Keeping your not-for-profit on mission depends on your organization’s ability to overcome the riskier areas in compliance: donor restrictions and board-designated net assets, Form 990, and governance policies including gift acceptance policies. Failure to adhere to these policies and best practices can result in consequences such as damage to your organization’s reputation, increased scrutiny from regulatory bodies and possibly even legal worries. Developing the following best practices can help your organization remain in compliance while navigating these risky areas with ease.
Donor Restrictions and Board-Designated Net Assets
A donor-imposed restriction is a donor stipulation for the use of a contributed asset. Restrictions are usually specific to a certain program or period of time, and they can be temporary or perpetual in nature. Overall, restrictions impose a fiduciary responsibility on the not-for-profit organization to manage the donated resource in accordance with the donor’s stipulations.
Donor support may be restricted to:
- Certain operating activities
- Use in a stipulated future period (this can be explicitly stated or implied by the timing of payments of the gift)
- Investment for a specified period of time
- Use for the acquisition of long-lived assets
Assets may be donated with stipulations that they be used for a specified purpose or be preserved and not sold. Gifts and bequests of assets may be donated with stipulations that they be invested to provide a permanent source of income, creating a perpetual donor-restricted endowment fund.
An organization’s unrestricted net assets may still be subject to limits that are self-imposed by the organization’s governing board or management. Board-designated net assets often represent resources earmarked for future programs, investments, contingencies, for purchase or construction of fixed assets. A board-designated “quasi” endowment fund voluntarily designates a portion of net assets without donor restrictions to function as an endowment.
Governance Policies
Developing strong governance policies, particularly around Form 990, can help your not-for-profit maintain compliance with the relevant regulatory bodies. Consider implementing the following strategies and best practices into your organization:
- Take minutes of all board and committee meetings
- Send a copy of the Form 990 to the board
- Ensure the organization has a written conflict of interest policy that is updated at least annually
- Introduce a process for board members to disclose conflicts of interest
- Create a written whistleblower protection policy
- Write or document a retention/destruction policy
- Implement a board review of the executive director/CEO’s compensation and benefits
- Review or impose joint venture (JV) and collaboration policies to avoid any prohibited private benefit
Gift Acceptance Policies
Having a gift acceptance policy in place is considered a best practice from multiple perspectives, whether relating to relationships with donors or managing your organization’s own risks. It should be written and adopted by the board. The policy should also be reviewed annually and updated as needed. Consider putting it under legal review as well to cover your bases. Include the types of gifts your organization wants and those it doesn’t in your policy. For instance, is your organization prepared and/or willing to accept cryptocurrency or other digital assets? If not, they can be added to the prohibited list. Other prohibited gifts may include:
- Gifts that run counter to your organization’s values or mission
- Gifts that lead to legal obligations your not-for-profit isn’t otherwise ready to handle
- Gifts your organization isn’t equipped to either use or dispose of
When writing your gift acceptance policy, closely consider who your audience is and what type of gifts they may be likely to give. Give some thought to your process for accepting gifts. Will some gifts require special acceptance procedures? Think also about how transparent you want your organization to be. Will you post gifts received on your website, possibly alongside a wish list?
Transparency should also include a list of gifts that are strictly prohibited to discourage donors from sending assets your organization doesn’t want or can’t use. If the gift is over $250, public not-for-profit organizations are required to send a formal acknowledgment letter. Develop policies to ensure your acknowledgement is sent promptly to help you meet your compliance obligations.
The Anders Not-for-Profit group works with organizations like yours to help you fulfil your mission with the security of knowing your finances are handled by advisors who understand your industry. Learn more about what Anders advisors can do for your organization, and the associated fees, by requesting a meeting below.
