One of the instructions given by the IRS and most States to nonprofit organizations is that they follow guidelines to insure that the organization is governed properly (good governance). Your bylaws should state these rules and how to use them. If they do not, then it is time for a bylaws committee to revise them to be in line with “best practices”.
Bylaws may be relatively simple. There are many examples on the internet and on some State websites. These will give you the basic format and should be changed to conform to how your nonprofit actually works.
One of the key marks of good management is proper respect for the money of the organization. Fundraising should be in a manner that most of the money is used for the purpose of the nonprofit and not for other fundraising costs. Sales that are unrelated to the organization’s function may be taxed, so these should be accounted for separately. Controls over spending are especially important. The bylaws should provide for who can approve expenditures, how the invoices or receipts are to be marked, and who has to sign checks, including whether there are two signatures required on checks. Spending should have a direct relationship to the goals of the organization.
Budgets approved by the Board of Directors give direction to the organization and let everyone know what money is expected and what it is to be used for. Usually a Finance Committee will develop the budget. We at VaughnCPA, and Albuquerque CPA firm have experience in assisting with the budgeting process. Budgets should be compared to the actual books on a regular basis and differences discussed and resolved.
A Board of Directors, with a variety of background occupations and vocations may be important. It is usually nice to have an attorney, an insurance agent, an accountant, a banker, and of course several people who are familiar with the programs and benefits offered by the organization. Nonprofit boards are usually volunteers, so an abundance of “worker bees” are also necessary. These are the people who deal with the day to day operations, arrange events, fold the mailings and send the emails. Without them, a nonprofit cannot survive. If you are on a Board of Directors, you should be aware of the various rules you might be responsible for and you may want the organization to consider purchasing errors and omissions insurance.
Some nonprofit organizations require an annual audit, either because of regulatory requirements by State and Federal Governments, or though instructions in the bylaws. Audits, while expensive, help an organization know that the finances of their organization are above reproach.
Churches are nonprofit institutions which fall under many exemptions from regular reporting. Never the less, it may be a good idea for a church to have an independent audit. When restricted funds, such as for a youth program or a new building, are donated, an audit will show where the funds were actually used. This is not the only reason for a church to have an audit; cash funds are often collected in offerings and proper controls over cash are very important. An audit of a church will have a concentration on the cash transactions.
States have become more involved in nonprofit operations over the last few years. It is felt that since most nonprofit organisations do not pay tax or property tax, the public is actually a partial supporter of the organization, and therefore has certain rights, such as to demand audits or annual financial reports.
At VaughnCPA we understand nonprofits and will work with you to keep your nonprofit in compliance, and on the safe road to good governance and keep your non-profit FUN.