To the editor:
The holidays are upon us, and it’s the time of year when many kind people respond to requests for donations from entities that may not be actual charitable organizations.
Legitimate charitable organizations are tax-exempt under section 501(c)(3) of the Internal Revenue Code, which states that an organization must be operated exclusively for exempt purposes set forth in section 501(c)(3). None of its earnings may be of use or benefit to any individual. Organizations are eligible to receive tax-deductible contributions in accordance with code section 170.The organization must not be operated for the benefit of private interests.
It is not only the tax-deductible aspect of a contribution to consider. A well-run 501c3 charity is governed by an active, unpaid board of directors that meets regularly to oversee the financial transactions of the nonprofit to ensure donor money is being spent wisely and as intended. Directors have fiduciary responsibilities and must act for the organization’s benefit; make sure programs are in place to support its mission, and that legal and management oversight protects the assets of the organization.
The law requires that the best interest of the nonprofit prevail over each director’s personal or business interests and/or relationship with the executive director, who runs day-to-day operations. The board of directors is legally accountable to the public and contributors to oversee the organization. To properly serve in their role overseeing a nonprofit, the board must be free of any potential conflicts of interest.
The executive director of a nonprofit may attend board meetings but should not be a voting member of the board. A conflict of interest can occur if the executive director is a paid employee of the organization and a voting member of the board of directors, since every decision the board makes relating to budget and compensation will impact the executive director.
Board of directors should carry directors and officers insurance, ensure the organization has professional liability (errors/omissions) insurance and that the charity has adequate general liability insurance. No one on the board can benefit financially from any of the operations of the charity. For example, an animal welfare agency cannot have a veterinarian on its board who receives any payment for services to that agency.
Financial reporting for a 501c3 is required annually via IRS Form 990. Guidestar.com shows 990s for nonprofits. Financial statements can be requested from a charity to ascertain how much money is being spent on overhead, salaries, etc. versus its mission.
Beware of purported charities that are not tax-exempt 501(c)(3) organizations. They do not have to report to a board of directors for any donations of money and/or goods. Your contribution may not be used as promised.
Be particularly careful of organizations that seem to be run single-handedly; there are no checks and balances to ensure that contributions are being used as intended, and may financially benefit the individual soliciting the donation.
Before you entrust your hard-earned money to a charity, investigate it thoroughly.
Anne Trinkle
Executive Director
Animal Alliance
(a 501c3 animal welfare charity)
Lambertville
