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10 Tips for Protecting Your Nonprofit

Protecting your nonprofit organization encompasses tasks that can range from purchasing sandbags to filing government forms. These activities should be driven by an ongoing, thoughtful assessment of your organization’s risks.

Assess your risks

Evaluating risks should be a routine part of your planning and operations. Your list should include:

  • Location and facility

  • Activities and programs

  • Beneficiaries of your programs

  • Management and financial systems

  • Employees

  • Communications and reputation

Plan for emergencies

Your emergency plan should have three elements:

  • Preventing problems by eliminating as many potential risks as possible.

  • Preparing for emergencies by devising procedures and assigning roles for enacting them.

  • Training everyone on your staff to respond to several scenarios. Drill and practice your responses.

It’s wise for your nonprofit to put together an emergency planning team of three or four volunteers, staff, and board members.

Your emergency team should:

  • Prepare to ensure the whereabouts and safety of staff members and their families.

  • Plan evacuation routes, identifying nearby shelters, fire stations, or hazards.

  • Collect and store emergency supplies.

  • Safeguard your records.

File annual federal forms

Each year, the federal government requires 501(c)(3) nonprofit organizations to submit a Return of Organization Exempt from Income Tax, commonly known as Form 990. The complexity of that document varies according to the size of your organization:

  • The 990-N or e-postcard is for organizations with gross receipts of less than $50,000.

  • The 990 Short Form or 990-EZ is for organizations with gross receipts of $50,000 or more but less than $200,000 and total assets of less than $500,000.

  • The 990 is for organizations that are larger than those permitted to file the 990-N or the 990-EZ.

File annual state forms

Each state has its own laws and regulations for how and when a nonprofit must report its activities. In some states, your nonprofit will receive a sales-tax exemption.

If you change your articles of incorporation or bylaws during the year, you’ll need to follow the laws of your state or the rules described in your bylaws to register the change.

Furthermore, more than 30 states, the District of Columbia, and some local governments require nonprofits to register and pay an annual fee if they are fundraising in the state.

Pay employment taxes

Nonprofits must pay employment taxes, including the employer’s portion of employment and Social Security taxes and unemployment insurance. In most cases, these taxes are paid quarterly to state tax boards and the Internal Revenue Service. Not every state requires nonprofits to pay unemployment taxes but every nonprofit must pay federal unemployment taxes.

Unpaid employment taxes are one of the few nonprofit liabilities that may be seized from the bank accounts of an organization’s board members. Check with your local state unemployment office or department of revenue for filing and payment requirements for your state.

Report payments to consultants

If your organization hires a consultant and that consultant is paid $600 or more during one year, your nonprofit must report these payments by filing the IRS Form 1099 shortly after the end of each calendar year. Some states also require that this information be reported. Check the IRS website for more information.

Maintain transparency

Nonprofits should be aboveboard and honest in their delivery of services, personnel matters, fundraising, and finances. One smart thing to do is to review IRS rules for public disclosure. Transparency practices to consider are:

  • Be honest with donors about how their contributions are used and offer them the opportunity to opt out of being identified as contributors.

  • Have a conflict-of-interest policy for staff and board members.

  • Post your most recent 990 or financial statement on your website.

  • Adopt an internal complaint and whistle-blower policy in accordance with laws in your state.

Respond to negative press

Even good, conscientious nonprofit organizations can draw negative media attention, accurate or not. When bad press arises:

  • Don’t speak to the public until you’ve fully investigated the complaint and are ready to give a clear statement.

  • Decide on a small number of people who are authorized to speak to the media.

  • Answer the media’s questions directly and truthfully, but also be sure to insert a positive message about how you’re rectifying the situation or the value of your organization’s work.

  • Acknowledge and address the controversy on your website, in a press release, and — if it’s a major concern — in a letter to your funders and donors.

Protect your online reputation

Information reported online is important to your organization’s reputation. Negative comments collected on your website or social media pages can be damaging.

If someone is disappointed with your services, apologize and invite them to try again, either for no charge or at a discounted fee. Treat constructive criticism comments with respect. Generally, it’s best to ignore angry, vengeful comments.

Determine insurance needs

A nonprofit’s insurance needs vary. All nonprofit organizations should purchase general liability insurance. You need to purchase specialized kinds of liability insurance if your organization has significant direct client contact that involves a potential risk.

If your organization occasionally produces events or conducts work in locations other than its central office or building, double-check to make sure you’re covered for these off-site events. You may need to purchase a rider to your regular liability insurance policy to cover such situations.

You should also purchase “non-owned/hired” auto insurance in case an employee or volunteer is involved in an automobile accident.

In most states, workers’ compensation insurance is required by law. If an employee is injured in the course of performing her job, this insurance helps protect both the employee and the employer.

Other kinds of insurance to consider are:

  • Property insurance for damage to property and equipment owned or leased by the nonprofit

  • Employee dishonesty insurance or fidelity bonds to protect against embezzlement

  • Directors and officers insurance to protect directors’ and officers’ personal assets from lawsuits against the nonprofit organization.

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