Understand the Regulations, and Educate Your Nonprofit Board Members

“How much is the fine if we decide to do it anyway?”

These are words you never want to hear in a nonprofit’s boardroom.

As development professionals, it generally falls to us (the executive director and the person in charge of finance are often in the boat with us) to keep current on the fundraising regulations of countries and states in which our nonprofit organizations solicit funds to support our missions. It can be difficult to keep up and, sometimes, we may miss things; it happens.

There is a difference, however, between not knowing something is mandated and willfully choosing to ignore the mandate. (It should be noted though that governing bodies do not accept ignorance as an excuse and will levy a fine regardless. For today's purpose, I’m referring to the difference between an error and purposeful noncompliance).

The way I began this article makes the situation sound bad, even sinister. But when conversations like this happen, for the most part, they do not have nefarious roots. Think about it: Many board members work in the for-profit business world. If they own or work for smaller companies that are not traded on a stock exchange, they may make decisions about how they run their business based on a risk/reward calculation. I’m not saying I agree with skirting regulations as a business practice; I’m merely pointing out that it likely happens with little fanfare. The choice is made, the regulation is bent or snapped, the company pays the fine and life goes on.

If business people who sit on nonprofit boards of directors operate in this style in their for-profit business, they may not realize that there isn’t such flexibility in the independent sector, which brings us back to the development professional, executive director and the finance director. This is our profession, and it is our responsibility to not only be aware of regulations, but to educate our boards of directors about the requirements for nonprofit operations.

Are those conversations awkward? They certainly can be, depending on the organization's culture. But that education is something we must do. In the nonprofit sector, we are in the public eye. Communities trust us to deliver services—to help children, feed the hungry, share art with the world, help people find work. They trust us to solicit funds, manage and be good stewards of those funds—and to do so in the most ethical and transparent way possible.

Nonprofits must earn the trust and confidence of clients, staff, donors and the community. It is important that the decisions we make about how to run the organization are worthy of that trust.

Here are a few resources for written documentation of state and federal nonprofit rules and restrictions:

-Association of Fundraising Professionals
-IRS Charitable Contributions
-IRS State Requirements
-National Council on Nonprofits & Harbor Compliance report

Each state has its own unique requirements. Check with the office that governs your state’s nonprofit organizations to be directed to a list of regulations.

*The author is not a lawyer or CPA. For legal or financial advice, consult a legal or tax professional.