A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good
"Jack Siegel--lawyer, accountant, management consultant, and computer whiz--takes the putative director or officer of a nonprofit organization on a useful and often entertaining voyage throughout the realm of the tax-exempt organizations universe, pointing out its quirks, foibles, and legal liabilities along the way. His handbook will make mandatory--and arresting--reading for those who are already serving as trustees, directors, officers, and key employees of exempt organizations, particularly charitable ones. Siegel's goal, in which he succeeds, is to help directors and officers of nonprofit organizations 'make better decisions.' The book is full of large policy analyses and paragraphs on the details, such as board size, board committees, board meeting formats, the contents of minutes, and the duties of officers.
Salted with some excellent real-life examples, what also sets this book apart from most in its genre is the tone: the writing style, the brusqueness, the bluntness. He complains that too many directors 'check their good judgment at the boardroom door.' He advises individuals who 'desire agreement and demand adulation' to stay off boards; he insists on 'commitment' and 'institutional tension' with the executive director. He warns prospective directors that some organizations want, in addition to time and judgment, 'either your money or your ability to raise money.' To my delight, he extols the virtues of 'some level of expenditures' for qualified lawyers and accountants.
Please join me in adding this most helpful handbook to your nonprofit library."
--Bruce R. Hopkins, Attorney at Law, author of The Law of Tax-Exempt Organizations, Eighth Edition and Starting and Managing a Nonprofit Organization: A Legal Guide, Fourth Edition
1.1 The Need for Action.
1.2 Part of the Bigger Scheme.
1.4 Generality of Coverage.
1.5 Using Qualified Professionals.
1.6 Before Starting a New Organization.
(a) Start by Looking for an Existing Charity.
(b) Consider Partnering Opportunities.
(c) Identify Funders.
(d) Retain a Qualified Attorney.
(e) Advice to the Wealthy.
1.7 Concluding the Preliminaries.
Chapter 2: Before Signing On.
2.1 “Give, Get, or Get Off”.
2.2 Ask Questions.
2.3 Review Materials.
2.4 Meet with the Executive Director and Other Officers.
2.5 Review Other Resources.
2.6 Step Aside if the Information Is Not Forthcoming.
2.7 Your Role.
Chapter 3: Organizational Basics.
3.1 Nonprofit versus Tax-Exempt Status.
3.2 The Corporate Form Is the Prevalent One.
3.3 The Players.
(a) The Board of Directors.
(b) The Officers.
(d) The Regulators—State Attorneys General.
3.4 Organizational Documents.
(a) Using Forms.
(b) Core Documents.
(c) Statutory Default Provisions.
(e) Director Review.
(f) More than Boilerplate.
(a) A Recommended Meeting Format.
(b) Meeting Minutes.
(c) Executive Sessions.
(d) The Internet and Meetings.
3.6 Major Events.
Chapter 4: Legal Duties and Obligations.
4.1 A Well-Known Case.
4.2 Director Duties and Responsibilities.
(a) The Duty of Care.
(b) The Duty of Loyalty.
(c) The Duty of Obedience.
4.3 Standards for Judging Behavior.
(a) Business Judgment or Ordinary Prudence.
(b) Other Statutory Duties That Can Lead to Liability.
(c) Liability Arising from Joint Ventures and Subsidiaries.
4.4 The Standards as Applied to Common Decisions.
(a) Exercising Due Care—Compensation.
(b) Exercising Due Diligence—Investments.
(c) Avoiding Conflicts of Interest—Selling Assets.
(d) Resisting Founder’s Syndrome—Diversification.
4.5 Director Rights.
4.6 A Further Look at Investment Decisions.
(a) What the Process Is Not.
(b) Reserves or Endowment?
(c) Investing Endowment—The Standard.
(d) Translating Legal Standards into Actual Conduct.
(e) Corporate Trustees and Charitable Beneficiaries.
4.7 Another Look at Conflicts of Interest.
(a) Need for a Conflict-of-Interest Policy.
(b) Loans to Directors and Officers.
4.8 Moving from a Volunteer Director to a Paid Employee.
4.9 Relief for Directors and Officers.
(a) State Relief.
(b) Federal Relief under the Volunteer Protection Act.
4.10 Good Faith: A Storm on the Horizon for Nonprofit Directors.
4.11 Avoiding Trouble As a Director.
4.12 Avoiding Trouble As an Officer.
4.13 The Litmus Test for Good Conduct.
Chapter 5: Financial Statements, Internal Controls, and Sarbanes-Oxley.
5.1 Where Accounting Rules Come From.
5.2 The Three Nonprofit Financial Statements.
(a) Statement of Financial Position.
(b) Statement of Activities.
(c) Statement of Cash Flows.
5.3 Guidance for the Bookkeeper.
5.4 Ratio Analysis.
(a) Seven Basic Ratios.
(b) Other Ratios.
5.5 The Milwaukee Public Museum—What the Financial Information Foretold.
5.6 Donor Insights into Financial Information.
(a) Using GAAP-Prepared Statements versus IRS Form 990.
(b) Disclosing Fundraising Expenses.
(c) Expensing Fundraising Expenditures.
(d) Allocating Overhead.
(e) Consideration of Contributed Services.
(f) Consolidating Affiliated Entities.
5.7 Auditor’s Report.
5.8 Audit Committee.
(a) Audit Committee Review.
(b) Audit Committee and Whistleblowers.
(c) Audit Committee Membership.
(d) California’s Approach to Audit Committee Membership.
5.9 GAO Audit Guidelines.
(a) Best Practices.
(b) Prohibited and Permitted Services.
(c) Case: Big Food Basket and Personal Impairments.
5.10 Internal Controls.
(a) Three Basic Internal Control Functions.
(b) A Closer Look at Financial Controls.
(c) A Case Study.
(d) Recommended Internal Controls.
(e) Considerations for Organizations Making Grants.
5.11 Financial Control Recommendations and Requirements for Recipients of Federal Funds.
5.12 Fraud and Theft.
(a) The Three Categories of Fraud.
(b) Avoid a Narrow Focus.
(c) Employee Tips.
5.13 Internal Fraud Detection.
5.14 The Lone Perpetrator Accounts for the Highest Percentage of Frauds.
(a) Background Checks May Not Be the Answer.
(b) Tenure Is an Erroneous Basis for Trust.
(c) Loss Recovery.
(d) The Lessons.
5.15 Fraud and the Certified Audit.
5.16 Sarbanes-Oxley Reforms.
(a) Financial Certification.
(b) Auditor Independence.
(c) Auditor Rotation.
(d) Audit Committee Member Independence.
(e) Financial Expertise.
(f) Making Audited Financial Statements Publicly Available.
(g) Other Sarbanes-Oxley Provisions.
5.17 Summation: Steps for the Board.
Chapter 6: Federal Tax Exemption.
6.1 Tax-Exempt Entities.
(a) Charitable Organizations.
(b) Social Welfare Organizations.
(c) Labor and Agricultural Organizations.
(d) Business Leagues.
(e) Social Clubs.
(f) Fraternal Societies.
(g) Veterans’ Organizations.
(h) Employees’ Associations.
(i) Political Organizations.
6.2 The Breakdown.
6.3 A Detailed Look at Section 501(c)(3) Status.
(a) Definitions of Educational and Religious.
(b) Organizational Test—The First Requirement.
(c) Operational Test—The Second Requirement.
(d) No Private Inurement—The Third Requirement.
6.4 Obtaining Tax-Exempt Status.
(a) The Exemption Process—Preliminaries.
(b) The Exemption Process—Completing and Filing Form 1023.
(c) Other Organizations—Form 1024.
(d) Approaching the Exemption Process.
(e) State Exemption Requirements.
6.5 Private Inurement—The Prohibition.
(b) Other Potential Instances of Prohibited Inurement.
6.6 Intermediate Sanctions.
(a) Excess Benefit Transactions.
(b) Disqualified Person—Basics.
(c) Excise Taxes.
(d) Abatement of Taxes.
(e) Rebuttable Presumption.
(f) Contemporaneous Substantiation.
(g) Exceptions for Certain Income and Transactions.
(h) Pulling It All Together—A Comprehensive Example.
(i) Additional Punishment for Evildoers.
(j) What Is Really Going On.
(k) Compliance Procedures.
(l) Comparables: Justifying Compensation.
(m) IRS Direction to Agents Conducting Audits.
6.7 Private Foundations.
(a) Public Charities versus Private Foundations—Workable Definitions.
(b) Typical Private Foundation.
(c) Reasons to Avoid Private Foundation Status.
(d) Alternatives To Private Foundations.
(e) Termination of Status.
6.8 Political Activities.
(a) Charitable Organizations.
(b) Private Foundations.
(c) Other Organizations.
(d) Politics and the Internet.
(e) Political Activity: The Other Regulatory Regime.
(a) Lobbying Defined.
(b) Excluded Activities.
(c) “Insubstantial” Level of Activity.
(d) The Election under Section 501(h)—Eliminating Uncertainty.
(e) Lobbying by Other Tax-Exempts.
6.10 UBIT—Not All Income Is Tax Exempt.
(a) Organizations Subject to the Tax.
(b) Reason for the Tax.
(c) Tax Rate.
(d) Triggering the Tax: The Three Critical Conditions.
(e) Exceptions from Tax.
(f) Some Common Types of Income.
(g) Deductions in Computing Unrelated Business Taxable Income.
(h) A Workable Approach to UBIT.
6.11 Reporting Requirements.
(a) Information Returns—The Form 990 Series.
(b) Other Reporting Requirements.
6.12 Reporting and Withholding for Gambling Activities.
(a) Reporting Requirements.
(b) Withholding Requirements.
(c) Backup Withholding Requirements.
(d) Protecting the Organization in the Case of Noncash Payments.
(e) Excise Taxes Triggered by Wagering.
6.13 Terrorism and the Nonprofit Sector.
Chapter 7: Tax Aspects of Charitable Giving.
7.1 Deduction Basics.
(b) The Deduction’s Value.
(c) Qualified Organizations.
(d) Charitable Class—Disaster Relief.
(e) Payments for Services.
(f) Quid Pro Quo Contributions.
(g) When to Claim a Deduction—Timing.
(h) Amount of the Deduction.
(i) Bargain Sales to Charities.
(j) Contributions of Encumbered Property.
(k) Limits on Individual Contributions.
(m) Guidelines for Working with the Reduction and Limitation Rules.
(n) Limits on Corporate Charitable Contribution Deductions.
(p) Concluding Thoughts.
7.2 Disclosures and Notices by Charities.
(a) Quid Pro Quo Contributions.
(b) Substantiation Requirements.
(c) The Board's Role.
7.3 Substantiation by the Donor and Appraisals.
(b) Special Rule for Automobiles, Boats, and Airplanes.
7.4 Planned Giving.
(a) Pooled Income Funds.
(b) Charitable Remainder Trusts.
(c) Charitable Lead Trusts.
(d) Charitable Gift Annuities.
(e) Other Partial Interests in Property.
(f) New Devices Are Proposed All the Time.
Chapter 8: Other Benefits.
8.1 Property Taxes.
(a) Three Cases.
8.2 Sales Taxes—Purchases by Nonprofits.
8.3 Sales Taxes—Sales by Nonprofits.
8.4 Postal Nonprofit Standard Mailing Rate.
(a) Basic Rules.
(b) Comprehensive Example.
(c) Applying for Favorable Rates.
(d) Practical Issue.
8.5 Securities Offerings.
8.6 Tax-Exempt Financing.
8.8 “Do Not Call” Registry and Other FTC Limitations.
(a) Two Rules.
(b) Additional Rules Applicable to Telephone Solicitations.
(c) State-Level Rules.
8.9 Federal Funding for Faith-Based Organizations.
8.10 Vendor Programs.
Chapter 9: Registration and Reporting by Charitable Organizations.
9.1 Registration: The Basics.
9.2 Registration Is Constitutional.
(a) Easing the Burden.
(b) Discovering Failures to Register.
(c) Annual Financial Reports.
(d) The Internet Raises Difficult Questions.
(e) Professional Fundraisers Generally must Register.
(f) Using a Charity’s name.
(g) Some Concluding Thoughts.
(a) Lobbying Disclosure Act of 1995.
(b) Compliance with State Law.
(c) Registration Provides Useful Information.
Chapter 10: Fundraising, Pledges, Gift Policies, and Restricted Gifts.
10.1 Truth in Solicitation.
10.2 Fundraising and Mission.
(a) Enforceability of Pledges.
(b) High-Pressure Tactics.
(c) Pledges Can Serve Useful Functions for Donors.
(d) Financial Statement Treatment.
10.4 Restricted Gifts.
(b) Legal Action.
(c) Restrictions, Contracts, and Taxes: Does Good Planning Create Tax Issues?
(d) Loans, Pledges, and Sales.
10.5 Donor-Restricted Endowments.
(a) UMIFA Basics.
(b) Donor Restrictions.
(c) Accounting for Endowments.
10.6 Changed Circumstances—Cy Pres and Equitable Deviation.
10.7 Gift-Acceptance Policies.
(a) Types of Assets.
(b) Specific Forms.
(c) Donor Benefits.
(d) Gift-Acceptance Committee.
10.8 Bingo and Raffles.
10.9 Federal Grants.
(a) Types of Federal Grants.
(b) OMB Circulars.
(c) Federal False Claims Act.
(d) State and Local Grants.
(e) Fundraising through the Internet.
Chapter 11: Avoiding Operational Liabilities.
11.1 Avoiding Operational Liabilities from the Interaction of Core Activities with Organizational Culture.
(a) Nature Conservancy.
(b) Opportunities Industrialization Center of Greater Milwaukee.
11.2 Avoiding Operational Liabilities through Record Retention Policies.
(b) The Policy.
(c) The Judicial Perspective on Document Destruction Policies.
(d) Destruction in the Face of Existing, Imminent, or Foreseeable Litigation or Investigations.
(e) Digital Documents.
(h) Other Issues.
(i) Criminal Acts.
(j) Assessing a Document’s Value.
(k) Legally Mandated Minimums.
(l) Retention Period Resources.
(m) FACTA—Method of Destroying “Consumer” (Employee and Job Candidate) Information.
11.3 Avoiding Operational Liabilities from Employment Practices.
(a) Employment at Will.
(b) Federal Antidiscrimination Statutes.
(d) Family and Medical Leave Act.
(e) Americans with Disabilities Act.
(f) Avoiding Problems—Cases.
(g) Uniformed Services Employment and Reemployment Rights Act of 1994.
(h) Other Laws to Consider.
(i) Preventive Measures.
(j) EPL and Director Liability.
11.4 Avoiding Operational Liabilities from Volunteer Service.
11.5 Avoiding Operational Liabilities from Service to Children.
(a) Basic Steps.
(b) Employee and Volunteer Screening.
11.6 Avoiding Operational Liabilities in the Work Environment.
11.7 Avoiding Operational Liabilities from Restraints on Trade—Antitrust.
(b) Unreasonable Restraints of Trade: The Sherman Act.
(c) Other Restraints—Do Not Be Misled by Lists.
(d) Price Discrimination—The Robinson-Patman Act.
(e) Anticompetitive Mergers—The Clayton Act.
(f) Trade Associations and Restraints on Trade.
(g) Permitted Restraints—Covenants Not to Compete.
11.8 Avoiding Operational Liabilities Arising from Events.
(b) Food Sales.
(c) Liquor and Dram Shop Laws.
(d) Fun Runs, Marathons, Carnivals, and Other Events.
(e) Celebrities and Musicians.
(f) ASCAP, BMI, and SESAC Licensing.
11.9 Avoiding Operational Liabilities from Conference Hotels and Rented Facilities.
11.10 A Lesson from the Federal Sentencing Guidelines.
Chapter 12: Risk Shifting, Indemnification, and Insurance.
12.1 Relationship between Indemnification and D & O Insurance.
(a) Indemnification—Legal Issues.
(b) Indemnification—Questions to Ask.
(c) The Problem Posed by Losses.
12.3 D & O Insurance.
(a) Cost and Availability.
(b) Basic Considerations When Evaluating a D & O Policy.
(c) A-Side, B-Side, and C-Side Policies.
(d) Time Frame—Two Basic Approaches.
(e) Noteworthy Clauses.
(g) Tax Considerations Arising from Indemnification and D & O Insurance.
(h) Effect on Availability of Volunteer Protection Act Coverage.
12.4 Identifying and Shifting Organizational Risks.
(a) Risk Management.
(b) Insurance Policies in General.
(c) Available Coverage.
(d) Special Coverages.
Chapter 13: Evaluating Your Organization.
13.1 The Self-Assessment Survey.
(a) Survey—Organizational Structure.
(c) Survey—Financial Oversight.
(d) Survey—Financial Controls.
(e) Survey—Internal Controls (Other Than Financial Controls).
(f) Survey—Tax Considerations.
(h) Survey—Registration, Reporting, and Disclosure.
(i) Survey—Employment Practices, Volunteers, and Antitrust.
(j) Survey—Risk Management.
13.2 Using Metrics to Evaluate Your Organization.
(a) Four Basic Ratios.
(b) Applying the System—Case 1.
(c) Applying the System—Case 2.
(d) Concluding Thoughts on Ratios.
13.3 Independent Review Standards.
(a) BBB Wise Giving Alliance.
(b) Maryland Association of Nonprofit Organizations’ Standards Project.
(c) Charity Navigator.
13.4 Grantor Review Standards.
(a) The Combined Federal Campaign.
(b) United Way.
Chapter 14: A Final Thought.
CHECKLISTS: Checklists are generously used throughout the book (including investments, conflicts of interest, record retention, gift policies, etc).
GLOSSARY. The glossary contains 260 related definitions.
COMPANION CD-ROM. Includes a survey of more than 200 questions, narrated videos, and audio clips.
AUTHOR PLATFORM: Jack Siegel is an attorney and an accountant who has created related software packages and maintains a web site with a daily blog on the subject of this book that gets hundreds of hits a day.
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