Board Cafe
Five Ways to Get in Trouble
By Hugh Jones, Deputy Attorney General, State of Hawaii
In the US, the federal government's IRS (Internal Revenue Service) and the state attorney general's offices have the authority and responsibility of overseeing nonprofits. There are many reasons why nonprofits come under governmental scrutiny, including complaints by the public, allegations by employees and board members, and erroneous and incomplete Form 990s. In case you're feeling like being scrutinized by your attorney general's office (this is a joke!) here are some steps you can take.
- Complicate your organizational structure. For example, create multiple subsidiaries or related organizations, all with the same board members and/or staff. This may indicate that you are trying to hide money flows or payments to individuals.
- Convert from a nonprofit to a for-profit entity, merge with a for-profit entity, or sell most of your assets to a for-profit entity. Again, government officials are alerted by what appears to be the false use of nonprofit status for individual gain.
- Allow your executive director to control it all. Don't have independent accounting or management audits report to the board. Don't have any internal controls; allow the executive director access to all accounts. Allow the executive director or other staff to sign for their own expense reimbursements. Don't have an annual review of the executive's performance and compensation.
- Don't file papers on time, or at all. Federal Form 990 is due for many organizations every year, and most states require additional filings. If you're on the board, don't check to make sure they are filed, and don't bother to review them for accuracy.
- Don't have regular board meetings. And don't look at financial information. After all, if you don't know what's going on, you won't have to worry about it!
Original publication date: 01/23/2004
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