Recent Trends in U.S. Nonprofit Governance Marilyn Wyatt

Topics to be covered Structure of U.S. nonprofit sector and charitable orgs New regulatory and voluntary approaches to accountability and good governance Ongoing issues

Main points Despite the sector’s size and diversity, increasingly rigorous standards for nonprofit accountability and governance are gaining traction The key challenge: striking the right balance between government regulation (which must be flexible) and self-regulation (which must be reliable)

Structure of US nonprofit sector* 501(c) Tax-exempt orgs 501(c)3 Charitable, educational, religious, scientific, literary orgs Public charities Private foundations Public institutions Supporting organizations Non-operating foundations Operating foundations Public safety testing orgs Publicly supported charities *Abbreviated

Life cycle of a public charity* Starting Out -- organizing documents; bylaws Applying to IRS -- exemption application Required filings -- Annual Form 990 Ongoing compliance -- jeopardizing exemption (inurement/private benefit; intermediate sanctions; lobbying/political activity); taxes; disclosure requirements Significant events -- audits; termination *Abbreviated

Life cycle of a private foundation* Starting Out -- organizing documents; bylaws Applying to IRS -- exemption application Required filings -- Annual Form 990 Ongoing compliance -- jeopardizing exemption (inurement/private benefit; lobbying/political activity); private foundation excise taxes (self-dealing, failure to distibute income, jeopardizing investments); disclosure requirements Significant events -- audits; termination *Abbreviated

Typical structure of a charitable org. Board of directors Advisory groups Executive committee Finance committee Governance committee Audit committee Fundraising committee, etc. GOVERNANCE Chief executive MANAGEMENT Advisory groups Finance manager Development manager Program manager Administrative manager, etc.

Recent developments re: nonprofit governance 2001 2002 2003 2004 2005 2007 2007 2008 Enron collapse triggers corporate governance crisis Congress passes Sarbanes- Oxley Act Widely reported scandals shake nonprofit sector Congress conducts hearings on abuses; Independent Sector convenes blue-ribbon panel IS Panel recommends reforms to Senate Finance Committee IS Panel issues Principles for Good Governance and Ethical Practice Internal Revenue Service posts discussion draft of revised Form 990 Revised Form 990 introduced for fiscal year 2008

Impact of Sarbanes-Oxley Directly applicable: Document retention Whistle blower protection Recommended best practices: Separate audit committee Outside auditor, rotated regularly Certification of financial reports Disclosure of financial information No loans to board members and senior executives Conflict-of-interest policy

Recommendations from Panel on Nonprofit Sector Report to Congress, 2005 Regulatory steps to improve accountability Balance between appropriate regulatory oversight and independence of nonprofit sector Principles for Good Governance and Ethical Practice, 2007 Steps nonprofits should take voluntarily Primacy of good governance and board oversight

New IRS reporting requirements Revised Form 990 issued in 2008 Governance focus: Mission Organizational documents Governing body Governance and management policies Financial statements and Form 990 reporting Transparency and accountability

Conclusions New expectations for public accountability Import of standards from business sector Self-regulation vs government regulation Boards as active steward of mission and programs vs guard against malfeasance (Ostrower) Good governance in time of economic downturn