Nonprofit Legal Audit Checklist

checklist_medium

On May 27, 2015, Foundation Center Washington DC was fortunate to be joined by Carrie Garber Siegrist, an Associate in Venable's Nonprofit Organizations and Political Law Practice Groups, for a special program called the Nonprofit Legal Audit Checklist: Understanding & Complying with the Law. During this program, Carrie shared key legal compliance areas for nonprofits to protect and grow their assets, deliver on their mission, and partner with leadership on new ventures.

Is your legal house in order? Review the checklist to find out!

1. Good Corporate Governance

  • Policies and procedures for basic corporate governance matters
  • Corporate records – current, accurate, and organized
  • Orientation on fiduciary duties, policies, and procedures for board and senior leaders
  • Annual legal update for board and senior leaders
  • Bylaws and other governing document review
  • Board and committee meeting minutes
  • Financial oversight
  • Corporate public filings

2. Maintaining Federal Tax-Exemption

  • Annual filing requirement: IRS Form 990
  • Permissible activities
  • Structuring related vs. unrelated activities
  • Scope of operations
  • Unrelated business income
  • Sponsorships, royalties, trade shows, and advertising
  • Private benefit and private inurement

 3. Protecting Intellectual Property

  • Register, manage, and protect trademarks and service marks
  • Secure content rights for digital media, publications, and educational materials
  • Data security and operational redundancy in vendor agreements
  • Corporate records and governance documents
  • Key services
  • Donor lists
  • Financial data and management
  • Operational systems

4. Operating Affiliates, Subsidiaries, and Joint Ventures

  • Corporate structures for relationships with related entities
  • Agreements with related entities that provide services or products to membership and others
  • Cost-sharing agreements
  • Operating Section 501(c)(3) and Section 501(c)(4) organizations
  • Allocation of resources
  • Tax considerations
  • Ventures and transactions with for-profit entities
  • For-profit subsidiaries

5. Advocacy, Lobbying, and Political Activities

  • Advocacy: furthering your exempt mission
  • Permissible lobbying activities: direct v. grassroots lobbying
  • Lobbying registration and reporting compliance, and lobbying tax compliance
  • Federal: lobbying disclosure and FEC filings (public documents)
  • State: separate reporting requirements
  • Prohibited political activities

6. Charitable Solicitations Registrations

  • Compliance with initial state registration requirements
  • States have varied requirements
  • Unified Registration Statement
  • Ongoing annual reporting requirements
  • Online charitable solicitations
  • Commercial co-ventures

7. Executing Effective Contracts

  • Maintain internal policy for contract review
  • Contract renewal and compliance
  • Contracts with related parties; compliance with conflicts of interest policy
  • Leases
  • Trade show contracts
  • Publishing contracts for educational materials
  • Long-term critical contracts for core services and functions (e.g., payroll, data source hosts, etc.)

8. Employment Considerations

  • Human resources policies
  • Hiring processes
  • Performance management
  • Preventing discrimination and harassment
  • Termination processes
  • Training board, management, and staff
  • Volunteer policies, agreements, and training
  • Key vendor agreements
  • Payroll
  • Benefits providers

9. Protecting Regular Revenue

  • Policies for receipt and control of revenue for revenue from various sources
  • Membership dues
  • Donations: individual, corporations, and foundations
  • Government grants and contracts
  • Royalties, sponsorships, trade shows, and educational programs
  • Service fees
  • Taxable income (e.g. advertising)
  • Jurisdiction of revenue sources
  • Agreements for major income

10. State and Local Law Considerations

  • State and local business registration and licensing (and international, if operating overseas)
  • State tax-exempt status determination letter, initial filings, and annual filings
  • Tax authorities (Franchise Tax Board)
  • Sales, privilege, excise, and franchise taxes
  • Employment taxes and workers compensation

For additional resources, view Venable’s articles and presentations or upcoming seminars on nonprofit legal topics.

-- Jeanette Norton, Regional Training Specialist
Foundation Center Washington, DC