Sample of Articles of Incorporation by obm18412


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									              RISK MANAGEMENT

               Preventing risk, the disruption or
            closure of programs through regulatory
               compliance and internal controls

7/10/2010                 John C. McGee Executive         1
                      Director Family Relations Program
Public Disclosure and regulatory
•     Do you know where the following documents
     –      Articles of incorporation
     –      I.R.S. letter of determination
     –      Original application for tax-exempt status (Form
            1023 or 1024)
     –      Verification of your charitable solicitation registration
     –      Most recent audit or financial statement
     –      3 most recent Federal 990 or 990-EZ tax returns

7/10/2010                    John C. McGee Executive                2
                         Director Family Relations Program
Public Disclosure and regulatory
•     Do you know where the following documents
     –      Corporate By-laws
     –      Board Policies and procedures manual
     –      Financial internal controls policies and procedures
     –      Whistle blower protection policy
     –      Financial records retention and destruction policy
     –      Conflict of interest policy statement

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                        Director Family Relations Program
            Current state of affairs
• Non-profits organizations are first and foremost
  corporations then they are nonprofit entities
                     – THEREFORE
                         – AND
                         – AND

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                  Director Family Relations Program
    Currently who regulates you?
•   Federal Government
•   State government
•   Local government
•   Funding agencies
     – United Ways
     – Government contracts
     – Private foundations
     – Major donors

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                 Director Family Relations Program
              Federal Government
• Primary regulatory agency for non-profit status is
     – IRS
• However corporate and operational regulations come
  from many sources
     –   Employment law
     –   Equal rights protection
     –   Safety and Occupancy issues
     –   Medical records
     –   Immigration
     –   Postal regulations
• Types of governmental agencies that can/may regulate
  your agency depends upon the nature of your activity

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                       Director Family Relations Program
                  State Government
•   Corporate registration/renewal
•   Charitable solicitation
•   State income and sales tax
•   State employment laws
     – Workers compensation
     – Equal pay for equal work
     – Unemployment insurance
            • States frequently have their own versions of federal law
              that applies to smaller corporations

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                          Director Family Relations Program
• Zoning
• Occupancy
• Fire and Safety
     – Some regions have local charitable
       solicitation laws

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                  Director Family Relations Program
            Current State of Affairs
• Mission driven by application for 501(c)(3)
     – Do you know where your original application
       is or a copy of it?
     – Is your current program(s) consistent with
       your mission statement and the purpose
       described in your original application?
     – Tax–exempt status is based on the
       application – deviating from it can place status
       in jeopardy
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                   Director Family Relations Program
      Bad press = Gov’t response
• The continuing news-media exposés of
  abuses by foundations and nonprofit
  groups call for more effective regulations
  and stricter oversight by federal and state
• Only by acting in your agency’s self-
  interest can you protect its good name and
  insure your growth

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              Director Family Relations Program
            Recent legislative action
• Federal (are these titles of laws you expect to govern nonprofits)
     – Sarbanes-Oxley Act (see next slide)
     – Patriot Act
            • Verification that monies are not going to terrorist groups
     – American Jobs Creation Act of 2004
            • section 884 of the American Jobs Creation Act of 2004 (HR 4520). Car
              donation programs
            • The Senate has passed legislation intended to prevent
              individuals and companies from taking overly generous
              deductions for their donations of cars, intellectual
              property, and other noncash items, and to encourage
              people to report those who make such inflated claims
              to the Internal Revenue Service
     – Pension Protection Act of 2006

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                              Director Family Relations Program
            Sarbanes-Oxley Act
• The American Competitiveness and
  Corporate Accountability Act of 2002,
  commonly known as the Sarbanes-Oxley
  Act, mostly applies to publicly traded
  corporations. However, there are two
  provisions under the act that affect all
  enterprises, both for-profit and nonprofit,
  relating to document destruction and
  whistle-blower protection.
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                Director Family Relations Program
            Recent Legislative Action
• State
     – Thirty-eight states and the District of
       Columbia currently require charities that solicit
       donations from their residents to register in
       advance with the appropriate state agency.
       Several smaller jurisdictions also require
       advance registration by charities.
     – Most states will accept a completed copy of
       the Unified Registration Statement in lieu of
       their own forms

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                   Director Family Relations Program
      Knowledge and consistency
• Risk management requires pro-active
  behavior and a forwarding looking
     – Preparation for bad things/events helps
       prevent them from happening
     – Consistent application of policy avoids
       charges of favoritism, discrimination or bias
     – Policies are living documents that must be
       implemented in word as well as deed
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                   Director Family Relations Program
  A Risk Management Definition
• Risk management is a discipline for dealing with
  the possibility that some future event will cause
  harm. It provides strategies, techniques, and an
  approach to recognizing and confronting any
  threat faced by an organization in fulfilling its
  mission. Risk management starts by asking and
  answering three basic questions:
     – What can go wrong?
     – What will we do both to prevent the harm from
       occurring and to handle the aftermath of an
     – If something happens, how will we pay for it?

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                    Director Family Relations Program
            Articles of incorporation
• Required part of your initial step to become a non-profit
• Submitted to the state in which you are incorporated as
  part of your application for incorporation
• If you intend to apply for IRS federal tax exemption as a
  charitable organization, your articles of incorporation
  must contain a required purposed clause and a
  dissolution of assets provision. Valuable information on
  501(c)(3) qualification is on the IRS website, It includes sample articles of the

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                    Director Family Relations Program
   Georgia Nonprofit corporation
• O.C.G.A. TITLE 14 Chapter 3
• Georgia corporations, limited liability
  companies and limited partnerships are
  formed by filing with the Corporations
  Division. Some foreign (out of state)
  entities that do business in the state of
  Georgia are required to file with the
  Corporations Division. (The Corporation
  Division is the Secretary of State’s office).

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                Director Family Relations Program
 Original application for tax-exempt
     status (Form 1023 or 1024
• Represents formal application for (c)(3)
  status defining purpose and mission off
• Once the Internal Revenue Service (IRS)
  recognizes an organization's tax-exempt
  status, it must notify the IRS if it amends
  its articles of organization or by-laws, or
  materially changes its activities from those
  described in its exemption application.

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               Director Family Relations Program
      I.R.S. letter of determination
• Issued in response to a formal application
  covered in form 1023 or 1024
• Generally - Is issued only once

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               Director Family Relations Program
•   Public Disclosure Rules
•   A tax-exempt organization must make its application for recognition of tax
    exemption (IRS Form 1023 or 1024) readily available for in-person public
    inspection. These documents must be available during regular business
    hours at the organization's principal office and at regional or district offices
    with three or more employees.
•   The application must be accompanied by all materials, such as articles of
    incorporation and bylaws, submitted to support the application (with certain
    exceptions). All correspondence to and from the Internal Revenue Service
    regarding the application must also be included.
•   This could include but is not limited to the IRS "determination letter"
    affirming the organization's tax-exempt status, all questions to the
    organization from the IRS, and the organization's answers. The
    organization's three latest annual information returns (IRS Form 990 or 990-
    EZ), including all schedules and attachments filed with such returns, also
    must be available. The organization need not disclose the names or
    addresses of its contributors.

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                            Director Family Relations Program
            Disclosure continued
• The exception:
     – Disclosure requirements do not apply to
       applications for tax exemption (or supporting
       and related documents, as described above)
       filed before July 15, 1987, unless the
       organization filing the application had a copy
       of the application on July 15, 1987. This
       exception doesn't apply to the
       organization's annual information returns.

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                   Director Family Relations Program
   Non-disclosure consequences
• The penalty for each willful failure to permit public
  inspection or provide copies of documents is $5,000 for
  each information return or application for tax exemption.
  In addition, responsible individuals of an organization
  who fail to provide documents may be subject to a
  penalty of $20 per day for as long as the failure
• The maximum penalty on responsible individuals is
  $10,000 for each failure to provide a copy of an annual
  information return. There is no maximum penalty for
  failure to provide a copy of a tax-exemption application.

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                   Director Family Relations Program
   charitable solicitation registration
• The Georgia Charitable Solicitations Act of 1988, as
  amended, regulates the solicitation and collection of
  charitable contributions in Georgia. Unless exempted by
  provisions of this Act, organizations and individuals
  that solicit contributions from the public for
  charitable purposes are required to register with the
  Secretary of State, and to disclose financial information
  and other facts relating to the organization. See
  O.C.G.A. §§ 43-17-3, 43-17-5. The Act allows the
  Secretary of State to take action against those persons
  and firms who violate its provisions

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                   Director Family Relations Program
                     Terms defined
• CONTRIBUTION - the promise or grant of any money or property of
  any kind or value.
• CHARITABLE ORGANIZATION - A charitable organization is any
  benevolent, philanthropic, patriotic or such associated group or
  person who solicits or obtains contributions from the general public,
  any part of which is used for charitable purposes. The term
  charitable organization does not include religious
  organizations as defined below.
• RELIGIOUS ORGANIZATIONS – An entity conducting regular
  worship services or is qualified as a religious organization under
  Section 501(c)(3) of the Internal Revenue Code of 1986, as
• SOLICITATION – The request or acceptance directly or indirectly of
  money, credit, property, financial assistance, or any other thing of
  value to be used for any charitable purpose.
     – [O.C.G.A. § 43-17-2]

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                         Director Family Relations Program
       audit or financial statement

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               Director Family Relations Program
  Federal 990 or 990-EZ tax returns
• Generally, tax-exempt organizations must file an annual
  information return. Tax-exempt organizations that have
  annual gross receipts not normally in excess of $25,000
  are not required to file the annual information return. In
  addition, churches and certain religious organizations,
  certain state and local instrumentalities, and other
  organizations are excepted from the annual return filing
  requirement. For more information, download Publication
  557, Tax-Exempt Status for Your Organization. In
  addition, Publication 4221, Compliance Guide for
  501(c)(3) Tax-Exempt Organizations, explains the filing
  and recordkeeping rules that apply to organizations that
  have tax-exempt status under section 501(c)(3).
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                   Director Family Relations Program
       Consequences of non filing
• A tax-exempt organization that fails to file a
  required return is subject to a penalty of $20 a
  day for each day the failure continues. The same
  penalty will apply if the organization fails to give
  correct and complete information or required
  information on its return. The maximum penalty
  for any one return is the lesser of $10,000 or 5
  percent of the organization's gross receipts for
  the year. If the organization has gross receipts in
  excess of $1,000,000, the penalties are
  increased to $100 per day with a maximum
  penalty of $50,000

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                 Director Family Relations Program
               Corporate By-laws
• In the strictest sense, bylaws are not public documents.
  They are the internal rules and regulations that guide
  your board's activities
• Even if bylaws are not legally considered a public
  document, your willingness to distribute a copy to
  anyone requesting your bylaws helps illustrate that your
  organization is accountable and transparent.
• Making your bylaws a public document could force your
  board to pay careful attention to its contents
• Are a corporation’s bylaws filed with the Secretary of
     – No. Bylaws are maintained by the corporation.

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                       Director Family Relations Program
      Board Policies and procedures

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              Director Family Relations Program
  Financial internal controls policies
           and procedures

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             Director Family Relations Program
      Whistle Blower requirements

An organization must develop procedures for handling
employee complaints. A nonprofit must establish a
confidential and anonymous mechanism to encourage
employees to report any inappropriateness within the
entity's financial management. No punishment—including
firing, demotion, suspension, harassment, failure to
consider the employee for promotion, or any other kind
of discrimination—is allowed. Even if the claims are
unfounded, the nonprofit may not reprimand the
employee. The law does not force the employee to
demonstrate misconduct; a reasonable belief or suspicion
that a fraud exists is enough to create a protected status
for the employee.
 7/10/2010             John C. McGee Executive         31
                   Director Family Relations Program
              Document Destruction
               paper and electronic
The Sarbanes-Oxley Act addresses destruction of
litigation-related documents. The law makes it a crime
to alter, cover up, falsify, or destroy any document (or
persuade someone else to do it) to prevent its use in
an official proceeding (e.g., federal investigation or
bankruptcy proceedings). The Act turns automatic
document destruction into a process that must be
monitored, justified, and carefully administered.

(This provision applies to financial records or associated documents – it does not
apply necessarily to client records. Those need a policy also to comply with other
existing laws and regulations)

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                            Director Family Relations Program
Conflict of interest policy statement

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            Director Family Relations Program
                        Other items
• Gift acceptance policy
     – What gifts would you accept and how do you
       process them
            • Receipting gifts
• Personnel Manual
     – What are the policies of the organization
       affecting an employee and how are they
            • Hiring, promoting and terminating employees

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                         Director Family Relations Program
            First of all protect thy self
•   Accountability Checklist
•   Develop a Culture of Accountability and Transparency
•   Adopt a Statement of Values and Code of Ethics
•   Adopt a Conflict of Interest Policy
•   Ensure that the Board of Directors Understands and Can Fulfill Its Financial
•   Conduct Independent Financial Reviews, Particularly Audits
•   Ensure the Accuracy of and Make Public Your Organization’s Form 990
•   Be Transparent.
•   Establish and Support a Policy on Reporting Suspected Misconduct or
    Malfeasance (“Whistleblower Protection Policy”)
•   Remain Current with the Law

•   Source – Independent Sector web site)

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                                       Director Family Relations Program
What can you do to protect yourself
•   Does your organization:
•   Hold staff and board trainings on ethics or take other measures to foster a culture of accountability
    and transparency?
•   Have a code of ethics and statement of values and post it on your website?
•   Follow a conflict of interest policy and post it on your website?
•   Have board members with financial expertise?
•   Have its financial statements independently audited?
•   Have board members review financial statements, including the Form 990?
•   Have your CEO or CFO sign the Form 990?
•   File your Form 990 electronically?
•   Post your Form 990 on your website?
•   Post your policies, financial information, and information on programs and results on your
•   Have a whistleblower policy?
•   Take steps to remain current with the law?

•   (Questions provided through Independent Sectors web site)

7/10/2010                             John C. McGee Executive                                         36
                                  Director Family Relations Program

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