Financial and Legal Compliance

Nonprofits must practice sound financial management and comply with a diverse array of legal and regulatory requirements.A nonprofit's financial system should assure the accuracy of financial records.The organization's financial resources should be used in furtherance of its charitable purposes.Organizations should conduct periodic reviews to address regulatory and liability concerns.

A. Financial Accountability

1. A nonprofit should operate in accordance with an annual budget which has been approved by the board of directors.
2. A nonprofit should create and maintain financial reports on a timely basis that accurately reflect the financial activity of the organization.
3. For nonprofits with annual revenue in excess of $300,000, the accuracy 0f the financial reports should be subject to an audit by a Certified Public Accountant.
4. Internal financial statements should be prepared no less frequently than monthly, should he provided to the board of directors, and should identify and explain any material variation between actual and budgeted revenues and expenses.
5. Organizations should provide employees a confidential means to report suspected financial impropriety or misuse of organization resources.
6. Organizations should have written financial policies governing: (a) investment of the assets of the organization, (h) internal control procedures, (c) purchasing practices, (d) unrestricted current net assets and (e) cash reserves.

B. Legal Compliance and Accountability

1. Nonprofits must be aware of and comply with all applicable federal, state and local laws. This may include, but is not limited to, the following activities: complying with laws and regulations related to fundraising, licensing, financial accountability, human resources, lobbying and political advocacy, and taxation.
2. Organizations should periodically assess the need for insurance coverage in light of the nature and extent of the organization’s activities and its financial capacity. Coverage should include hut not be limited to general liability insurance and Directors and Officers liability insurance. A decision to forego general liability or Directors and Officers liability insurance coverage shall be made by the board 0f directors only and shall be reflected in the minutes of the meeting at which the decision was made.
3. Nonprofits should periodically conduct an internal review of the organization’s compliance with known existing legal, regulatory and financial reporting requirements and should provide a summary of the results to the board of directors.

Back to Standards