nycon dec gov training
TRANSCRIPT
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