain the trust of your community?
Here are some methods to correct your possible compliance risks:
- Stakeholders versus shareholders
Many organizations have stakeholders. These are people who have an interest in an organization and can be affected by it. In this context, your employees are your stakeholders. The community you work hard for are also your stakeholders.
All of this is quite OK and perfectly legal, but sometimes these stakeholders want to make a business investment and this is when things get tricky. A non-profit is not allowed to have any shareholders who have a direct financial interest and stand to gain financially.
As a non-profit, you’re likely to have a large network of interested individuals and groups who want to support your efforts, but it’s crucial that none of them invest financially where they also stand to gain a dividend. The moral of the story is: be generous with your stakeholders, but beware of shareholders.
- What are your politics?
If your non-profit is well-known and widely supported by many stakeholders, you may find yourself rubbing shoulders with the political sphere. There’s nothing wrong with this and it can be very useful in terms of networking and getting things done.
What is not OK is when this relationship with the political sphere turns into a lobbying effort. Non-profits cannot affect legislation through lobbying in any substantial way. There is some grey area around this, so it’s best to check with the IRS on what those limits are exactly.
- Check your records
One area where many non-profits slip up is not keeping good and orderly records. In fact, this can go on for years without being noticed, and even become habitual. Your organization’s records really do matter in the context of compliance with tax laws and are essential if ever there is an ethical breach. The lesson is: do an immediate audit of your current record keeping status and whether they are in good order.
- Who are you paying?
The rules around who can accrue profits in the area of non-profits can be complex, so it is essential to check with the IRS on what the laws are in your area. Typically, it’s OK for profits to be accrued for stakeholders such as members, directors, and so on, but this must be checked.
Who you pay and how they profit could be the difference between your status as a non-profit organization with good standing in the community and a serious non-compliance issue.
Are you compliant?
If you haven’t looked closely at how your organization operates, it’s time to take a methodical approach and review areas where non-compliance is most common, including profits, politics, records, and financial interests.
Always check with the appropriate agencies, such as the IRS, on issues of compliance and what parameters are set for your organization. And if you do discover that you’re non-compliant, review thoroughly and make appropriate changes.