4 Ways to Ensure Nonprofit Compliance

April 04, 2019

Ask yourself a question. What makes your nonprofit “go?”

If you answered, “amazing donors and supporters,” you’re not wrong. If you said, “dedicated staff and tireless volunteers,” that’s a pretty good answer, too.

But, what about compliance? If you’re like most people, your nonprofit’s good legal standing with state and federal regulators probably didn’t come to mind. Behind the scenes, your organization’s good standing with the IRS, state corporations divisions, and state charity officials forms the backbone of its ability to do business, to engage with donors and grantmakers, and to fulfill its mission in the community. In other words, compliance makes things happen.

SO WHAT EXACTLY DOES IT MEAN TO BE IN “GOOD STANDING?”

As the name suggests, “good standing” simply means that an organization has taken the appropriate steps to meet regulatory requirements. By doing so, the organization not only avoids penalties for noncompliance, but as we’ve seen, can actually grow.

Maintaining good standing isn’t exactly straightforward. Even the smallest nonprofits are regulated by several state and federal agencies, ranging from secretary of state corporation registrars to departments of revenue, state charity officials, and the IRS. While the common objective of these agencies—to protect the public welfare—is good, nonprofits often struggle to stay current with various periodic reporting requirements, track changes in regulations and adjust internally, and work with regulators to resolve outstanding compliance issues. The compliance obligations of a nonprofit are not only ongoing, but also grow in proportion to the organization’s financial success, expansion into multiple states, and operations within highly regulated industries.

Maintaining good standing isn’t exactly straightforward. Even the smallest nonprofits are regulated by several state and federal agencies, ranging from secretary of state corporation registrars to departments of revenue, state charity officials, and the IRS. While the common objective of these agencies—to protect the public welfare—is good, nonprofits often struggle to stay current with various periodic reporting requirements, track changes in regulations and adjust internally, and work with regulators to resolve outstanding compliance issues. The compliance obligations of a nonprofit are not only ongoing, but also grow in proportion to the organization’s financial success, expansion into multiple states, and operations within highly regulated industries.

With so many agencies overseeing various components of a nonprofit’s activities, we thought it helpful to outline a few ways to ensure good standing:

1. UNDERSTANDING STATE AND FEDERAL FILING REQUIREMENTS

When it comes to regulatory requirements, knowledge is power. Nonprofit leaders should have a general knowledge of governance, annual reporting, charitable solicitation registration, Form 990, and financial statement requirements. This allows your organization to designate key compliance responsibilities and build a strong internal culture of compliance. By no means does this mean you have to be an expert! There are experts available to help you every step of the way.

Knowledge of nonprofit compliance requirements doesn’t just help established organizations, either. Founders of new nonprofits should understand what it takes to set up and run a nonprofit. Your future success may count on it!

2. OUTSOURCE “NON-CORE” COMPETENCIES TO THE EXPERTS

Nonprofit leadership has one job: make sure the organization’s charitable programs are efficiently, and beneficially, executed in the community.

Like any other business, however, certain responsibilities aren’t core to delivering on the organization’s mission, and should be outsourced.

Think about what strategic partners help your nonprofit go! You’re probably thinking about:

  • Your CPA, who prepares your 990 and financial statements, and provides accounting advice
  • Your attorney, who provides legal advice, prepares contracts, and assists in complex legal matters
  • Key vendors, such as donor management and CRM software companies

It’s time to remember that your compliance can be outsourced, too. Few organizations have the internal resources to dedicate to manage state charitable registrations and other ancillary items in-house, and even fewer have software to keep it all in order. By doing so, you help ensure good standing simply by putting your trust in the right partner.

3. USE SOFTWARE TO TRACK IMPORTANT STATE REQUIREMENTS

You’re probably familiar with state annual report and state solicitation registration requirements. Most organizations use some combination of spreadsheets and calendar reminders to track registration data and state due dates. With ongoing changes in state requirements, extensions of time to file, and simple human error, this is a potential recipe for disaster. Only with dedicated software can a nonprofit expect to have reliable insights into its corporate and charitable solicitation good standing.

4. INTERNAL COMMITMENT TO COMPLIANCE

An organization’s compliance with federal, state, and even local agencies is generally part of an overall responsibility to the sector and higher standard of excellence. What propels that standard is a cultural commitment to compliance. Nonprofit executives and boards should understand their fiduciary responsibility, and make sure that a proactive approach to compliance is followed throughout their organizations. Those groups that do, stand out.

SO, WHO BENEFITS WHEN YOUR ORGANIZATION IS IN GOOD STANDING?

The short answer is, just about everybody.

Your organization can relax, knowing it can operate while avoiding penalties for things like lapsed solicitation registrations. In fact, good standing with secretary of state and state charity officials may even increase your chances of receiving grant funding or seal the deal when working with a prominent corporate or individual donor.

By ensuring good standing, your nonprofit also demonstrates a commitment to the health and transparency of the sector, from which we can all benefit.

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