protecting your organization through policies jeri towler (405) 844-2222 [email protected]
TRANSCRIPT
Bylaws
Or
PoliciesReport significant changes in bylaws
to IRS on Form 990, Schedule O
Significant Changes to Bylaws
Purpose is modified Number, composition, qualifications, authority or
duties of the Board, Officers or key employees Amend organizing document (Cert. of Inc.) Membership benefits Quorum, voting rights, who votes Policies or compensation language within the
organizing document or bylaws. Dissolution or merger
(See page 19 of 990 Instructions)
Governing through Policies Sarbanes Oxley’s application
to public charities:
Document Retention
Document Destruction
Whistleblower
All of the above are questions on page 6 of Form 990
Governing through Policies Financial Policies & Procedures
Form 990 Separation of duties
• Check writers not check signers
• Reconciliations
• Cash management
• Mail Expense Reimbursement Loans and/or Debt Credit Cards Budget
Governing through PoliciesConflict of Interest Policy
Protect board members Page 6 of Form 990 Covered on Friday
Loan/Debt Policy Authority to give loans Authority to acquire debt
• How much is to much?
Governing through PoliciesFundraising Policy
Grant Management• Approval of application
• Oversight
• Modification Gift Acceptance Policy
• Real Property
• In-kind donations Gift Acknowledgement Resource Development
• Board involvement
Governing through PoliciesEmployment Policies
Employment at Will Employee Classification (FLSA) Employee vs Volunteer Timekeeping (grants) Attendance requirement Evaluations Benefits Conflict Resolution Termination
KEY: Keep it simple. Required state and federal laws only. Example: FMLA applies to 50 or more employees in private sector.
Governing through Policies Succession Plan
Executive Director Cross Training of Employees
Lobbying/Advocacy Yes to Lobbying No to Political Candidates
Media Policy Confidentiality Strategic Plan
Additional State Requirements Registration with State Payment of Sales Tax (not in Texas) New Hire Reporting Workers’ Compensation Unemployment
4 or more employees (Oklahoma) Church exception
Open Meeting Act (Sunshine Laws) Audit
Required by grant Required by State (Massachusetts)
Revocation of Tax Exempt Status Failure to file Form 990.
Beginning in 2007 failure to file for 3 years results in immediate lose of tax exempt status.
Support of terrorist organizations.
Participation in political campaigns.
Excess Benefit Transactions (inurement). First step is usually an audit.
Failure to comply w/ disclosure requirements. First step is usually an audit.
Failure to meet public support test. Governmental grants are public support!
Annual FilingsIRS Form 990 (tax return) Gross Receipts ≤ $50,000: 990-N Gross Receipts < $200,000: 990-EZ or 990 Gross Receipts ≥ $200,000: 990
Oklahoma Form 512E (tax return) File a 512E (simple reporting form) Charitable Registration
IRS Form 990T (tax return) (UBI)
$1000 or more of unrelated business incomeYou are not required to file if you are a church or governmental unit.Form 1023, Part I, Question 10
Say YES to Lobbying! Disclosure requirements on Form 990
File form 5768 Expenditures Test vs Substantial Parts Test 501(h) Election
Tax year is less than 1 million Can spend 20% of the exempt purpose expenditures if
the exempt purpose expenditures are not over $500,000.
Over $500,000 there are additional rules Additional $$ for grass roots expenditures
Asking for grants is not lobbying
Say NO to political campaigns!
Never allow anyone to use the organization as a platform to express political views concerning candidates.
If you invite one candidate then you must invite them all.
Candidates and elected officials
may sit on your board.
*Applicable to churches
Minutes MatterMinutes are Legal Documents
Name, date, time Dissenters/Abstainers
Those attending/absentReports given
Quorum Documents provided
Motions and by whom Future action requested
Discussion Time meeting ends
Voting results Signature of Secretary and President
*Consistent Detail
**Will a court be able to tell what occurred from the minutes? 990 Part VI, Line 8.
Public Inspection
Form 990 for three years (state 5 years) Application for recognition of exempt status
with attachments – exactly as sent to the IRS.
Determination letter Organizing documents:
Certificate of Incorporation Bylaws
Including amendments
Form 4506-A
See Pub 557, page 15 - 17
More Disclosure Requirements
Solicitation of nondeductible contributions
Sales of information or services available for free from the government
Dues paid that are not deductible since used for lobbying or political activities
(c)(4) social welfare (c)(5) labor union (c)(6) business league
Prohibited tax shelter transactions
Board ProtectionRisk Management
Review key documents Review history or amendments Were documents properly filed
• Bylaws say you are a membership organization• Articles of Inc. says up to 9 board members
Minutes recording board decisions
Required filings are up to date
Required policies are in place Policies are being followed
Risk Management Election of the Board
Governance Committee
Asset List (including in-kind donations) Who owns what is in your personal office?
Risk Analysis/Risk Transfer Directors & Officers Insurance Errors and Omissions Insurance
Volunteers Policies Required training How to fire a volunteer
Minutes MatterMinutes are Legal Documents
Name, date, time Dissenters/Abstainers
Those attending/absentReports given
Quorum Documents provided
Motions and by whom Future action requested
Discussion Time meeting ends
Voting results Signature of Secretary and President
*Consistent Detail
**Will a court be able to tell what occurred from the minutes? 990 Part VI, Line 8.
Signs of Embezzlement
Violating or overriding internal controls Refusing immediate access to records Check signing authority Intimidates employees/volunteers High lifestyle/recent inheritance Skipping vacations/working overtime Excessive drinking/gambling
REPORT THE EMBEZZLER
before he/she hurts another organization!
Legal Responsibilities of Board Members
and Use of Bylaws to Strengthen Your
Organization
Jeri Towler (405) 844-2222
LEGAL RESPONSIBILITESDuty of Care:
Make good faith decisions.Duty of Obedience:
Be true to the purpose of the organization.Duty of Loyalty:
Act in the best interest of the organization.
Responsible party:
The governing board of the organization.
Duty of Care
Acquire bids to determine FMV Ask questions….
Question possible conflict of interests. Question the need for the project. Question if project is within the budget. Question whether the project meets the
purpose of the organization. Minutes should reflect discussion prior to
a vote.
Duty of Obedience
Require board members to be faithful to the purpose of the organization.
The purpose was provided to the IRS on Form 1023 and was approved by the IRS for the organization to receive tax exempt status.
Expansion of the purpose without approval from the IRS is: Mission Creep
Duty of LoyaltyClues the IRS Cares about the
Duty of Loyalty of Board Members:
Questions on Form 990: Part I, Line 4 Part VI, Line 1b Part IV, Line 25a, 25b, 26, 27,28a, 28b, 28c
Protecting our Board of Directors through State Statutes
Oklahoma : Oklahoma Corporations Act Title18, § 866- 867
Massachusetts: Massachusetts General LawsChapter 180, § 3
Texas: Texas Business CodeChapter 22, § 152
California: California Corporations CodePart III, Chapter 2, § 7231.5
Note: Federal Volunteer Protection Act
Basic Legal Principles
Board of Directors should not be subject to vicarious (acting on behalf of another) liability for the negligence of corporate employees or directors.
Liability would have a detrimental effect of the participation of persons as directors of nonprofit corporations and the people would not be served.
Directors shall not liable for the debt of the organization.
Directors shall only be liable for theirown actions.
Any breach of the director’s duty of loyalty. Any acts or omission not in good faith or
which involve intentional misconduct or a knowing violation of the law.
Any transaction from which the director derived an improper personal benefit.
Intentional torts or grossly negligent acts or omissions personal to any director.
Even if you try, states will not allow you to dispose of these exceptions.
EXCEPTIONS THAT MAKE BOARD MEMBERS LIABLE
Organizing Documents
Articles of Incorporation
Bylaws
Organizational Minutes
Articles of Incorporation
Take precedence over Bylaws
File with Secretary of State Perpetual or automatic dissolution
IRS requirements (Form 1023) Purpose Dissolution PF safety net (not required)
Caution if incorporating a tax exempt association.
Bylaws: Governance
Issues
ONLYReport significant changes in bylaws
to IRS on Form 990, Schedule O
The Bylaws Necessities Purpose Location Board of Directors Committees Officers Membership Indemnification Policies-Conflict of Interest Amendments Construction and Terms
Minutes Essentials
Adopt Bylaws Adopt Financial Policies
Who can execute contracts (up to $50,000) Check signers (two signatures over $5,000) Approval of Payment of Expenses (not check writer)
Adopt Board Policies Elect of Directors and Officers Duties of Officers Bank Account(s) – movement of money Salaries/Employees/Independent Contractors Credit Cards – EIN only
Term Limits Attendance
Requirements Giving
Requirements Committees
GovernanceBoard of Directors
Number Composition Nomination Election Length of Term Meetings/Notice
Election by members: 990 Part VI, line 7a and 7b
Committee Recommendations Governance Committee
Recruit and research new board members Oversee election process Board training
Finance Committee Monthly financial oversight/reports (In English)
Implement financial policies Audit Committee
Select auditor Oversee audit and review financial policies
Committees Form 990, Part 1, line 3; Part VI, line 1a asks the
number of voting members of the governing body.
If the board has delegated this authority to another committee such delegation, scope of delegation and committee member names must be reported on Schedule O.
Issues with later ratification by the Board.
Open Meeting Act: Committees with board delegated authority or a quorum of the Directors is subject to the Open Meeting Act.
990 Part VI, Line 3
Executive Committee Who serves and who calls meetings? How do you to keep other Directors involved? Limit scope of authorization
List of decisions EC may make • Any expenditure w/i the budget• Contracts under $50,000
List of decisions EC may not make• Hire/fire ED; remove board members • Amend bylaws, Cert. of Inc., financial policies
Guide the ED between meetings of the Board and/or in case of emergency.
Dissolution of the EC by vote of the Board
Responsible Parties
The Board of Directors are:
A. The responsible parties
B. Listed on Form 990
C. Covered under D&O Insurance
Do not confuse Directors with committee members, advisory council members, or employees.
In the Beginning
The structure of tax exemption was developed between 1894 and 1969 Established a federal income tax exemption Banned private inurement Provided for income tax deduction for contributions
Additional regulations for private foundations between 1969 and 1984
Proxy tax on lobbying & political expenditures in 1993 Sanctions for excess benefit transactions in 1996
Recent Changes Sarbanes-Oxley Act in 2002 Pension Protection Act of 2006 White Paper: Role of IRS in EO Governance
Issues in 2008 White Paper: Governance and Related Topics –
501(c)(3) Organizations in 2008 Reformation of Form 990 in 2008 EO Audit Check List in 2009 Schedule A – Public Charity Status and Public
Support Test – 2010
US Government’s Cause for Concern
Over 1.5 million public charities are receiving income tax exemptions and
donations resulting in over
Fifty Billion Dollars
$50,000,000,000.00
of lost tax revenue to the
US Government.
Duty of LoyaltyClues the IRS Cares about the
Duty of Loyalty of Board Members:
Questions on Form 990: Part I, Line 4 Part VI, Line 1b Part IV, Line 25a, 25b, 26, 27,28a, 28b, 28c
Disclosure RequirementsDoing Business With…
Officers Directors Trustees Family (includes resides with) Highest compensated employees Highest compensated independent
contractors
Schedule L of Form 990
Excess benefit transaction covered under intermediate sanctions
Schedule L: Transactions with Interested Persons
Interested Person: Current or former officers, directors, trustees, key employees, highly compensated employees, disqualified persons or family members who have a direct or indirect business relationship...
Family member may include “resides” with any person listed above.
Threshold: $10,000 for board members
$100,000 for employees
990 Part VI, Line 25a and b; 26, 27, 28a, b, and c.
Independent Voting Member Independent if all of the following
circumstances applied during tax year:
Member was not compensated as officer or employee of EO or related organization.
Compensation and other payments did not exceed $10,000 as an independent contractor other than reasonable compensation for services as a director.
Neither the member, nor any family member, was involved in a transaction with the EO required to be reported on Schedule L.
Nor with a related organization that would be reported on Schedule L
990 Part I, Line 4 and Part VI, Line 1b (see pg. 19 of 990 Instructions)
Disqualified Persons
Any person in a position to exercise substantial influence over the affairs of the tax-exempt organization at any time during the 5 year period ending on the date of the transaction. .
Board members are disqualified persons.
Examples of Disqualified Persons
Members of the Governing Board or Founders Key employee such as a ED, CFO, department head
and on occasion an independent contractor. Highly compensated employees. Substantial contributions ($5,000 if exceed 2%
limitation). Family members of those listed above. Any business interest in which one of the above own
35% interest. Any of the above who has been a disqualified person
five years prior to the specified transition.
Excess Benefit Transaction
An excess benefit transaction is a transaction in which an economic benefit is provided by an EO, directly or indirectly, to or for the use of a disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration received by the organization.
Correcting Excess Benefits
A disqualified person corrects an excess benefit transaction by making a payment in cash or cash equivalents equal to the corrections amount to the applicable tax-exempt organization.
Sanctions of 25% to person receiving the benefit; 10% to board member approving the benefit; and, additional 200% for failure to correct and/or pay penalties.
Safe Harbor Conflict of interest policy.
Collect bids to determine FMV or acquire information concerning similarly situated organizations payment structures.
Minutes reflect application of the conflict of interest policy, board discussion, and information on which the board based it decision.
Minutes reflect all votes including dissenters.