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"Legal Audit" |
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Checklist of Legal Issues Non-Profit Organizations
Periodically, a nonprofit corporation and its subsidiaries, if any, should undergo a legal review for compliance with corporate, tax, and other laws. This review might best be conducted to coincide with the corporations' annual audit or annual tax filings. Some of the items for review are:
1. Do you have a current and legible copy of your
- Articles of Incorporation
- Bylaws
- Federal tax exempt recognition letter
- Federal tax exemption application (IRS Form 1023)
- Copies of IRS Form 990 for the past 3 years
- Sales tax exemption form
4. Is your registered agent still at the address filed with the Secretary of State?
5. Can you rely on your registered agent to give you mail that comes to the corporation?
6. Are you filing the required annual reports with the Florida Secretary of State?
7. Has your corporation been administratively dissolved by Florida Secretary of State for failure to file the annual report?
8. Does your IRS tax-exempt recognition letter say what you think it does?
9. Have your structure, purposes or activities changed significantly since you received your letter of recognition of tax-exempt status from the IRS? If so, have you notified the IRS?
10. Are you filing any required Form 990 with the IRS?
11. Are your Form 1023 and Form 990 (for the past three years) available for public inspection at your principal place of business?
12. Do you keep as permanent records minutes of all meetings of the board, your members, and committees, including resolutions and other formal actions?
13. Are the permanent records identified above, accounting records and membership list available to your members for inspection?
14. Do you have a current list of the names, addresses, and terms of office of your board members?
15. Do minutes reflect actions to elect or reelect current board members, and the resignation or termination of former board members?
16. Are you saving lists of members, annual reports and all correspondence with members for at least three years?
17. Do you prepare an annual financial statement or audit?
18. Do you provide a copy of your annual audit or financial statement to members upon request?
19. If the annual financial statement is not prepared by a public accountant, does the person who prepares it state whether the statements are prepared on the basis of generally accepted accounting principles and if not, the basis on which they were prepared?
20. Are you saving financial records for at least seven years?
21. Have you revoked the check-signing authority of former staff and board members?
22. Do you acknowledge in writing gifts over $250?
23. Are you registered with the state of Florida for Charitable Solicitations?
24. If you have employees, is the financial officer making timely deposits of all appropriate federal payroll taxes?
25. If you have employees,
- Are you making timely unemployment insurance payments to the state or have you notified the state that you are a reimbursing employer?
- Whether or not you are making unemployment insurance payments, are making quarterly reports to the Department?
- If you have staff who work overtime or have unusual hours, are you complying with federal wage and hour standards that govern overtime?
27. If you are classified as exempt under 501(c)(3), are you taking full advantage of your exemption from state sales and property tax?
28. Have you advised your volunteers and board members that they may deduct 14 cents per mile for un-reimbursed travel on behalf of the group?
29. Are there agreements between the corporation and its directors or officers that give rise to conflict of interest issues?
30. Do these documents raise issues of corporate liability not already handled by insurance?
31. Does the corporation, in its record keeping system, maintain a separate file folder for each and every past and present contract that it has entered into (with its employees, consultants, landlords, subsidiaries, funding sources, lenders, tenants, homebuyers, suppliers, etc.)?
- are these records kept in a central location so that they are easy to find or do you have to rummage through old boxes and scattered file cabinet drawers?
- for each particular contract, are all relevant documents kept together or are the scattered in various locations?
- have these contracts recently been reviewed? Are you familiar with the termination provisions, penalty clauses, payment deadlines, etc.?
- Do any of these contracts obligate the nonprofit to perform any act that might jeopardize its tax-exempt status?
33. Have subsidiary corporations (if any) contracted with the nonprofit parent corporation for the parent to provide management and other services? If so, has the scope of services and payment provisions been sufficiently described in such a manner as to ensure deductibility by the subsidiary of the amounts paid to the parent and to further ensure the treatment of the amounts received by the parent as "related business income" by the IRS (if that is desired)?
34. If the nonprofit has more than one for profit subsidiary, has the nonprofit considered creating a holding company so that the tax returns can be consolidated (thus allowing unused tax deductions and credits of one subsidiary to be applied to the taxable income of the others, etc.)?
35. Does the corporation have any agreement between itself and another organization to carry out certain of the nonprofits charitable activities? If so, are there appropriate safeguards (regular reports, etc.) to assure the nonprofit tha * are these records kept in a central location so that they are easy to find or do you have to rummage through old boxes and scattered file cabinet drawers?
- for each particular contract, are all relevant documents kept together or are the scattered in various locations?
- have these contracts recently been reviewed? Are you familiar with the termination provisions, penalty clauses, payment deadlines, etc.?
- Do any of these contracts obligate the nonprofit to perform any act that might jeopardize its tax-exempt status?t its funds are being used for charitable and educational purposes? Given the nature of the transaction and overall corporate situation, should the nonprofit be the contracting party or should it be farmed bout to a subsidiary?
37. Have property tax exemptions been obtained for all real estate?
38. Does the organization have any contracts with or has it engaged in any transactions with any of its officers or with any other entity in which any of its officers has a financial interest?
- If so, was the relationship fully disclosed to the board prior to authorizing the contract/transaction and was the vote of interested director not counted?
- If no, was the contract transaction fair and reasonable to the corporation at the time it was authorized.
- Has the organization made any loans to other organizations, in which a director or officer is also a director, officer, or has any financial interest?
- If so, was relationship disclosed prior to approval and was vote of interested director not counted?
41. Are there written personnel policies adopted by the board? If so, do they contain provisions dealing with sexual harassment and discrimination? Has an attorney reviewed the policies?