The term “nonprofit” covers a broad range of entities including churches, colleges, universities, veterans groups, and country clubs. Sources of revenue, ownership structure, and activities distinguish nonprofits from “for-profits” and present a distinct set of management challenges
Periods of economic and financial distress pose special challenges to the decision-making processes of most ministry management teams. This increases demands on existing managerial abilities, and can create a whole new spectrum of legal, accounting, and financial considerations that impact the day-to-day process. Today’s increased competition, volatile financial markets, and economic trends have created a climate in which no business, or ministry, can take stability for granted.
- The Internal Revenue Service believes that a well-governed charity is more likely to obey the tax laws, safeguard charitable assets, and serve charitable interests than one with poor or lax governance.
- A charity that has clearly articulated purposes that describe its mission, a knowledgeable and committed governing body and management team, and sound management practices is more likely to operate effectively and consistent with tax law requirements.
- And while the tax law generally does not mandate particular management structures, operational policies, or administrative practices, it is important that each charity be thoughtful about the governance practices that are most appropriate for that charity in assuring sound operations and compliance with the tax law.
As part of the Form 990, the IRS has begun asking questions regarding an organizations governance that cover topics such as relationships among management officials and whether the organization has a conflicts of interest policy and whether conflicts are required to be disclosed, according to ECFA’s Focus on Accountability Newsletter.
The issues facing non-profit ministries today are much more complex than at any other time in history. The legal composition of any organization forms the foundation upon which everything else is built.
A disaster awaits any ministry organization that fails to correct potential issues due to the costs in making corrections or because certain aspects of their ministry might be disrupted if a change is required.