Compliance Risks for Non-Profits

In many ways, non-profit organizations are a special breed. Even though risk management and managing ethics is important at every level of every organization, non-profits often underestimate their vulnerability to risk factors. By contrast, for-profits largely understand the need for regular risk assessments.

Why are non-profits underestimating their compliance risks?

The reasons why a non-profit may choose not to conduct regular risk assessments can be broken down into three major factors:

* There is a lack of understanding among leaders in these organizations of the importance of risk assessment,

* Many such organizations already believe that have their compliance risks well covered,

* Many non-profits may bemoan their lack of resources and believe that they cannot afford to run regular risk assessments.

Despite these basic misunderstandings, non-profit organizations must determine their compliance risks and act upon them reasonably. Failure to do so can create an environment where breaches of the law are simply accepted.

What risks do non-profits face?

There are actually a range of compliance risks that non-profit organizations need to deal with, including:

* Compliance with state regulations around the collection of tax on any sale items,

* Understanding the compliance around soliciting donations,

* Complying with the laws concerning private foundations and public charities,

* Ensuring that all employees are classified in accordance with tax laws,

So, how can a non-profit work out their compliance risks?

1. Examine profit status

Despite some similarities, non-profits are unlike for-profit organizations in that their compliance around making money is very strict. A non-profit organization cannot make big profits, but in some cases an organization may underestimate things like sales of items intended to raise money for a good cause.

For example, a non-profit organizes a rock concert for local teenagers in a low socio-economic area. They cannot make substantial profits from sales of promotional items at the concert. This would violate the laws surrounding how non-profits are to operate.

2. Examine record keeping

Good record keeping is the cornerstone of all organizations, non-profits included. Unfortunately, this is one area in which many non-profits fall down. Good record keeping is essential to being compliant with tax laws, for example. Failure to keep good records is a slippery slope to breaching laws and placing the entire organization at risk of non-compliance.

3. Examine promotion and marketing

The mainstay of any non-profit organization is being honest and transparent. When it comes to promoting their brand, they must be very careful to tell the truth. Using avenues for free advertising is strongly encouraged and ensures that the non-profit is not over-marketing or abusing their privilege in the market.

The importance of remaining compliant

Ultimately, non-profit organizations face unique pressure. They are part of a marketplace, and yet they must be careful not to act in ways that are expected of for-profit organizations. Determining risks,therefore, and taking reasonable steps to remain compliant is integral to cultivating a position that all community members respect.