Nonprofit Report - September 2015

Date: September 30, 2015

Finance and Audit Committees
By: Eileen Morgan Johnson, Esq.

This article was originally published in the June issue of Association TRENDS and is reprinted with permission.

Most associations have at least one board committee that oversees the association’s money.  Some associations have divided the oversight duties and assigned them to multiple committees.  A single association could have a budget committee, an investment committee, a finance committee and an audit committee.  Each committee would then be given a discrete charge and committee members would focus on the work required to meet that charge.  

With multiple committees comes the inevitable question of who reports to whom? Are the budget committee and the investment committee subcommittees of the finance committee?  If they are subcommittees, then those committees would report to the finance committee which would in turn report up to the executive committee and full board.  Or each could be standalone committees that report up independently of each other.  Sometimes an association’s executive committee serves as the finance committee or the audit committee.  How many committees does an association need to oversee its books?

Generally, a finance committee and an audit committee are all that an association needs. Understanding the unique responsibilities of these committees will aid in determining the correct committee structure for your association.

It might be easiest to explain the role of the audit committee first since the finance committee is generally responsible for oversight of all other financial matters.  The audit committee is generally charged with selecting the association’s auditor, receiving the initial audit report, discussing any challenges encountered during the audit with the audit partner, and working with staff to address any concerns raised by the audit team in the management letter.  A copy of the audited financial statement and the management letter should be provided to each member of the board and the auditor should meet in executive session with the entire board.  This gives all of the board members an opportunity to ask any questions they might have of the auditors. 

The finance committee oversees the rest of the association’s financial matters, either directly or through subcommittees.  Finance committees typically work with the chief financial officer to establish and monitor the association’s budget, oversee investments, and ensure that tax returns are timely filed and GAAP financial practices are followed. 

While an association could have one committee that handles both the finance and audit roles, we generally recommend that there be two committees as the audit committee reviews the work performed under the oversight of the finance committee.  This separation of duties is becoming a best practice in nonprofit governance.

Use of Criminal Background Checks in the Hiring Process
By: Ari Ghosal, Esq.

This article originally appeared in the June issue of Association TRENDS and is reprinted with their permission.

You are the hiring person at your organization.  As part of your hiring process, your organization considers an individual’s criminal history as a factor in whether to exclude applicants in the employment process. Because this is an evolving area of the law, employers’ reliance on criminal background checks in the hiring process can pose some risk.    

Recently, the Court of Appeals for the Fourth Circuit ruled in favor of an employer in a case involving a challenge to the employer’s use of criminal background and credit history checks in the hiring process. The court found that the Equal Employment Opportunity Commission’s (EEOC) reports had number of errors and discrepancies.  The EEOC had alleged that the criminal background checks had a disparate impact on African American and male applicants.  In this case, the employer got lucky in that the court found the EEOC’s expert reports as unreliable so it did not express an opinion on the merits of the EEOC’s claims.  

Besides EEO issues, employers may face additional restrictions based on recent legislative developments at the state and local levels such as “ban-the-box” laws which limits the use of criminal history in hiring and employment decisions.  There has also been class action litigation against employers under the Fair Credit Reporting Act (FCRA) based on gathering criminal history and background check conducted through third party consumer reporting agencies on applicants or employees.

So what can employers do?  

Review your hiring process and procedures and your employment applications.  Consider the timing of when to make criminal history and background check inquiries based on restrictions under ban-the-box legislation at the state and local levels.  Moreover, consider aspects of a criminal history about which you may not ask.  If the investigation reveals an applicant’s criminal history, consider your obligations under the same restrictions.  Finally, consider any obligations following an adverse action.  If you do find criminal history, allow the applicant an opportunity to explain any irregularities in the report.      

Develop a system to inform your employees of your business and how to use criminal history information to make proper employment decisions prior to excluding an applicant or employee from employment based on that individual’s criminal record.   

Ensure compliance with FCRA through appropriate forms, keeping in mind the extent to which criminal history may be relied upon to exclude an applicant where such forms may be subject to legal challenge.

Finally, review and keep an eye on federal, state and local developments that may impact your use or reliance on criminal history.  

IRS Proposes Regulation Regarding Reporting of Charitable Donations
By: Stacey L. Pine

The IRS recently issued a proposed regulation regarding the reporting of charitable donations.  Under the current law, taxpayers who donate $250 or more to a charitable organization must obtain a written receipt from the charitable organization in order to claim a charitable deduction, and the receipt must contain specified information.  The law further provides that donors will not be required to provide a receipt when a charitable organization files a report reporting all the information that is currently required to be included in the written receipt so long as the report is in the form required by the IRS.  Since the IRS has not developed such a form, the charitable organization is required to provide the donor with a receipt, but donors are responsible for providing the IRS with documentation regarding the charitable deduction being claimed.  This information is not required to be reported on 990s since 990s are public and donor identifying information would be included.

The proposed regulation states that the IRS will now develop a report that may, but is not required, to be filed by the charitable organization for the purpose of reporting charitable donations.  Under the proposal, the charitable organization would be required to provide the donor with a copy of the donor’s information the organization included in its report filed with the IRS.   So, charitable organizations electing to file the return would have more administrative obligations as the organizations would be required to file the charitable donation report while still providing information to the donor. 

The proposed regulation also states that the IRS is concerned about charitable organizations collecting and maintaining a donor’s personally identifiable information.  The IRS is seeking comments on the entire proposed regulation, but especially on whether it should issue guidance for the collecting and storing of such information.