Public Funds Bring Increased North Carolina Nonprofit Transparency

Effective October 1, 2012, North Carolina nonprofit corporations receiving more than five thousand dollars ($5,000.00) of public funding  within a fiscal year from any local, state, or Federal government shall disclose their latest annual financial statements upon written demand from any member of the public.   Public funds include grants, loans, and the value of in-kind donations from these government entities.

The information to be disclosed include:

  • Statement of operations;
  • Balance sheet;
  • If prepared by a public accountant, the accompanying accountant’s report;
  • If not prepared by a public accountant, a statement by the president or person responsible for the accounting records to include: (a) their reasonable belief the statements were prepared according to general accounting principles and, if not, a description of the basis of preparation and (b) “describing any respects in which the statements were not prepared on a basis of accounting consistent with financial statements prepared for the preceding year”; and
  • “Details about the amount of public funds received and how those funds are used.”

Corporations may comply by:

(a) posting the report on their website along with copy of the most recent IRS Form 990, 990 EZ, or 990N;

(b) having materials posted on a third party website (e.g. Guidestar) which does not charge a fee to access the website if the North Carolina corporation provides a link on its public website to this third party website.

Corporations excepted from this filing include those required to file reports with the North Carolina Medical Care Commission, Local Government Commission of the Department of State Treasurer, and private colleges as defined by North Carolina law and required to report to the State.

A problem with a third party website compliance is these websites may not list the most current 990 form on the website.  Many in the public still do not know about or regularly use these public third party websites.  Further, advanced analysis or historical date may require a paid subscription.

The IRS requires a tax exempt entity upon request to make available to the public its current and preceding two IRS Form 990 for examination.  A nonprofit complies when the 990 are posted on its public website.

Missing from this legislation is the requirement that nonprofits post their financial reports on the public websites when they don’t receive public funding.  Nor are there any substantive consequences if a nonprofit does not comply in a timely manner or at all to a written request.  Both issues can easily be remedied by amending the statute.

Increased transparency can also be improved if private funding entities (e.g. foundations or large donors) require a nonprofit to post this information on their website as a condition to receive their funding.

Nonprofit boards of directors and their senior management engaging in best practices will create and maintain a  current “Governance Page” on their public website.  This page will  include current and historical financial information, as well as other relevant information about their nonprofit’s operations to enable the public make better informed decisions about them.

Transparency for nonprofit organizations is no longer optional.

If nonprofits aren’t transparent, donors, investors, the public, and government funding entities may be well justified in their concerns and skepticism about the nonprofit’s operation and how their funds are managed by a nonprofit’s board of directors and senior management.

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About Marty Martin, JD MPA

Marty Martin, JD MPA, Martin Law Firm, Raleigh, North Carolina, provides legal, tax, and training services related to nonprofit, tax-exempt, and social enterprise organizations serving local, regional, state, national, and international constituencies. He works with them throughout their lifecycle including start up, operations and management, board governance, merger, and closing down. He is an instructor with the Duke Nonprofit Management, Intensive, and Advanced Certificate in Nonprofit Leadership programs. He is a BoardSource Certified Governance Trainer. Martin is affiliated with North Carolina State University's Institute for Nonprofits. Martin served for three years on the IRS Advisory Committee for Tax Exempt and Government Entities ("ACT"). He was awarded the IRS TEGE Commissioner's Award which "is the highest honor of the Tax Exempt and Government Entities Division, and the highest honor we can personally bestow" for his service. He received a Master in Public Administration (MPA) degree with a concentration in managing nonprofit and public sector organizations from the Harvard Kennedy School and Juris Doctorate (JD) degree from Western New England University School of Law. He completed advanced training in nonprofit organizations from: Harvard Business School's Initiative on Social Enterprise; Harvard Kennedy School's Hauser Center for Nonprofit Organizations; Duke University's Nonprofit Management Program; University of California Berkeley Haas School of Business; Center for Creative Leadership; BoardSource; and the TCC Group.
This entry was posted in Board of Directors, Current events and comments, Exempt Organizations, Governance, Management, Nonprofit Organizations, North Carolina and tagged , , , , , , , , . Bookmark the permalink.

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