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Chapter 1
Introduction
Background on Nonprofits
There are over 1.6 million nonprofits in the United States. They are diverse in size and mission, ranging from human service organizations to advocacy groups to religious organizations. They are growing rapidly in number. From 1995 to 2005, the nonprofits registered with the Internal Revenue Service (IRS) grew by 27 percent.1 They are important economically, contributing 7.2 percent of the paid jobs and 6.6 percent of the total wages in the United States (see Exhibit 1.1).
Although nonprofits are extremely diverse in size in mission, each one must have a sound financial management system.
There are three types of nonprofits: charity, foundation, and other. In 2009, there were about 957,000 charities and 113,000 foundations registered with the IRS as 501(c)(3) organizations (“501(c)(3)s”). The “other” group includes 501(c)(4) registered mutual benefit organizations (e.g., medical plans, civic leagues, and advocacy organizations) and about 350,000 religious organizations not required to register with the IRS, although about half chose to do so.
All nonprofits are exempt from income taxes on their mission-related income, but only 501(c)(3)s can receive tax-deductible donations. A 501(c)(3) organization cannot support or oppose anyone running for public office but can engage in a political campaign consistent with its purpose. Most 501(c)(3)s can spend no more than 20 percent of their resources on lobbying. Exhibit 1.2 shows the types of public charities.
EXHIBIT 1.1 Charities’ Employment
Source: Lester Saloman and S. Wojciech Sokolowski, Employment in America's Charities: A Profile (Baltimore: Johns Hopkins Center for Civil Society Studies, 2006).
| Paid workers | 9.4 million | 7.2% |
| Volunteer workers (FTEs) | 4.7 million | 3.9% |
| Total workforce | 14.1 million | 11.1% |
| Wages | $321.6 billion | 6.6% |
EXHIBIT 1.2 Number of Reporting Public Charities by Subsector
Source: Urban Institute, National Center for Charitable Statistics, Core Files (2007–2008).
| Arts, culture, and humanities | 125,170 | 7.7% |
| Education | 216,021 | 13.3% |
| Environment and animals | 58,209 | 3.6% |
| Health | 101,458 | 6.3% |
| Human services | 410,028 | 25.3% |
| International and foreign affairs | 20,737 | 1.3% |
| Public and societal benefit | 359,160 | 22.3% |
| Religion-related | 231,858 | 14.3% |
| Other | 94,806 | 5.9% |
| Total | 1,617,447 | 100.0% |
Board of Directors
Nonprofit governance and management rests on three legs: the Board of Directors (Board), the chief executive officer (CEO), and the staff. Board members nominate and elect fellow members. Board members have civil immunity for the official actions they take, as do volunteers, but the law does not protect Board members from criminal, intentionally malicious, or reckless conduct. Board meetings are not subject to open-meeting laws, as government meetings are; however, Board members must exercise care, loyalty and obedience. Board members should:
- Determine the nonprofit's mission and issue the mission statement
- Select, support, and review the performance of the CEO
- Contribute time and resources to the nonprofit
- Raise funds
- Conduct business ethically and professionally
- Make well-informed, engaged decisions
- Adopt the budget
- Oversee the management of funds
- Adopt a human-resource policy
- Follow laws
- Serve on a committee
- Promote the organization's image
The mission statement should succinctly reflect the nonprofit's core values. The Board should adopt the mission statement with input from the CEO, the staff, and stakeholders such as clients, members of the organization and community members. Board members should contribute both time and resources to the nonprofit. Some Board members have needed skill sets. For instance, a Board member who is a certified public accountant (CPA) or has a strong business background can serve on the Finance Committee or even volunteer as the chief financial officer (CFO). Likewise, a Board member who is a lawyer can provide legal advice. Board members should visibly participate in fundraising activities, contributing their own funds, and ask community members to contribute.
Boards with many members typically break down into subcommittees and each Board member should have an office or committee responsibility. As the policymaking body, the Board adopts policies, including the annual budget. This book discusses an array of financially related policies. For reference to these and other policies, the organization Boardsource offers downloadable policies in 48 topic areas, including 13 financial management policies (see http://www.boardsource.org/?Bookstore/).
Management
The second leg is the CEO, either volunteer or paid, who carries out the Board's policies. There is no single package ...
