Compliance
Compliance
Compliance is a critical pillar of non-profit operations, ensuring your organization operates ethically, transparently, and within the law.
Introduction
Compliance ensures that your non-profit operates within legal and ethical guidelines, protecting your organization’s mission, reputation, and stakeholders. It involves adhering to federal, state, and local laws, maintaining transparency, and meeting the requirements for tax-exempt status.
This section outlines what compliance means for non-profits, why it’s critical, and actionable steps to ensure your organization meets all necessary requirements. It also highlights free and low-cost resources to help manage compliance effectively.
What is Compliance for Non-Profits?
Adhering to Legal Requirements:
Ensuring your non-profit meets all regulatory obligations, including tax laws, employment standards, and charitable solicitation laws.
Maintaining Tax-Exempt Status:
Filing annual reports, avoiding prohibited activities, and ensuring proper governance to retain 501(c)(3) status or equivalent.
Ensuring Transparency:
Maintaining accurate financial records, reporting to stakeholders, and demonstrating accountability.
Why Compliance is Critical
Protects Tax-Exempt Status:
Failure to meet IRS or local tax requirements can lead to penalties or loss of tax-exempt status.
Builds Trust:
Transparency in operations and finances reassures donors, partners, and beneficiaries of your organization’s credibility.
Mitigates Legal Risks:
Compliance reduces the risk of lawsuits, fines, or government scrutiny.
Preserves Reputation:
Operating within legal and ethical boundaries ensures your organization maintains a positive public image.
Common Compliance Requirements for Non-Profits
1. Tax Filings and Exempt Status
File annual returns with the IRS:
Form 990: Required for most tax-exempt organizations.
Form 990-EZ or Form 990-N: Simplified forms for smaller organizations.
Tip: Late or inaccurate filings can result in penalties or loss of tax-exempt status.
2. Charitable Solicitation Registration
Many states require non-profits to register before soliciting donations.
Registration may be required for online fundraising, especially for multi-state campaigns.
Resource:
Harbor Compliance: Provides free state-by-state guides for charitable solicitation registration.
3. Governance and Board Oversight
Maintain a strong, active board of directors to oversee compliance and governance.
Document and enforce conflict-of-interest policies to prevent ethical breaches.
4. Financial Reporting
Keep accurate financial records, including income, expenses, and donor contributions.
Conduct regular audits or reviews, even if not legally required, to ensure financial accuracy.
5. Employment and Volunteer Laws
Ensure compliance with labor laws for paid staff, including minimum wage, overtime, and workplace safety.
Clearly define roles and responsibilities for volunteers to avoid misclassification.
Resource:
Department of Labor (DOL): Offers guidance on employment standards for non-profits.
6. Grant and Donor Restrictions
Comply with restrictions or conditions tied to grants and major gifts.
Use funds only for their intended purposes and document expenditures thoroughly.
Top Challenges in Non-Profit Compliance
Keeping Up with Regulations:
Laws vary by state and can change frequently.
Solution: Use free resources like Nonprofit Quarterly for updates on legal requirements.
Limited Resources:
Smaller organizations may lack the capacity for dedicated compliance staff.
Solution: Leverage free tools and pro bono legal assistance to manage compliance.
Record-Keeping:
Inconsistent documentation can lead to gaps in compliance.
Solution: Establish a centralized system for storing and tracking key documents.
Multi-State Fundraising:
Online campaigns often require compliance in multiple states.
Solution: Use tools like Harbor Compliance or Givebutter, which integrate compliance tracking.
Steps to Ensure Compliance
1. Create a Compliance Checklist
Outline all federal, state, and local requirements applicable to your organization.
Include deadlines for tax filings, registrations, and reports.
2. Designate a Compliance Officer or Committee
Assign responsibility for tracking compliance to a staff member, board member, or committee.
3. Maintain Key Documents
Store all essential records in a secure, organized system:
Articles of incorporation.
IRS determination letter.
Annual filings and tax returns.
Financial records and audits.
Meeting minutes and policies.
Tools: Use Google Drive or Dropbox for document storage and access.
4. Conduct Regular Audits
Schedule internal or external audits to ensure financial and operational compliance.
Tip: Many local CPA firms offer discounted audit services for non-profits.
5. Stay Informed
Regularly review updates to tax laws, employment standards, and charitable solicitation rules.
Subscribe to newsletters from organizations like National Council of Nonprofits for compliance updates.
Free and Affordable Tools for Compliance
IRS Nonprofit Resources:
Free guides for tax filings, governance, and exempt status requirements.
Harbor Compliance:
Free state-specific guides for charitable registration.
Google Workspace for Nonprofits:
Free tools for document storage, calendar reminders, and collaboration.
Volunteer Lawyers for the Arts:
Pro bono legal assistance for compliance-related issues.
Nonprofit Risk Management Center:
Offers free templates for policies and governance documents.
Simple Advice to Begin
Start with a compliance checklist that includes your tax filing deadlines, state registration requirements, and financial reporting obligations. Use free resources like IRS.gov and Harbor Compliance to ensure you understand your responsibilities. Stay organized by maintaining a digital record-keeping system and scheduling regular check-ins to review compliance progress.
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