Don’t forget Ohio’s Reporting Requirements for Nonprofits

Since so many foundations are submitting federal financial information returns this week, it’s a good time for a reminder about what Ohio law requires.

Ohio nonprofits – called charitable trusts in the Ohio Revised Code, regardless of whether they are established in corporate or trust form – have annual financial reporting and registration requirements with the Attorney General’s office. This year, nonprofits with a fiscal year that ended after November 30, 2011 need to comply with these requirements using an online system that Attorney General Mike DeWine’s office created last year. The website has an extensive user’s guide as well as tips for using the registration tool.

Ohio charities also must comply with the Secretary of State’s regulations, which require that charities file any changes to their articles of incorporation or statutory agent. Additionally, every five years nonprofits must file a Statement of Continued Existence (along with a filing fee of $25). Not sure when your foundation last filed this form? You can search the online database and see when you’re due to file it, although the Secretary of State’s office should send reminders four months before the statement is due.

“I’m from the IRS and I’m here to help.”

“I’m from the IRS and I’m here to help.” With that opening remark, said with a smile in her voice, Director of the Exempt Organizations Division of the IRS Lois Lerner began a recent webinar presentation on the division’s latest activities. She assured us that, although the teleconference lines were all muted, she could hear the chuckles from those listening in from around the country. Thanks, Independent Sector, for a great webinar focused on important federal regulatory issues related to the nonprofit sector.

I learned a few interesting things during the update by Ms. Lerner, who has been director of the EO Division since 2005 and who led the re-design of the Form 990. First, by the end of last year, the IRS had auto-revoked the tax exempt status of 396,600 organizations. These auto-revocations were mandated by the Pension Protection Act (passed in 2006) for organizations that haven’t filed returns for 3 years. I’ll have to take a look at the list to see how many of these revoked nonprofits are in Ohio; the previous count was over 13,000.

Lerner also discussed the division’s new EO Select Check,  which she described as a one-stop, online search tool to access information on the country’s 1.8 million charities. It will be a handy and convenient tool that funders and individuals can use to check the status of organizations asking for money. It will be updated monthly from the IRS master file.

Ms. Lerner also remarked that the IRS is using information obtained from the Form 990 – including its multiple schedules – to build risk models to “improve case selection.” And, finally, the IRS has released the 2011 Form 990, although there are a few schedules and instructions that are still in draft form. Do you have comments to share about the Form? Send them to form990revisions@irs.gov.

Claudia Y.W. Herrold
Vice president, communications & public policy

Govern More, Manage Less

BoardSource’s new book, Govern More, Manage Less, prompts a Q & A blog post on current governance issues with Outi Flynn, director of knowledge resources at BoardSource.

OGF: Is BoardSource seeing more issues related to balancing governance and management?
Outi: We have always tried to clarify the primary differences between governance and management. Not an easy task as the line is not always a clear one – sometimes it is difficult to determine on which side of the fence an issue belongs. This dilemma leads us to stress what we call a “constructive partnership” between the chief executive and the chair. The two leaders need to work together in regular communication and guide their respective teams to focus on issues that they should handle. This becomes much easier when the two leaders are in agreement on the boundaries.

OGF: What is the biggest change in governance practices these days?
Outi: Some of the hot issues that we observe in the boardrooms today: higher fundraising expectations, difficulty dealing with the changing of the guard from one generation to the next, rebranding, adapting to social media.  Practices change slowly but accepting change as necessary is inevitable.

OGF: The book talks about procedural vs. performance accountability: what does this mean and what are its impacts?
Outi: We can probably credit three recent “authoritative” measures that have had an impact on the increased attention to accountability. The Sarbanes Oxley Act woke up the nonprofit sector as it got worried about similar regulation controlling the diverse organizations on our side. The Senate Finance Committee a few years ago spent countless hours focusing on specific tax-exempt practices. And now the new Form 990 wants all filing organizations to explain their governance processes, not just to state whether specific policies are in place. All this attention has forced nonprofit boards to take a deeper look at their own household items and how they carry on their governance work. Procedure became the hot button issue – maybe at times to the detriment of the overall performance of the organization.

OGF: The book suggests that nonprofits are focusing more on procedural accountability: do you see this trend changing?
Outi: Compliance – paying attention to legal requirements or procedural accountability – is the base of good governance but it can’t be an end in itself. Exceptional boards get their ducks in a row and then start focusing on how to make a real difference. They understand that making a difference is the ultimate purpose of their organization so paying attention to impact is their driving force. Any board that has realized this is paying attention to performance measures.

OGF: How will a foundation’s board and the foundation itself benefit from shifting to an appropriate balance between governance and management?
Outi: There are times when a board needs to take a step back and get more involved in the operational issues. During a chief executive transition the board needs to keep a closer eye on the operations to ensure that nothing falls between the cracks, that attention is paid to the critical issues even when daily leadership is missing. As mentioned above, when the organization struggles with finances – due to the tough economy or mismanagement – the board’s fiduciary duty requires it to get closer to the numbers and processes to ensure the organization remains viable and is able to readjust its activities appropriately. During calm periods the board needs to assume its governance role: keep track of the past but focus on the future.