A Nonprofit’s Guide to Government Compliance
Compliance is a hefty responsibility for nonprofit organizations; indeed, more so than for-profit companies. As the firm Harbor Compliance points out, there’s a good reason for that—nonprofits are exempt from federal corporate taxes and can receive public funding. Both the IRS and states have requirements for nonprofits.
The penalties for noncompliance can be severe. A nonprofit may lose its tax exemption and face stiff fines from the IRS. States can also impose their own penalties. What’s more, a nonprofit can miss out on a grant or substantial donation because it has lost its good standing.
An ounce of prevention
A proactive approach to compliance can ensure your organization’s ongoing success. Harbor Freight mentions the following compliance activities:
- Filing an IRS Form 990 each year to disclose financial data. The National Council of Nonprofits recommends that the board review a copy of this form before filing. The American Council on Education has a helpful checklist for 990 compliance.
State requirements (Harbor Compliance provides a list for all 50 states.)
- Submitting an annual filing to the secretary of state
- Maintaining the license to fundraise
- Filing for a state business license
- Maintaining state-level tax exemption with the revenue department
In addition, it’s critical to maintain accurate, complete records in the case of an audit, board or donor request for information, and to submit applications and renewal filings with various government agencies.
So far, so good…but still a long way to go
In Nonprofit Quarterly, professionals at Community Resource Exchange (CRE) discuss a proprietary framework and tool that considers risk indicators and organizational activities across six operational categories—including compliance. CRE consultants tested the assessment with 10 New York City nonprofits. They found that nonprofit organizations “seem to be up-to-date and performing well” in terms of legal and regulatory requirements.
However, they lagged in implementing practices or procedure that seem more optional. These included annual compliance training for the board, annual program evaluation, and using criteria to determine a program’s continuance.
The authors concluded, “As we think about what’s required to build strong organizations that can weather challenges over the long term, these latter capacities are key to ensuring sustainability. Relatively lower scores in this area give pause for concern as we think about the health of the sector overall.”
Compliance and the cloud
Evaluating performance. Maintaining financial records. Adhering to federal and state guidelines. All these compliance activities are crucial to your nonprofit’s well-being. However, they also they take time and money—both of which are often in short supply.
Fortunately, there’s Sage Intacct, cloud fund accounting software. Now you have the power to automate processes, improve productivity, create greater levels of transparency and visibility, enhance the governance of your organization, and strengthen your team’s decision-making and strategic focus.
You want to spend your time on fulfilling your nonprofit’s mission, not on technology. Turn to the nonprofit technology experts at JMT Consulting. We’ll help provide the right financial infrastructure to lessen the burden of compliance and free you to focus on making a positive difference. Contact us by phone or email to get started.