Speaker 1: Running a highly effective non-profit is no small feat. The mission-driven focus places a very high demand on resources, time, and energy. But in the process of making a difference, many non-profits find themselves grappling with compliance issues that can jeopardize their operations and their long-term sustainability. Stay tuned after the intro, and we'll take a closer look at this problem. This is Greg McRae, founder and CEO of Foundation Group, and welcome back to our 501c3 University channel, where we strive to make non-profit issues understandable. Make sure that you're subscribed so that you don't miss out on any new content when we post it. And if you like this video, please remember to hit that like button. We really appreciate it. If you're running a non-profit, compliance isn't just about ticking boxes. It's about ensuring your non-profit can continue its mission without legal or financial setbacks. And in today's video, we're gonna take a look at three common compliance pitfalls that sidetrack organizations and how to steer clear of these hazards. The first pitfall I wanna talk about is bookkeeping and financial management. Okay, in fairness, that's two different things, but they do go together. Bookkeeping and financial management are critical components of any non-profit organization's success. If your non-profit is lacking in these areas, you can be sure that your organization is not operating effectively, and that has a number of downstream consequences, namely losing the trust of donors and stakeholders, plus getting yourself into hot water with regulatory bodies like the IRS and or your state government. You might even find your non-profit loses its 501c3 status. So what are some common bookkeeping and financial management mistakes that we see? The first is inaccurate or incomplete financial records. One of the most common issues non-profits face is the failure to maintain good books. Now, this can occur because of a lack of standardized processes, inadequate training, reliance on outdated systems. What you can be assured of, however, is that inaccurate records will lead to inaccurate financial statements, budgeting problems, and difficulty tracking restricted funds, and even inaccurate tax filings. Another issue with financial management is the failure to segregate duties. Now, we've talked about this before, but it bears repeating. In smaller non-profits especially, it's pretty common for one person to handle multiple financial tasks, such as recording contributions, making deposits, reconciling accounts. This lack of segregation of duties increases the risk of errors and fraud, and it's simply bad practice. Not only that, it sets up one person for all kinds of accusations if something comes up missing. Another failure with regard to bookkeeping and financial management is the neglect of budgeting and financial planning. Look, most non-profits operate on tight budgets, making it crucial to have a good budgeting and financial planning process. Without it, you get overspending, cashflow problems, and eventually an inability to fund programs. So what are some best practices to ensure effective bookkeeping and financial management? Well, I've got six things here, and I'll run through them quickly. Number one, develop a comprehensive financial management policy. Well, what is that, you say? Well, you need clear policies and procedures for how to handle your non-profit's finances. This should include guidelines for recording transactions, handling cash, managing bank accounts, and preparing financial reports. Number two, invest in reliable accounting software. If possible, use software tailored toward non-profits. These tools help automate bookkeeping tasks, track restricted funds, and produce proper financial statements. Now look, we also understand that most of you will likely just use QuickBooks Online or something similar, and that's okay, most of our clients do too. However, just know that there are quite a few workarounds that this requires in order to have proper bookkeeping records. Number three, implement internal controls. This includes that segregation of duties issue I mentioned a few minutes ago. With good internal controls, your non-profit can safeguard its assets and maintain the integrity of its financial processes. Number four, regularly review and update the budget. Create a detailed budget at the beginning of the year and review it regularly. This will help keep you on track financially so that you can respond to changes in funding or expenses. Number five, provide financial training for board and staff members. Okay, sounded like an audible groan that I heard there. Just understand that your board in particular has a fiduciary duty to make sure your non-profit's fiscal house is in order. So if they don't understand that, that's a problem. And number six, hire professionals like Foundation Group to oversee your bookkeeping because let's face it, you're probably not going to provide your staff and board members with financial training, are you? The expertise of a third-party professional can supplement your internal controls and provide a much higher degree of confidence that your financial house is in order. Changing gears, let's look at the second common compliance pitfall, and that is board engagement. A non-profit's board of directors plays a crucial role in governance and compliance. However, many organizations struggle with keeping their boards engaged and informed, which can lead to governance failures and compliance lapses. The board is responsible for overseeing the organization's operations, ensuring that it adheres to its mission and maintaining its financial health, that fiduciary duty again. That duty includes ensuring that the organization complies with all the relevant laws and regulations. This is kind of obvious, but if your board is not engaged and informed, it's going to be hard for them to fulfill that responsibility. Here are three key issues we see with regard to board engagement. Number one, lack of clarity about roles and responsibilities. Board members have lives and they are busy. Many may not fully understand their role, and that lack of clarity leads to disengagement and failure to participate in important governance activities. Number two, infrequent communication. Effective board engagement requires regular communication between the board and the nonprofit's leadership. When communication breaks down, board members feel disconnected from the organization and its mission, leading to a decline in their involvement. Number three, failure to provide ongoing education and training. Nonprofit regulations and best practices are constantly changing. Failure to keep the board up to date on these issues leaves them ill-equipped to navigate the very compliance concerns they are responsible for overseeing. So how do you overcome board engagement problems? Well, here's four quick best practices. Number one, clearly define roles and expectations. Ensure that each board member understands their specific roles and responsibilities. This should be outlined in a board handbook or reference guide and discussed during orientation for new board members. Setting clear expectations can help prevent misunderstandings and disengagement. Number two, foster regular communication. Establish regular communication channels between the board and the nonprofit's leadership. This can include monthly or quarterly board meetings, regular email updates, and informal check-ins. Keeping the board informed about the organization's activities and challenges can help maintain their interest and involvement. Number three, invest in board development. Provide ongoing education and training opportunities for board members. This can include workshops, webinars, and conferences focused on nonprofit governance and compliance. If nothing else, sign them up for Foundation Group's weekly email newsletter and subscribe them to this YouTube channel. It will help them immensely. And number four, encourage active participation. Create opportunities for your board members to actively participate in the organization's activities, such as fundraising events, volunteer opportunities, or program evaluations. Active participation deepens their connection to the organization's mission and increases their commitment to governance and compliance. The third and final compliance pitfall I'll talk about today is not staying on top of required filings. Nonprofits are subject to lots of filing requirements at the federal, state, and even the local level. Missing deadlines or failing to submit the necessary documentation can lead to penalties, fines, even the loss of tax-exempt status. So what are the biggies here? The most critical is probably IRS Form 990, something that we've talked a lot about in our videos. All tax-exempt nonprofits have to file an annual information return with the IRS known as Form 990. The specific version depends on gross receipts and assets. Form 990 provides the IRS and the public with information about the organization's finances, governance, and programs. The next most critical filing is your state filings, which consists primarily of your charitable solicitation registration, if you're raising financial support in any of the 40 states that require that, plus your corporate annual report and state employment reports. You might even have local municipal filings to be concerned about, like certain permits or event licensing. The most common mistakes we see related to all of these are missed deadlines, incomplete and inaccurate filings, and failure to keep up with the ever-changing state and local requirements. This is compounded dramatically when nonprofits operate in multiple states and jurisdictions. Failure to keep up with everything you need can result in missed registrations, fines, even the suspension of activities. So let's wrap up by listing out the best practices for effectively dealing with the problems surrounding required filings. Number one, create a compliance calendar. Put together a compliance calendar that lists all the required filings along with their due dates. Include federal, state, and local requirements. This will ensure that you never miss a filing. Number two, assign responsibility. Designate a specific person or team within your organization to be responsible for managing compliance filings. Even if they're not actually the ones doing it themselves, someone needs to be responsible for making sure it happens. Number three, review filings before submission. A lot of headaches could be prevented if people just proofed what they were about to send in. Number four, stay informed about changes in regulations. Compliance requirements can change, so it is essential to stay informed about any updates to federal, state, and local regulations that may affect your nonprofit. And finally, number five, enlist the services of a professional. When it comes to compliance filings, using a third-party professional like Foundation Group can make a world of difference for your organization. It's not a substitute for the best practices I've already listed for the simple reason that your nonprofit is ultimately accountable for its own compliance. But that said, we help thousands of clients each year to prepare and file most of the critical filings, including Form 990 and state charitable solicitation registration. We make it our job to keep our clients informed and up-to-date. Nonprofit compliance is a critical aspect of ensuring the long-term success and sustainability of your organization. By addressing common pitfalls in record-keeping, board engagement, and required filings, you can protect your nonprofit from legal and financial risks and continue to focus on your mission. Well, I hope this has been helpful to you. Remember that compliance is not a one-time task, but an ongoing process. If we can assist your nonprofit in any of this, don't hesitate to reach out to our team at Foundation Group. Thanks for watching. Now go serve your community. Hey, do me a favor and don't navigate away just yet. We would really appreciate it if you would hit the like button below as it really helps get our content recommended to more people. Subscribe if you haven't already, as we have great content coming your way on a regular basis. Finally, you can click the little bell icon to be notified of new content when we post it. To learn more about Foundation Group, you can visit us on the web at www.501c3.org. Thanks, and we'll see you next time. ♪♪♪