5 Fundraising Issues Making Regulators Nuts

“Changes in the way nonprofits operate alter the face of many discussions but a number of the underlying legal issues and compliance considerations seem to be perpetual. Internal operational issues are of great interest to regulators. Among them are five hot-button areas — everything from fundraising to finances to online activity.

1. Governance & Compliance: Policy vs. Practice

One of the longstanding legal problems that nonprofits continue to face is failure by boards to properly implement adopted governance and compliance policies. For example, with respect to conflicts of interest, is the board properly considering alternatives when a proposed financial transaction will benefit an insider? Are only the independent directors reviewing and approving such transactions based on the best interests of the organization?

Failure to observe these key protocols can lead to improper excess benefit to insiders, and scrutiny of insider transactions by the Internal Revenue Service (IRS) and charity regulators. Similarly, failure to ensure that internal financial control policies and procedures are actually being implemented on a day-to-day basis can lead to fraud and embezzlement, with serious consequences to the organization to both finances and reputation.

Certain best practices in board governance, such as requiring a minimum number of board meetings to be in-person meetings, help ensure that boards have robust discussions before making important decisions on issues that involve serious organizational risk. Boards that treat governance as a mere rubber stamp of the executive staff’s decisions do not provide the checks and balances that are critical to their function as fiduciaries of the organization.

To ensure effective governance and compliance, nonprofit boards should regularly review their policies in light of applicable laws and best practices, but also take time to ensure that they are being properly implemented.”

Read the full post here.