Sunday, February 22, 2009

Each and All Nonprofits Must Comply With the Sarbanes Oxley Act of 2002

[Note: In no way is this or any post, in Seeking Grant Money Today, legal, fiscal, or policy advice for any entity. This post is simply intended to give an overarching general picture of how successful nonprofits achieve their success and meant to provide examples, reasoning, and suggestions. Consult with your organization's lawyer, CPA, or other accredited professional before making any fiscal, legal, or policy setting decisions, if you have any questions, or if you need information.]

In our local paper, this weekend, there was an article about another local nonprofit's legal difficulties. In it, the president of the board claimed that the issue stemmed from the former executive director failing to bring the organization's money problems to the board's attention.

Over and over again, across the United States, board volunteers repeat his legal error.

According to the Sarbanes Oxley Act of 2002 (federal law) all corporations (which includes nonprofit organizations, in the United States) must have board fiscal oversight. The board of directors, for 'for profit' and nonprofit entities in the United States must oversee and are responsible for the bookkeeping, accounting, and fiscal reporting of the corporate organization that they work or volunteer for.

So, the board president who expected his executive director to tell him about the nonprofit's financial woes was failing his legal duty, according to Sarbanes Oxley. Instead of expecting his executive director to guide him, he should have been proactive and learned the nonprofit-sepcific skills and knowledge that he didn't have, when he became a volunteer (board member), including what the law expects of him. Further, he should have been proactively overseeing the accounting, and fiscal actions of the nonprofit that he was a board member of. The law expects it of him.

You've heard the word "transparency" used over and over again in the past election season and during President Obama's first month in office. This word is a buzz word, today, that comes out of the effort behind the Sarbanes Oxley law. In effect, the law creates a requirement. Corporations (again, both for- and non - profit organizations) must comply with the law's fiscal accountability requirements that are intended to lead to more fiscal transparency (for donors, stock owners, other supporters, the federal government, and the public).

How many people who volunteer with nonprofits by becoming board members know this? I don't know. The fact is, though, as I reiterate in this blog in post after post, professional nonprofit best practices aren't optional anymore, or "just for large nonprofits". All organizations that have official federal recognition (including nonprofits that received their IRS 501(c)(3), or (4),... etc. designation when they were officially granted a charity by the IRS) must comply with the laws of the jurisdictions that they reside in (e.g. city, county, parish, state, federal, Tribal, etc.).

When anyone has a great concept that they want to turn into a nonprofit, in reality, it is not enough to simply have a generous idea to provide a specific type of nonprofit for the community. While the passion and goodwill behind the starting up of a nonprofit is admirable, selfless, and generous without a doubt; there truly is much more to operating a nonprofit. At least of half of any nonprofit's work (beyond the work of its mission statement) is fundraising. Why? If an organization wishes to exist, grow, and be successful it must be able to pay its bills and grow. The only way to do this is to raise support. Even having mentioned the amount of fundraising required to be a successful nonprofit, there's still more work beyond the programs or services dedicated to the mission statement. Any American nonprofit, today, must operate as a professional organization (from start up to long standing larger organizations). What does this mean? It means:

__ A nonprofit must focus on its mission statement and use it as the litmus to base and compare all decision making against and to (all decisions: including any and all decisions made by the executive director, the board, staff, or volunteers each and every day).

__ A nonprofit must, by law, operate according to each individual nonprofit's own bylaws. They are not just some document that someone needs to create in order for a nonprofit to receive it's official 501(c)(3), etc., designation from the IRS. The bylaws, like the mission, must evolve as the organization grows and changes (usually as envisioned by the board's strategic planning, then voted upon, and finally ratified). The bylaws must be adhered to, always.

__ A nonprofit must, by law (Sarbanes Oxley Act) be accountable for it's bookkeeping, fiscal reporting, and transparency. This responsibility is the board of director's for each and all nonprofits.

__ A nonprofit's volunteers, board members, trustees, staff, must be responsible for the duties of the roles that they have taken on behalf of the organization. Volunteering is admirable, always, too. Gone, though, are the days when volunteering for a nonprofit was like joining up with a high school club or extra curricular activity. Even volunteering is no longer simply a resume' bullet point for any Jane or Joe. Volunteering for a nonprofit, especially as a board member, carries with it certain legal responsibilities. It's O.K., of course, if someone is new to the nonprofit sector, when beginning their first ever volunteer work. What is not O.K. (or legal), though, it to just assume that your only responsibility is to show up to a meeting or two. The volunteer position, because it's a board position, carries certain legal responsibilities.

__ Boards (Directors, Trustees, etc.) are traditionally, today, supposed to provide oversight, provide the future vision for the organization, set policy, and oversee the work of the executive director. They are typically also good support-generators for the organization using their connections in the community, are donors of regular and larger amounts, and are excellent fundraisers. They are responsible for the mission and first and foremost to the beneficiary(ies) of the work of the organization, and responsible to all of those who are trusting the nonprofit to do its work professionally, honestly, transparently, efficiently, and in a current/modern manner.

__ Executive Directors are traditionally, today, supposed to provide day to day management of all organizational work. They usually handle the implementation of board policy, future vision, and conduct all staff management. They are typically also good fundraisers for the organization. They are responsible for their job description work, to the board, the constituents, the donors, and to the mission statement.

__ Staff (if there are staff members) are hired, individually, to carry out and succeed at their individual job title's job description. They are responsible for their work, to the executive director, the constituents, and responsible to the mission statement.

__ Volunteers may carry out office, programmatic, or other duties. They are responsible to their direct report (whomever they are working with in the nonprofit), to the volunteer manager (if there is one), and to the constituency of the nonprofit. They usually believe in the mission statement and are responsible to it, too.

__ There are many other professional nonprofit best practices that are strongly recommended or even expected, today. Some have to do with the treatment, reporting to, and relationship that the nonprofit has with its donors. Others have to do with nonprofits partnering with one another to be more effective, efficient, and to avoid reinventing the wheel. The available professional nonprofit best practices have no limits. Today, anyone doing any operation, work, or planning for a nonprofit can research the modern professional best practices for that work or task and find out what is recommended, why, and save their organization heart ache, extra costs, and loss of time.

It is not enough to point fingers. Nonprofits succeed when anyone and everyone working for them hold themselves accountable. This means that when anyone takes on a role for a nonprofit that they perceive it as a professional role (whether they are being paid for their services, or not). All work for nonprofits, today, is conducted (when successful) in a professional manner. If you are working in the nonprofit sector, for the first time, welcome, thank you, and congratulations. It will be a lot of hard but rewarding work, I bet. The thing is, if you don't know how to do this new role you've accepted, or if you don't know about how nonprofits work - it's OK. I still say "welcome, thank you, and enjoy it". The other thing that I say to you, though, is learn. Learn how to do what you are going to do, and how nonprofits work, from current, professional, reputable, and excellent resources. Where can you locate these reputable resources? Read my post (which includes that information) Basic...Information And Other Ideas... and be sure to read the first link, listed in this post.

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