by Paul Diaz, Vice President Policy, Public Interest Registry
Henry Wadsworth Longfellow said, “It takes less time to do things right than to explain why you did it wrong.” When it comes to nonprofits and compliance, the principle also applies to money. Non-compliance with tax rules and regulations can be terribly costly financially and can even ground a fledgling non-profit organization before it takes off. If you “do things right” from the start, you can avoid explaining with money and time “why you did it wrong.”
And by “right”, we mean managing your compliance more efficiently and cost-effectively, so you can reserve revenue for the most important thing: your mission.
That is not to say compliance isn’t also very important. It is, but it can be confusing, especially for new organizations. “Nonprofits are bound by a complex tangle of rules and regulations because of the federal and state support they have access to,” writes Kayla Matthews in her article 5 Most Common Compliance Issues Faced by Nonprofits on www.complianceandethics.org.
In fact, says Matthews, “Noncompliance can lead to steep penalties—like fines or loss of access to government grants. It can even result in your organization losing its 501(c)(3) status if you let it go on for too long,” she points out.
Staying compliant is high stakes but managing it on a budget can be done—with time and commitment. Pamela Ateka, Executive Director of Community Focus Group (CFG), www.cfgintl.org, which was recently profiled as an .ORG story by PIR, says that for her organization in Nairobi, Kenya, staying compliant means “learning to work with a small budget, always keeping careful records, asking for voluntary support when needed … and never giving up!”
Ateka has 20 years of non-profit leadership experience behind her insights. If you’re just beginning your .ORG journey though, don’t worry; we’ve got your back. Just do your research, keep careful records, seek pro bono help, and you’ll be well on your way. First, educate yourself and…
Do Your Research
“In most cases, an exempt organization [in the United States] must file some version of Form 990 with the IRS, depending on its financial activity. Form 990 shows your finances, activities, governance processes, directors, and key staff, and it is open to public inspection,” writes Ilma Ibrisevic in this piece on www.donorbox.org.
That’s clear enough, but if you’re just building a .ORG, you may still feel like a kindergartener in the “school of compliance.” There’s so much more to learn. States also have their own, often different, requirements. The good news is that tools are available online, often at no cost. Some, like this piece from www.501c3.org, will walk you through the basics of U.S. federal and state requirements. You can learn about governance for international non-profits in this piece by www.candid.org., as well as this one by www.nonprofitrisk.org. And once you do, you’ll realize that one of the most important ways to stay compliant on a budget is to…
Keep Careful Records
Develop a recordkeeping system that works for you and use it religiously. Matthews says: “Your organization should maintain records of relevant donor information, expenses and grants received. You may need this information to complete your organization’s Form 990, and the IRS or certain governing bodies may request that information under certain circumstances.” And, according to www.complianceandethics.org, “Keeping these records stored, organized and digitized, if practical, will help ensure you have the information you need in case it is asked for.”
The Foundation Group, www.501c3.org, offers that, “Perfecting the habit of properly documenting the activities of your nonprofit is one of the most important disciplines any new social entrepreneur can master. There’s a well-worn cliché that says, ‘If it’s not in writing, it didn’t happen.’” The Group provides resources for non-profits in the form of articles, like this one about fundraising non-compliance, and this one on registering for charitable solicitations. This mission-based organization also offers compliance services at a monthly cost. If you have funds allocated in your budget, that could be a great way to go. But if not, we recommend that you…
Seek Pro Bono Help
Leveraging the work of volunteers is a resource most non-profits use to spread the mission and spare the budget. That means for many mission-based organizations relying whenever possible on donated expertise in all areas of their work. For QL+, www.qlplus.org, an organization dedicated to creating technological solutions for wounded veterans, students volunteering as mentors in the field of engineering make their mission possible. “It is so important to have professionals willing to help guide the 300+ engineering students working on our 71 QL+ projects this year alone,” COO Barb Springer says.
Fortunately there also are tax and compliance experts willing to offer their own services to nonprofits, helping .ORGs stay on the right side of regulations while freeing up funds for the cause. The National Council of Nonprofits, www.councilofnonprofits.org, offers this piece about finding skilled volunteers and pro bono professionals, and www.lawyersalliance.org lists lawyers who work pro bono on compliance issues.
You could say non-profits are all “heart” but when it comes to staying compliant without breaking the bank, you’ve got to use your head. We hope these tips help you “do things right” while preserving the financial power to fuel your mission!