NONPROFIT GOVERNANCE POLICIES AND PROCEDURES REVISITED: TRENDS, - PowerPoint PPT Presentation

NONPROFIT GOVERNANCE POLICIES AND PROCEDURES REVISITED: TRENDS, DEVELOPMENTS, AND MORE TEX A S S O C I ETY O F C P A S N O N P RO FI T O RG A N I Z A TI O N S C O N FEREN C E M A Y 1 9 , 2 0 1 5 Da vid M. Ro se nb e rg Da rre n B. Mo o re T ho mpso n & K nig ht L L P Bo urla nd, Wa ll & We nze l, P.C. www.tkla w.c o m www.b wwla w.c o m da vid.ro se nb e rg @ tkla w.c o m dmo o re @ b wwla w.c o m

FORM 990 AT A GLANCE Pa rt 1 - Summa ry Co re Pa rt I I – Sig na ture Blo c k F o rm Pa rt I I I - Pro g ra m Se rvic e Ac c o mplishme nts 11 Pa rts Pa rt I V – Che c klist o f Re q uire d Sc he dule s Pa rt V – I RS F iling s a nd T a x Co mplia nc e Par t VI – Gove r nanc e , Manage me nt and Disc losur e Pa rt VI I – Co mpe nsa tio n Pa rt VI I I – Sta te me nt o f Re ve nue Pa rt I X – Sta te me nt o f F unc tio na l E xpe nse s Pa rt X – Ba la nc e She e t Pa rt XI – F ina nc ia l Sta te me nts a nd Re po rting 2

FORM 990 AT A GLANCE 16 Sc he dule s • Sc he dule I – Gra nts • Sc he dule J – Compe nsation • Sc he dule A – Pub lic Cha rity • Sc he dule K – T a x-E xe mpt Bo nds Sta tus • Sc he dule L – T r ansac tions with • Sc he dule B – Co ntrib uto rs Inte r e ste d Pe r sons • Sc he dule C – Po litic a l a nd • Sc he dule M – No n-c a sh L o b b ying Ac tivity Co ntrib utio ns • Sc he dule D – Supple me nta l • Sc he dule N – T e rmina tio n o r F ina nc ia l Sta te me nt De ta il Sig nific a nt Dispo sitio n o f Asse ts • Sc he dule E – Sc ho o ls • Sc he dule O – Supple me nta l • Sc he dule F – F o re ig n Ac tivitie s I nfo rma tio n • Sc he dule G – F undr aising and • Sc he dule R – Re la te d Gaming Org a niza tio ns a nd Unre la te d • Sc he dule H – Ho spita ls Pa rtne rships 3

THE CURRENT VERSION OF FORM 990 ASKS ABOUT THREE POLICIES Co nflic t o f I nte re st Po lic y • Whistle b lo we r Po lic y • Do c ume nt Re te ntio n a nd De struc tio n • Po lic y Se e Atta c hme nt 1 fo r re le va nt pa g e s o f F o rm 990- Pa rt VI Se c tio n B c o ve rs po lic ie s (Pa g e 6 o f the Re turn) – o rg a niza tio n ma y a nswe r “Ye s” to the “do yo u ha ve a po lic y” q ue stio ns o nly if the po lic y wa s in pla c e a s o f the e nd o f the filing ye a r. 4

CONFLICT OF INTEREST • Co mmo n wa y to vio la te the duty o f lo ya lty • I nte re ste d tra nsa c tio ns • An o ffic e r o r dire c to r is “inte re ste d” unde r sta te la w if he : • ma ke s a pe rso na l pro fit fro m the tra nsa c tio n with the c o rpo ra tio n; • b uys o r se lls a sse ts o f the c o rpo ra tio n; • tra nsa c ts b usine ss in the o ffic e r’ s o r dire c to r’ s c a pa c ity with a se c o nd c o rpo ra tio n o f whic h the o ffic e r o r dire c to r ha s a sig nific a nt fina nc ia l inte re st; o r • tra nsa c ts c o rpo ra te b usine ss in the o ffic e r’ s o r dire c to r’ s c a pa c ity with a me mb e r o f his fa mily. • No t inhe re ntly une thic a l o r a vio la tio n o f la w • No te : L o a ns to dire c to rs a re a sta tuto ry vio la tio n 5

CONFLICT OF INTEREST • I nte re ste d tra nsa c tio ns b e twe e n c o rpo ra te fiduc ia rie s a nd the ir c o rpo ra tio ns a re pre sume d to b e unfa ir o n the pa rt o f the o ffic e r o r dire c to r a nd fra udule nt o n the c o rpo ra tio n, a nd a re thus g e ne ra lly vo ida b le . Ge ne ral Dynamic s v. T o rre s , 915 S.W.2d 45, 49 (T e x. App.—E l Pa so 1995, writ de nie d). • Ho we ve r, T e xa s la w pro vide s a limite d “sa fe ha rb o r” fo r inte re ste d tra nsa c tio ns if: • ma te ria l fa c ts a re disc lo se d; a nd • ma jo rity o f the disinte re ste d dire c to rs • a utho rize the tra nsa c tio n in g o o d fa ith a nd e xe rc ise o f o rdina ry c a re . 6

CONFLICT OF INTEREST • T he n, the tra nsa c tio n is no t vo id o r vo ida b le so le ly b e c a use o f the dire c to r’ s inte re st o r the dire c to r’ s pa rtic ipa tio n in the me e ting a t whic h the tra nsa c tio n is vo te d o n. Se e T e xa s Busine ss Org a niza tio ns Co de (T BOC) § 22.230. • F urthe r, the tra nsa c tio n will no t b e vo id o r vo ida b le if it is “fa ir” to the c o rpo ra tio n whe n it is a utho rize d, a ppro ve d o r ra tifie d b y the b o a rd. Se e T BOC § 22.230. T his is a ne b ulo us c o nc e pt a nd sho uld no t b e re lie d o n fo r pla nning . 7

DRAFTING POINTS ARISING FROM STATE LAW CONSIDERATIONS • Dra ft to e nc o ura g e c o mplia nc e with sta tuto ry sa fe ha rb o rs (e .g ., T BOC § 22.230). • Co o rdina te po lic y with pro visio ns o f o rg a niza tio na l do c ume nts. • Dra ft with sta te la ws in mind (e .g ., T BOC § 22.225 (pro hib iting lo a ns to dire c to rs)). Se e Atta c hme nt 2 fo r sa mple c o nflic t o f inte re st po lic y 8

DRAFTING POINTS ARISING FROM FEDERAL TAX LAW CONSIDERATIONS • T a ilo r the po lic y to the spe c ific type o f no npro fit e ntity in q ue stio n a s it is c la ssifie d unde r the I nte rna l Re ve nue Co de (the “Co de ”). • No t a ll Se c tio n 501(c )(3) c ha ritie s a re sub je c t to the sa me rule s g o ve rning COI tra nsa c tio ns. • Dra ft to a c c o unt fo r the diffe re nc e b e twe e n priva te fo unda tio ns a nd pub lic c ha ritie s. • Dra ft to a c c o unt fo r the uniq ue rule s g o ve rning suppo rting o rg a niza tio ns a nd do no r-a dvise d funds. • No t a ll ta x-e xe mpt no n-c haritie s a re sub je c t to the sa me rule s g o ve rning COI tra nsa c tio ns. • Dra ft to a c c o unt fo r the a pplic a tio n o f the e xc e ss b e ne fit tra nsa c tio ns e xc ise ta x (Co de Se c tio n 4958) to ta x-e xe mpt Se c tio n 501(c )(4) e ntitie s (e .g ., so c ia l we lfa re o rg a niza tio ns). 9

CONFLICT OF INTEREST POLICY • Wha t if the e ntire b o a rd is re la te d (i.e . a fa mily fo unda tio n)? • Do c ume nta tio n is ke y – b e sure to d o c ume nt the disc lo sure o f the c o nflic t, c a re ful c o nside ra tio n o f the tra nsa c tio n, a nd the me tho do lo g y use d to d e te rmine tha t the tra nsa c tio n wo uld b e fa ir to the c o rpo ra tio n. • I t ma y b e a dvisa b le (a ltho ug h o fte n no t pra c tic a l) to ha ve the b o a rd a ppo int a c o mmitte e o f disinte re ste d, b ut truste d a dviso rs to ma ke re c o mme nda tio ns to the b o a rd with re spe c t to inte re ste d tra nsa c tio ns (suc h a s c o mpe nsa tio n fo r re la te d b o a rd me mb e rs, e tc .) a nd the n fo llo w tho se re c o mme nda tio ns. • T he se c o mmitte e s c a nno t ha ve b o a rd de le g a te d po we rs unle ss a t le a st a ma jo rity o f the c o mmitte e me mb e rs c o nsist o f fo unda tio n b o a rd me mb e rs (thus d e fe a ting the purpo se o f “disinte re ste d”). Se e Atta c hme nt 3 fo r sa mple c o nflic t o f inte re st po lic y fo r fa mily fo unda tio ns 10

IS THE COMPENSATION PAID TO DISQUALIFIED PERSONS REASONABLE? • T he re sho uld b e a jo b de sc riptio n, e mplo yme nt c o ntra c t, e ng a g e me nt le tte r o r o the r a g re e me nt whic h fully de sc rib e s the dutie s, ho urs a nd re spo nsib ilitie s o f the disq ua lifie d pe rso n. • All type s o f c a sh a nd no n-c a sh c o mpe nsa tio n, inc luding sa la ry, fe e s, b o nuse s, se ve ra nc e pa yme nts, fring e b e ne fits a nd de fe rre d c o mpe nsa tio n, must b e ta ke n into a c c o unt to de te rmine to ta l a nnua l c o mpe nsa tio n. • I f c o mmissio n o r o the r type s o f re ve nue sha ring (inc e ntive pa y) is pa id, so me so rt o f e vide nc e tha t the ra te is in line with industry sta nda rds sho uld b e ma inta ine d a nd re c o rde d. 11

IS THE REASONABLENESS OF COMPENSATION PROPERLY DOCUMENTED? • Co mpa ra b le da ta , i.e . surve ys, o ffe rs the disq ua lifie d pe rso n re c e ive d fro m o the rs, a va ila b ility o f o the rs fo r the jo b , o pinio n o f c o nsulta nts. • T he c o mpe nsa tio n sho uld b e a ppro ve d b y no n-disq ua lifie d pe rso ns (no n-c o nflic te d b o a rd me mb e rs), whe n po ssib le . • Writte n re c o rds o f me e ting minute s fo r the me e ting in whic h the c o mpe nsa tio n a rra ng e me nt wa s a ppro ve d sho uld b e ke pt, a lo ng with no ta tio ns o f the c o mpa ra b ility da ta re lie d o n, the a tte nde e s, vo te s, a b ste ntio ns (c o nflic t) a nd a ny re la te d disc ussio ns o r a c tio ns. • All c o mpe nsa tio n must b e re po rte d o n Pa rt VI I I o f the F o unda tio n’ s F o rm 990-PF , inc luding ta xa b le a nd no n- ta xa b le fring e b e ne fits. 12

WHISTLEBLOWER POLICY • F o rm 990, Pa rt VI - L ine 13, Do e s the o rg a niza tio n ha ve a writte n whistle b lo we r po lic y? • A whistle b lo we r po lic y: • e nc o ura g e s sta ff to c o me fo rwa rd with c re dib le info rma tio n o n a lle g e d ille g a l pra c tic e s o r vio la tio ns o f a do pte d po lic ie s o f the o rg a niza tio n; • spe c ifie s pro te c tio n fro m re ta lia tio n; a nd • ide ntifie s sta ff, b o a rd me mb e rs, a nd/ o r o utside pa rtie s to who m suc h info rma tio n c a n b e re po rte d. 13