From Passion to Policy: Compliance for Nonprofits
To keep your nonprofit running smoothly, you need to understand and manage a few important areas, like finances, federal filings, charitable solicitation registrations, and board governance.
One big challenge for nonprofit leaders and boards is knowing how their organization’s finances are doing. This can be difficult if the Chart of Accounts (COA) is messy, there’s confusion between restricted and unrestricted funds, and the staff doesn’t have much experience with these things.
A well-structured COA is critical because it tells the story of your organization’s financial health and spending. It should be as simple as possible, with expenses broken down into three main categories: Administration, Fundraising, and Programs. And you should aim to spend 70% of your money on programs.
Another important thing to know is the difference between restricted, unrestricted, and designated funds.
Restricted: These are donations given by a donor or grantor for a specific purpose or program. You can’t use them for anything else.
Unrestricted: These are donations that can be used for any purpose that the organization decides.
Designated Funds: These are internal designations made by the organization. Unlike restricted funds, designated funds are established at the board's discretion and can be redirected or removed by future board decisions.
Let’s shift gears to federal filings. Most 501(c)(3) charitable nonprofits have to file Form 990 every year. There are different forms (990-N, 990-EZ, or the full Form 990) depending on annual income and how much the organization has in assets. Regardless of which form you use to file, one thing is the same: if you don’t file for three years in a row, you could lose your tax-exempt status. So be in style: smile and file.
Churches, schools, and other religious groups that clearly state in their founding documents that they were created for religious purposes are exempt from filing a Form 990. These folks can smile and not file.
Click to Donate
Charitable solicitation registrations are required in most states for any kind of fundraising, even if you only have a “donate now” button on your website. Other examples of solicitation include email, direct mail, social media, phone calls, fundraising events, advertisements, membership dues, auctions, Bingo, and similar activities.
Many states also require you to disclose statements to potential donors. Check your state’s Attorney General or Secretary of State website for what is required.
Board governance
Strong board leadership is also important. Board members have a duty to take care of the organization, be loyal, and follow the rules. Having clear board agreements, reviewing policies every year, keeping an eye on finances, and getting insurance for the board and leaders are all key.
If your organization doesn’t have the time or know-how to handle nonprofit accounting, some options include outsourcing to a professional firm or investing in training for your leaders. And of course, always talk to a nonprofit tax expert or lawyer for specific advice.
Talk to your Auxilio Partner Strategist to make sure your nonprofit is following all these rules. If you’re not already an Auxilio client partner, contact us to learn how we can help your church or faith-based nonprofit and make your life easier so you can focus on your ministry.