Nonprofit board oversight : Top 10 issues for organizations of all sizes

Regardless of the size of your nonprofit, this article covers the AICPA nonprofit section’s top 10 list of critical tax, accounting governance and technology issues that today’s nonprofit boards need to be aware. Boards need to ensure that their audit and finance committees are diving deeper on these topics and that management is devoting appropriate resources to address them:

  1. Worker Classification: With the US Department of Labor revising their guidance on determining employee or independent contractor status, it’s important for the organization to revisit their internal practices to ensure compliance with employment laws. The Fair Labor Standards Act (FLSA) and the IRS Publication 1779, Independent Contractor or Employee are great resources to consult on this.

  2. Executive Compensation: Nonprofit executive compensation continues to be under IRS scrutiny. Boards must ensure their nonprofits are protecting themselves by following the rebuttable presumption of reasonableness provisions within the Internal Revenue Code Section 4958.

  3. Financial Reporting: It’s the responsibility of all board members(not just the Treasurer) to understand their organization’s financial health at a high level and to ensure that resources are being appropriately used to support mission and strategy in compliance with the approved budget. It is essential that each member review financial information before each meeting, attend the meeting and be prepared to ask questions for good due diligence.

  4. Strategy: Strategy drives everything at the organization, including operational and performance goals. Keeping everything aligned with overall strategy is critical for efficiency and success. The board plays a key role in keeping strategy relevant in today’s ever changing environment. This means ensuring management has processes in place to solicit staff input, continuously monitor results, and respond with appropriate changes in a timely manner.

  5. Succession Planning: Given the challenges in finding and retaining quality talent, it is imperative for organizations to prioritize succession planning. This involves ensuring that top leadership positions are all filled and that those in subordinate roles have a well-defined skill development plan. If top leadership roles are expected to be vacated within the next three years due to retirement or some other reason, a decision must be made regarding whether these positions will be filled internally or externally. A comprehensive plan should be developed to facilitate a smooth transition.

  6. Key Performance Indicators (KPIs): It’s important to identify and monitor some key measures of performance. While it is tempting to want to track everything, the board should agree on maybe three to five critical KPIs to track. The board and management should be aligned on the nonprofit’s KPIs, and internal systems should exist to track and report on these on a regular basis.

  7. Digital Transformation: Beyond ensuring adequate IT personnel, policies, and infrastructure that are in line with the nonprofit’s strategy and allocated resources, the board must protect the organization from cybersecurity threats by implementing IT controls and providing staff training. The board should also approve an artificial intelligence (AI) policy for staff, outlining how and when AI will be used in daily operations. Cybersecurity is a real concern in today’s business environment, and it’s affecting large and small nonprofit organizations.

  8. International, State and Local Employee Tax Implications: With the adoption of hybrid and virtual work arrangements, it is important to understand the tax implications to the organization and the employee. The organization should adopt a policy that details the countries, states and jurisdictions where employees can and cannot work and for how long. The nonprofit should ensure the organization is registered in the appropriate locales, files the proper returns , and withholds the appropriate taxes from employees.

  9. International, State and Local Business Tax Implications: If a nonprofit conducts business outside of its home state, determining whether the organization needs to register, file or pay taxes in these other jurisdictions is a critical compliance issue. The nonprofit should ensure the organization is registered in the appropriate locales, files the proper returns and pays any relevant taxes.

  10. Leases: A nonprofit board should keep the following lease considerations in mind: (a) Lease term & conditions (b) Recognition & measurement (c) Tracking & management (d) Legal considerations (e) Impact on operations (d) Audit preparedness (e) Impact on financial ratios (in particular cash flow)

    In addition to the issue specific resources outlined above, our firm provides CFO Advisory, Accounting & Compliance services to nonprofit organizations. With more that two decades of experience providing excellent service to this industry, we are here to assist your nonprofit as well. Feel free to book a free consultation below, or call us at (813) 489-0295.