Each individual board member should bring their own take on proceedings to the table, not to mention their own network of contacts and professional experience.

What’s more, with a mix of cultural backgrounds and ages on your board, in addition to the requisite skills, you will have a non-profit that is well placed to manage risk, plan accordingly, take advantage of future opportunities, and engage with the wider community on a much deeper level.

Why is non-profit board diversity important?

By reflecting the diversity of the very community you are serving, your non-profit board will be in a position to make meaningful connections with prospective donors, partners, and policy makers.

It’s also important that your board members aren’t too far removed from the issues that are impacting your stakeholders. An ability to identify and respond to external environmental factors and influences is key to both short and long-term success.

With diverse and varied perspectives present in the boardroom, major decisions can be taken with confidence. A board with many different voices and backgrounds are much better placed to identify both opportunities and threats, whereas one with very little or no diversity risks being stagnated by its narrow view of the world at large.

Implementing a diverse non-profit board

If your current board lacks the necessary levels of diversity to take your non-profit forward, all is not lost. You can take the following steps to make sure your board evolves into one packed with varied and important skills and experiences.

• First, seek new board members who can expand upon the existing board’s cultural awareness. Ideal candidates should offer something different in terms of their cultural backgrounds, professional expertise, personal experience, and networking capabilities to what you already have.
• And if you’re not totally clear on where your board currently stands in terms of diversity, skillsets and strengths, you can undertake a self-assessment program via BoardSource (click here to get started).
• Next, think about the direction in which your organization is heading. What should your board look like as your non-profit continues to grow and progress? And what particular skills, contacts, experiences, and backgrounds will be most useful in getting you to closer to your goal?
• Finally, set goals for improving your current board in certain areas. New candidates should be evaluated with those goals in mind, and current board members should be made aware of the areas that require strengthening as they too consider prospective board members.

Don’t be afraid to ask for help

When cultivating a diverse non-profit board, it’s not enough to leave things to chance. Developing a structured approach to identifying and recruiting new board members is the only way towards sustained success for your organization.

It is fundamentally important that your non-profit board includes individuals who have strengths and contacts across a variety of professional and personal backgrounds, including marketing, legal, and social media to name but a few.

It’s also crucial that every non-profit board have at least one member with expertise in finance to ensure everything is compliant and legal.

There are a number of resources available to help you take your first steps towards diversifying your non-profit board, such as the previously mentioned BoardSource and the National Council of Nonprofits. Locally, the Impact Foundry (formerly the Nonprofit Resource Center) is an outstanding resource. Under the leadership of Kim Tucker, its Executive Director, the newly named and restructured organization is offering a wide range of educational, consulting and networking programs and events aimed at helping non-profit boards and management to succeed in the non-profit world. Checkbox Accounting’s own non-profit expert, Bill Simi serves as Impact Foundry’s treasurer.

If you’d like to discuss non-profit board diversity further, contact Checkbox today.

The post How to achieve non-profit board diversity appeared first on Checkbox Accounting.

In the case of non-profit organizations one of those exceptions to the general rule of tax exemption is something called “Unrelated Business Taxable Income”. Nonprofit boards and management should be aware that it is out there and that it might be applicable to their organization depending on the kind of activities it carries out.

First, let’s get clear on a couple of acronyms that might otherwise be confusing:

UBTI = Unrelated Business Taxable Income
UBIT = Unrelated Business Income Tax

What is Unrelated Business Taxable Income?

If your non-profit is carrying on activities that are not related to the tax-exempt purpose of your organization, any income from that activity might be deemed to be UBTI and subject to income tax.

Unrelated Business Income Tax (UBIT) is applied to any income generated by commercial activities that don’t fall within the scope of your non-profit’s exempt purpose (remember, that purpose you declared you were dedicated to when you applied for your exempt status with the IRS). So if you’re bringing in revenues that don’t directly benefit your charitable cause, it’s likely that you’ll have to pay UBIT on this income.

How UBTI can impact your organization

If your non-profit hasn’t considered the potential impact of UBI, it can come as quite a shock when the IRS comes knocking and you are required to pay over an unbudgeted amount to cover tax costs and possibly penalties and interest.

How does an organization guard against this rude surprise? By finding an advisor who understands not only the exceptions to the exceptions but the exceptions to the exceptions to the exceptions.

With proper planning UBTI can be avoided or at least properly planned for. For instance:

• By restructuring an activity so that at least 85% of the labor involved in the activity was provided by unpaid volunteers, we were able to allow a client to avoid UBTI characterization even though the activity was otherwise unrelated.
• Another client involved in a profit splitting agreement with an insurance company had been reporting UBTI and paying tax for number of years. As the revenue grew, so did the tax. We assisted the client in structuring their contractual relationship with a new insurance company so that the majority of income was in the nature of royalty income, a kind of income that under most circumstances is excluded from UBTI. The result has been a tax savings of thousands of dollars.

Talk to us about your UBTI concerns

If you’re running a non-profit organization and are concerned about the potential impact of UBTI, we can help you to review your activities for UBTI potential and discuss the possible ways you can restructure the activities to place them outside the scope of UBTI or reduce any tax liability.

Contact us at Checkbox and arrange for a chat.

The post The impact of Unrelated Business Taxable Income on your nonprofit appeared first on Checkbox Accounting.

Overhead expenses and the cause or goal of the nonprofit can be two good measurable indicators of success within a nonprofit organization. The Bill and Melinda Gates Foundation point out that they use many measurable indicators to prove their cause is a success without limiting themselves to JUST the overhead metric. Their causes or goals are measurable, attainable, and set within a time limit to encourage continued movement towards the goal/cause. SMART goals, as you might have heard them referred to in the for-profit sector.

Different from the for-profit sector that can increase overhead to increase success, nonprofits find themselves the center of negative questioning in the media when they increase overhead to reach their goal. Increasing their overhead then results in the reduction of dollars towards their cause, regardless if the cause is being measured and attained within a specific time limits. Causes that are measured and being attained SHOULD prove the success of the nonprofit and not JUST the use of funds towards overhead expenses.

The Overhead Myth letter (found here) does a good job of describing just how wrong it can be to solely use overhead spending as a key indicator to success. The continued review of overhead spending by potential donors can be detrimental to nonprofits in the long term as they deter away from making the investments in infrastructure, workforce and other forms of capacity, preventing them from having a greater impact in serving their constituencies. As Mr. Pallotta points out in his TED presentation (found here), organizations must be give the freedom to attain the kind of scale in their operations that will enable them to make more of a difference.

However, as the Overhead Myth letter also points out, overhead indicators do say something important about nonprofit management’s effective stewardship and can be a red flag for poor financial management. The question then becomes how to link financial indicators, like overhead ratio, with other nonfinancial indicators of performance and outcome effectiveness. How do we determine if the additional investment in capacity and building scale is really paying off, not just in terms of how many dollars the organization is raising, but in terms how those dollars are being put to use in having an impact on the organization’s mission, cause and goal.

Performance measurement and management – the task of choosing metrics and outcome measures that truly capture the “success” of the organization in the largest sense –  may be part of the answer. As Bill Gates stressed in his recent annual letter issued  for the Gates Foundation,  performance measurement is a critical tool for effectively delivering social impact in classrooms, clinics and cities, “setting clear goals and finding measures that will mark progress toward them can improve the human condition.”

So let me ask you again… If a nonprofit is creating concrete goals, attaining those goals/causes, and doing so within a relative time constraint, but spending 60% on overhead, would you donate? This means that 40% of your dollar goes towards the cause. What about 70% given the same results? 80%? What do you feel is the ideal investment a nonprofit should place into overhead to allow that nonprofit to attain its goals?

The post Focusing on Overhead: The Nonprofit Circle appeared first on Checkbox Accounting.

People tend to give to better known philanthropies such as the Salvation Army, Feed the Children, the United Way.  On a list of top-money raising charities there is Fidelity Charitable, which most people have never heard of.  Yet people have given an amazing amount of money to this charity.  Fidelity Charitable is a branch of a huge Boston based management firm and in 2012 raised more money than the American Cancer Society and the American Cross; $3.6 billion more to be exact.  This charity gives immediate tax deductions to donors, however unlike better-known charities the money sits in ‘holding tanks’.  Legally, there is no specific limit to how long the money can be kept there.

The fund is made up of 58,000 personal accounts, and other companies like Fidelity are Charles Schwab, Vanguard, and Goldman Sachs allow people to donate and collect the benefits and choose the charity they want to give to later.  They are called donor-advised funds and a recent estimate of money in these funds is at $45 billion. This is more money than the Bill and Melinda Gates Foundation!  Make sure your money is going to a working charity so your money isn’t waiting in a fund.  Yes, eventually the money has to go to a charity, but there is no telling when.  Donor-advised funds have existed since 1930 and have been helpful to business owners with specifications such as, those who sell their business in December and face steep tax bills can quickly donate a large sum of money to get a tax deduction and not decide which charity they want to give to until a later time.

Many working charities were concerned with donor-advised funds:

No laws regarding donor-advised funds came into play until 2006, requiring them to disclose the amount of money their clients were contributing to donate each year.  Hopefully more laws will be put into place regarding a time limit for money to sit in the accounts.

The post Donating to Charities: Where is your money really going? appeared first on Checkbox Accounting.

• A board should have a variety of skills, expertise, backgrounds, and perspectives in order to make informed decisions.
• Boards of charitable organizations generally focus on including members with expertise in budget and financial management, investments, personnel, fundraising, public relations, and marketing.
• Every board should have expertise in budgeting and financial management.
• The board must ensure that all financial matters of the organization are conducted legally, ethically and in accordance with proper
  accounting rules, therefore making an effort to ensure that at least one member has financial literacy.
• Some organizations seek to maintain a board that respects the culture of and reflects the community served by the organization.

LEGAL AND COMPLIANCE ISSUES

• There are no laws that directly states and defines how the board should look like. However, there are state laws that have provisions defining the minimum level of independent members on the board.
• In membership organizations, the articles of incorporation must define the roles of members when electing board members.

The post Principle 11: Board Diversity appeared first on Checkbox Accounting.

-The charitable organization’s board size should be based directly on the needs of the organization.

-The way for determining board size is the function that they serve. The structure and size of the board will naturally be different
as time progresses, thus the size and structure should be reviewed as the organization grows.

-Other things can affect the size of the board, such as the need for diversity, workload, phase in the life cycle, legal mandates, and maintaining a manageable group.

LEGAL AND COMPLIANCE ISSUES

-All state laws will define the minimum size for your organization’s nonprofit board.

-External entities, such as government agencies, memberships, and parent organizations, may dictate on the board’s size.

-The IRS Form 990 asks for organizations to give the amount of independents directors that serve on the board.

The post Principle 10: Board Size And Structure appeared first on Checkbox Accounting.

-In order to conduct a board meeting that will not be tedious yet successful, try to start off your meeting with an ice breaker to have members feel comfortable as well as more engaged and interested.

-The number of meetings held should be determined by the needs of the organization.

-Many charitable organizations find it prudent to meet at least three times a year to fulfill basic governance and oversight responsibilities but organizations with widely dispersed board membership will hold only one or two meetings each year.

-Regular meetings provide the chief venue for board members to:
-Review the organizations financial situation and program activities

-Establish and monitor compliance with key organizational policies and procedures

-Address issues that affect the organization’s ability to fulfil its charitable mission.

-An effective way for boards to function more efficiently and be prepared for full board meetings is by creating committees and task forces.

LEGAL AND COMPLIANCE ISSUES

-State laws determine the minimum number of meetings that must be conducted by a non-profit organization annually.

-State laws determine the minimum quorum requirements. The board of an organization is allowed to be stricter about their own requirements.

-State laws regulate whether board meetings are allowed to take place without the presence of all members in the same room. Many states do not allow electronic voting in board meetings.

-If the board has an executive committee, the decisions of the committee should be reported to the full board during the next meeting.

-State sunshine laws define who must follow the open meeting regulations as well as the procedure for doing so.

-IRS Form 990 inquires whether board meetings and committee meetings acting on behalf of the governing body are documented.

RESOURCES

State sunshine laws www.rcfp.org/ogg/index.php

National Association of Parliamentarian http://parliamentarians.org/

The post Principle 9: Successful Board Meetings appeared first on Checkbox Accounting.

CORE CONCEPTS

-The board manages the organizational assets.
-Every organization should have adequate risk management.
-Risk can be either assumed, eliminated, protected, or even delegated.
-The board, the organization, and those associated with the organization all need to be covered with liability protection.

LEGAL AND COMPLIANCE ISSUES

-The board is responsible for watching the activities of the organization.
-Each board member has duties of overseeing the organization and each board member can be liable for breaching their personal duties.
-Under Federal and state volunteer immunity  laws give broad liability protection for volunteers and uncompensated board members for them to act within their scope of practice. But it does not prevent lawsuits.
-The Insurance for the Director’s and the Officer’s can provide coverage for both liability expenses and defense costs.

The post Principle 6: Protection of Assets appeared first on Checkbox Accounting.

CORE CONCEPTS

-The boards should clearly note and realize the clear difference between document destruction during an investigation vs. document purging as a normal day to day management duty.
-It is important to have a schedule for document retention as a necessary tool to guarantee the retention of documents needed for any legal or business purposes.
-The board should know how an official investigation is determined and how to be sure that the organization follows the laws.
-An organized and efficient filing system is important for all organizations.

LEGAL AND COMPLIANCE ISSUES

-In Sarbaines—Oxyley Act of 2004 in Section 802 for the document and destruction clause applies to nonprofit organizations.
-It is illegal to destroy any documents if the organization is expecting to be investigating or is under a current official investigation.
-The IRS Form 990 inquires if an organization has a document retention and destruction policy.

The post Principle 5: Document Retention and Destruction appeared first on Checkbox Accounting.

CORE CONCEPTS

-Each organization should have a confidential process for addressing all complaints or reports of supposed illegal or unethical activities.
-Staff and volunteers need to feel safe to report unacceptable acts.
-Retaliation against whistleblowers can be a criminal act that applies to all organizations.
-Appropriate internal controls can help alleviate the occurrence of unacceptable acts.

LEGAL AND COMPLIANCE ISSUES

-The Sarbanes- Oxley Act (SOX), Section 1107, makes it a federal crime to retaliate against whistleblowers in certain circumstances.
-IRS Form 990 asks whether the organization has a written whistleblower policy.

Look for correlating Principles 6.

The post Principle 4: “Whistle-blower” Policy appeared first on Checkbox Accounting.