Nonprofit & Social Enterprise Updates: A Nonprofit Governance Conference Brief

nonprofit, governance, update, social enterprise

Last week I went to the Texas State Bar’s Nonprofit Governance Conference in Austin. And I walked away with a ton of interesting updates. Especially on things like the 1023EZ, audits, fiscal sponsorship and the state of the social enterprise. Here are 7 updates I thought were especially interesting, or at least ones I think people should be watching.

1. 1023EZ. Apparently, I’m not the only one side-eyeing the 1023EZ. Not long ago I wrote a post on the perils of the 1023EZ. Seems like many of the concerns I raise in that post are in fact playing out. The most concerning? Funders are still showing hesitation in funding organizations with 1023EZ determination letters. Especially after the scathing reports released under independent audits of the IRS’s approval process. With some organization’s approved under the 1023EZ process operating under illegal articles of incorporation.

2. Audits. I was shocked to find out organizations (as in many organizations) are strolling around Texas with revoked charter statuses. And they aren’t even aware. Typically, the reason is because they’ve failed to file period reports as required by Texas law. What was even scarier? Finding out most auditors don’t check an entity’s status with the AG’s office during an audit. They check the articles and bylaws, but that’s it. So organizations with revoked statuses are walking away with clean audits.

3. Donation Returns. Donors requesting gifts back is becoming a bigger and bigger issue. Especially in the age of “Breaking News,” where it seems like every 20 mins an organization is under investigation. And while it’s understandable for donors to have an emotional attachment to their gifts, organizations may land themselves (and the donor) in hot water giving gifts back. Which is why that reservation language in fundraising materials is so important, in case things pop-off.

4. Fiscal Sponsorship. Fiscally sponsored organization’s are calling their fiscal sponsors “fiscal agents,” which is no bueno. Not only is this inaccurate, but legally it means something entirely different from what the organizations are trying to say. The problem is, using the term could cause issues down the line. Especially where the term is included in a contract. Sponsored groups are also telling donors they’re “borrowing” the 501c3 status of their Fiscal Sponsor; which is about as accurate as saying you’re going to “borrow” a dollar. But for this reason, I think it’s important for Fiscal Sponsors to include in the sponsorship agreement how the relationship should be discussed publicly.

5. Poker Fundraising. The minefields with running charity poker or casino nights, auctions and raffles still exist. Not only that, they’re multiplying. It seems this is more the case with casino nights, where organizations are starting to brush against that “gambling” prohibition. Not realizing it’s a civil AND criminal offense. Which comes down to an organization not familiarizing themselves with the myriad of rules hovering over a raffle. Including the number of raffles, how to advertise a raffle and how to run a raffle. Non-charitable social enterprises still prohibited from running them.

6. Social Enterprises. The social enterprise space continues to grow, albeit not at the same Millennium Falcon speed of a few years ago. Unfortunately, it looks like the L3C has hit a wall in terms of progress. On the flip side, the Benefit Corporation has become the new darling of the entity world; on fire with state adoptions. I was also enamored by all the creative ways LLC’s are being used. Though LLC’s are still going through their awkward teen years in the Texas nonprofit space. With Texas “technically” still not recognizing a nonprofit LLC.

7. Disclosure Requests. Lastly, when replying to simple disclosure requests, organizations might be getting themselves into more trouble by creating new docs. Which makes this whole area that much trickier. Here you are thinking you’re doing a good service when you might be making it easier for someone to file a claim. Making it that much more important you consult with your attorney where there’s a request for documents that can’t be located.

There were a few other things I took away; HR best practices, things to think about with lobbying and the like. But overall, my biggest takeaway was that the charity space is continuing to see increased regulation. With regulators poking their noses to check on things as exposes on abuses multiply. Which means, taking a mom and pop approach to operating (without the appropriate diligence and team) is becoming more and more of a legal exposure.