Heather Comstock Connects

Helping nonprofits and other volunteer organizations develop strong relationships and a clear voice in the community.

Is Your Organization Ready for Scrutiny?

Are your organizational records ready for scrutiny? Lesser Ury: Leser mit Lupe, c. 1895 Oil on canvas source: Wikimedia Commons.

Did you know that IRS code 501(c) has designations from 1 through 27 and then some?* I learned that a few years ago working on my certificate in Nonprofit Financial Management at UMUC. That is a mind-boggling number and it doesn’t even include the political parties and groups.

The Chronicle of Philanthropy wrote a great article on the current controversy that covered the mechanics of what was happening. While the issue has been focused completely on 501(c)(4) organizations, many in the general public hear “nonprofit” and the sector as a whole can get painted in one broad stroke. Ultimately, when organizations are getting a break from taxes, the general sentiment is that they should be doing something beneficial to justify that break. I think these questions are a good thing (here’s an article I found very interesting) but are you ready for the scrutiny?

Be clear and focused from the start. If you’re just applying for exemption, you already know that the IRS was scrutinizing applications for organizations being created to hide income, enrich individuals, or take advantage of other loopholes. When completing your narrative, make certain that your charitable purpose and activities are very clear. Have someone who is unfamiliar with your group read the narrative and review your final application before submission. If they can’t understand what you’re doing, the IRS won’t either.

Keep up with your annual filings. If you are already a tax exempt group, make sure you file your 990 or 990EZ annually with the IRS but also any reports due to the state. In Maryland, nonprofits need to complete their annual Personal Property Tax Return by April 15th and if you’re registered with the Secretary of State’s Charitable Organization Division, you will need to file your COF-85 as well. Even if your group is small and not generating a lot of income, the annual filings allow these government groups to receive updated lists of board members and know that you are still active.

Make sure your records are ready for disclosure. Most organizations are required by local law to provide copies of financial statements to anyone of the public who requests them. Additionally, newer organizations also have to provide copies of their initial federal 1023 Application to anyone who requests them. Take advantage of sites like Guidestar.org to create a profile for your organization. Guidestar already collects publicly available information such as 990s but organizations can expand that profile by including annual reports and audited financial statements.

Set aside some time each year for maintenance. Secretaries and Treasurers are the roles responsible for these records – even if there are staff. Take some time each year to compile your annual records together so nothing gets lost. Here’s a brief list of things to keep handy:

  • Copies of Annual returns and filings – federal and state
  • Board meeting minutes
  • Board contact lists
  • Contracts
  • Financial records including copies of bank statements, deposits, accounts receivable and payable
  • Financial statements and reports
  • Insurance information
  • Budgets

You would be surprised at how quickly small things like this can go missing. Being proactive on compiling these records can save time later. Smaller groups can take advantage of this time to perform an informal internal audit or review of the books.

Invest time in educating yourself about requirements. If you’re a small organization or perhaps all volunteer, how do you keep track of all this? A good place to start is with the IRS website, StayExempt.org which has some mini-courses and information on things organizations should be doing to stay compliant with the IRS requirements. Locally, check out your Secretary of State’s office or your local nonprofit advocacy group. In Maryland, you can look to Maryland Nonprofits for helpful checklists. The Standards for Excellence are a great way to monitor what you should be doing – even if you’re not ready to see the Seal, you can always use the Code as your guide.

Public discourse on the role of nonprofits in the community keeps all of us on our toes. It shines the light on groups who are not organized for appropriate purposes and makes those who are out there working hard every day that much stronger.

*From the textbook by Herrington J. Bryce, Financial & Strategic Mangaement for Nonprofit Organization (3rd ed.). It has a good overview on the legal organization of nonprofits but focuses specifically on 501(c)(3) groups. Published in 2000 by Jossey-Bass Publishing.

Photo: Via Wikimedia Commons: Lesser Ury: Leser mit Lupe, c. 1895 Oil on canvas 53.2 x 40.8 cm {{Creator:Lesser Ury}} {{PD-art}} Source: http://www.villa-grisebach.de/. In the United States this work is available in the Public Domain.

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