Compliance: Are You Keeping Up with the Law?

I am sure that most of you who read this are well aware that the nonprofit sector is highly regulated.  Local municipalities, state legislatures, and the Federal government, as well as those governments in other countries, create rules and laws meant to make sure that organizations use their special status responsibly.  Most do a good job to keep abreast of these legal requirements, but others don’t.

Two or three years ago, the IRS sent out a lot of notices to nonprofits around the country, and I do mean a lot.  Many organizations had failed to submit the 990 form for three consecutive years, endangering their statuses as nonprofits.  I remember looking at the list of local organizations that had failed to keep up with the requirement, and I was quite surprised to see a number of organizations I knew.  Most of the organizations rushed to submit their forms to comply with the requirement, but some didn’t.  It was big mistake on their part.  They knew they had to do this, but they did not make it a priority.

A couple of years ago, the Oregon legislature passed a law that I happened to agree with.  It mandated that nonprofits must spend a certain amount of the money they raised on programming, 30% or they they would lose their tax exempt status.  There were some complaints from some groups, but in my opinion, they should be spending more on their programs.  I would prefer to see the percentage a bit higher, maybe 40% or so, but hey, it’s a start.

There are  many laws that nonprofits must comply with, just like any other business, but sometimes they don’t, whether it is because they just don’t know about them, or they think they don’t need to comply.  I think I have noticed this the most when it comes to employment practices.  Early in my blogging career, I wrote a piece called “Discrimination in the Nonprofit Sector: It Does Exist” and it made some waves with my readers.  Most of those who commented by email acknowledged that there is a problem with bias and hiring in many organizations, but some justified their actions.  They believed it was acceptable to ignore applicants of different races, cultures, or ages because their organizations were specifically started to serve a certain type of clientele, and they wanted a person from that constituency rather than a qualified applicant outside that pool.  I have to disagree with that argument.

These examples are just a few of the many laws that nonprofits have to comply with.  There are many more, and every year more laws are proposed and passed by municipalities, legislatures, and Congress.  You have to pay attention so you don’t miss them as they increase in number, because you are required to obey them, whether you know about them or not.  Ignorance of the law is not an excuse.

In any case, if you know that your organization is not complying with a law, you need to take a stand and encourage the leadership to take steps to correct that situation.  The AFP Code of Ethical Principles and Standards states “Members shall comply with all applicable local, state, provincial, and federal civil and criminal laws.”  It is the ethical duty of the officers and the Board to be aware of the laws regarding nonprofit organizations and make sure they are obeying all of the laws, old and new, local and Federal.

Don’t find yourself on some list that will cost your organization money and status as a nonprofit entity.  Stay in compliance with the law.





About greatergoodfundraising

Richard Freedlund has been active in the nonprofit sector in a number of ways, both professionally and as a volunteer. He is the founder of Greater Good Fundraising, a business that helps schools and organizations raise money for their programs while accomplishing something positive for the community. After living in Oregon for 27 years, he has returned to his hometown of Rockford, Illinois and hopes to make his mark on the nonprofit sector there. He is the father of a talented jazz musician and the son of philanthropic parents that continue to support multiple causes. To contact Richard for consulting, fundraising, or speaking opportunities, email or reach him on @ggfundraise
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