FINANCIAL AND LEGAL ACCOUNTABILITY

Nonprofits must practice sound financial management and comply with a diverse array of legal and regulatory requirements. A nonprofit's financial system should assure that accurate financial records are kept and that the organization's financial resources are used in furtherance of the organization's 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 that 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 of the financial reports should be subject to audit by a Certified Public Accountant.

(4) Internal financial statements should be prepared no less frequently than quarterly, should be 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 adequate for the size and complexity of their operations governing: (a) investment of the assets of the organization, (b) internal control procedures, (c) purchasing practices, and (d) unrestricted current net assets.

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. A decision to forego general liability insurance coverage or Directors and Officers liability insurance coverage shall only be made by the board of directors and shall be reflected in the minutes for 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 of the review to members of the board of directors.