Recent Trends in U.S. Nonprofit Governance

1. Marilyn Wyatt Recent Trends inU.S. Nonprofit Governance

2. 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

3. 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)

4. 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 Publicly supported charities Public safety testing orgs *Abbreviated

5. 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

6. 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

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

8. Recent developments re: nonprofit governance 2005 2007 2003 2001 2002 2004 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

9. 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

10. 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

11. 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

12. 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