The board
A nonprofit has no owners. The board is what stands in their place.
The institution, not the cause
The parts nobody puts in the annual report
A nonprofit is a legal form with a filing calendar attached. What it may say, what it must publish, who signs for it and where its money is allowed to go are all settled before the first programme runs.
PL. 01
Money · the lead entry
The overhead ratio and the letter that disowned it
The number most donors use was publicly disowned in 2013 by Charity Navigator, GuideStar and the BBB Wise Giving Alliance in a joint letter, on the argument that it starves the functions that make an organisation work.
- The instrument
- The overhead ratio
- What it obliges
- Nothing. It is a calculation performed on the return by its readers.
Plate 02 · the joint letterThree organisations whose ratings put the ratio in front of donors asked, in one letter, for it to stop being used that way.
Organisations that know their way around a 990.
Supported by
Practitioners we share this corner of compliance and governance with.
Desks we keep adjacent to ours.
Supporting the sections
Legal Form · the dividing line
501(c)(3)
May educate. May lobby only within limits, and may elect the expenditure test to have those limits set in dollars rather than judged as substantial. Intervention in a candidate election is barred outright.
Donor deductionYes
Annual return990 / 990-EZ / 990-N
LobbyingLimited
Legal Form · the other side
501(c)(4)
May lobby without a ceiling, and cannot offer a donor a deduction. A great many organisations run both forms side by side — separate boards, separate books, one shared name.
Donor deductionNo
Annual return990 / 990-EZ / 990-N
LobbyingUnlimited
What the return asks
The Return · 10 entries →Twelve numbered parts and up to sixteen schedules. Each part asks one kind of question, and every answer is public once the form is filed.
- Part ISummary and mission statement
- Part IIIProgramme service accomplishments
- Part IVThe checklist that triggers every schedule
- Part VIGovernance, management and disclosure
- Part VIIOfficers, directors, key employees and their pay
- Part VIIIRevenue, by source
- Part IXFunctional expenses, in three columns
- Part XBalance sheet
- Sch. ONarrative answers to everything else
Every entry is one instrument, and what it obliges.
Each of the twenty-eight entries takes one document, one section of the code or one policy, and sets out who it binds and to what.
Plate 03 · governanceA nonprofit has no owners. Everything the board is required to do follows from that one absence.
Governance
All 6 entries →Bylaws and quorum
One sentence in the bylaws decides whether a meeting produced a decision or nothing at all.
Conflict of interest
The policy exists to make an interest visible, not to pretend nobody has one.
Money, and what a restriction does to it
Money · 6 entries →A gift can arrive with a condition attached that binds the organisation permanently. How that condition is recorded, and how the spending is reported afterwards, accounts for most of what looks strange about nonprofit finance.
Money
Restricted and unrestricted
A restriction travels with the money and outlasts the person who imposed it.
Money
Functional expense
Three columns, one allocation decision, and a number the whole sector is judged on.
The whole subject, in four sections
Twenty-eight entries. The Return is the longest section because most of what a nonprofit has to disclose is disclosed there.