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Blog > Achieving Effective Compliance Within a Nonprofit Organization

Achieving Effective Compliance Within a Nonprofit Organization

VComply Editorial Team
June 21, 2022
3 minutes

These words will ring true until the end of time, as many believe that the true path to happiness is giving rather than taking. Strangely enough, giving can often be more challenging than taking as being self-serving and self-interested is the easy route to go through life, while attempting to make the world a better place can be more of a struggle than many are willing to face. In our current and modern world of business, an increased emphasis on the culture of an organization is continually highlighted. Both regulatory bodies and the public are increasingly trending towards the demand of corporate ethical practices and principles. This puts a unique and intense pressure on compliance professionals in nonprofit organizations world-wide as they must take responsibility to build controls and procedures that establish an authentically ethical organization that acts with integrity.

“We make a living by what we get, but we make a life by what we give.” ~ Winston Churchill

The world of business is no different; ensuring longevity within a private or public business, while still difficult, can sometimes seem easy in comparison to the growing regulatory demand for nonprofits throughout the United States. Despite numerous exemptions for nonprofits, they face ever-growing compliance obligations with very little room for error. The severity of the situation has led nonprofits to begin understanding the necessity of a robust and agile compliance program coupled with essential technological tools, otherwise many nonprofits face the potential of complete collapse.

Nonprofits have the luxury of being exempt from federal and state taxes as well as gaining access to certain types of public funding. However, these luxuries do not come without a cost as nonprofits are held to some of the highest compliance standards. Failing to abide by these compliance standards can leave nonprofits in an extremely sticky situation. Nonprofits are expected to act with honesty, integrity, and transparency, and open themselves up to various risks if they are non-compliant, whether it is intentional or not. The IRS holds the authority to revoke the nonprofit status of any organization if the offense is severe enough.

States also have a similar authority for any instance that a nonprofit fails to comply with state-wide laws and regulations. Nonprofit organizations can also be faced with serious fines and diversion of financial assets due to internal wrongdoing and failing to abide by compliance standards. The Washington Post reported in 2013 that over 1,000 major nonprofits across the United States faced a significant loss of assets due to internal wrongdoing. Among these nonprofits were Goodwill Industries, Wounded Warrior Project, and a prominent social service agency in New York.

Optimizing Your Compliance Program for Agility and Effectiveness

Risk exposure from growing compliance demands has shed a light on the necessity of an effective and agile compliance program throughout nonprofit organizations. Due to limited capital available to nonprofits in comparison to private or public organizations, many of these responsibilities fall on the board of directors to manage. Nonprofit boards often have a checklist of obligations and responsibilities that are consistently followed to ensure compliance. This can be extremely challenging and is why many nonprofits have begun to turn to information and technology architectures for assistance.

One of the greatest compliance challenges facing nonprofits today is the requirement to keep accurate and up-to-date records regarding donations, grants, expenses, bank statements, tax documents, and more. Without these records being effectively kept the organization opens itself up to a potential corruption scandal. Keeping all this information accurate and up to date can be extremely time-consuming but fortunately, information and technology architectures can automate many of these processes for the organization. Board portals are often used to keep track of all information and enhance communication among board members. This can greatly enhance the organization’s ability to be compliant and significantly reduce potential compliance risk exposure.

Nonprofit organizations also rely more heavily on their reputation and ethical standards than that of a public or private entity. Upholding those ethical standards is an essential part of compliance so much so that form 990 from the IRS specifically asks if a nonprofit’s board of directors has a specific conflict of interest policy and how it is managed. A conflict of interest is a serious concern for any stakeholder and must be properly managed and mitigated. Oftentimes nonprofits will conduct annual board assessments so that board members can better understand and strive for set obligations and compliance standards.

Some common benefits to streamlining compliance management processes in VComply’s standardized technology architecture are improved efficiency in the areas of:

  • Policy Management
  • Training Management
  • Regulatory Change/Obligation Management
  • Issue Reporting (hotline/whistleblowers)
  • Investigation Management
  • Disclosure Management (compliance forms, conflicts of interest, gifts & entertainment)
  • Third-Party Compliance Management

Compliance can be challenging for any organization, especially those that are nonprofit. Nonprofits are, for good reason, held to a higher standard in regard to ethical values and obligations. Reputation, trust, and morality are the essence of a nonprofit organization, and damage to any of these can greatly impact the success of the organization. To achieve success in maintaining a good reputation and high trust, nonprofits must be transparent with their mission and align compliance procedures to best achieve that mission. By doing so, nonprofits can effectively portray values to relevant stakeholders.  Nonprofits, however, must act diligently in achieving effective compliance or may find themselves in a hole too deep to get out of.

There has never been a greater need for compliance automation with an agile technology and information architecture than now. The back-end management and oversight of compliance is crucial to the overall continuity of the organization, and an effective compliance architecture and framework will engage employees and all relevant stakeholders to keep them connected and in tune with compliance – specifically as it regards to their roles and responsibilities within the organization. It is essential for organizations to develop an integrated, agile, and collaborative issue reporting and case management program and framework that is found in VComply’s system and compliance architecture allow for issue reporting and case management to be integrated into other compliance, risk management and assessment activities coordinated across different departments and functions of the organization. This enables the organization to break down silos and make more informed business decisions. 

Explore what makes VComply a consistent G2 high performer in Compliance Management. Request your demo today and transform your approach.