Attention nonprofits…the complex landscape of compliance requirements can be a headache. However, maintaining compliance is crucial—you don’t want to be on the hook for penalties. Here are some common compliance issues to avoid.

Weak financial policies and procedures: Sound financial management is key to maintaining compliance. Nonprofits often encounter challenges like poor record-keeping practices, mixing funds between programs or accounts and not adhering to budgetary guidelines. Make sure you develop and enforce strong financial policies and procedures, maintain accurate and organized bookkeeping practices, perform regular internal audits and have a designated staff member to manage finances and ensure regulatory compliance (or hire professional assistance).

Improper fundraising and donor compliance: Compliance issues can arise when organizations fail to register with state authorities, mishandle donor funds, or lack transparency in fundraising efforts. To prevent these issues, ensure that all fundraising activities are compliant with state regulations, maintain clear records of donations, and provide transparency in how funds are used. It’s also important to regularly review your fundraising strategies and policies to ensure ongoing compliance and build trust with donors.

Improper governance and board compliance: Make sure you have effective governance in place. When boards fail to meet regularly, lack diversity and neglect oversight and fiduciary responsibilities, compliance issues arise. Make sure board members have clear expectations and provide ongoing training on governance and compliance topics, and regularly review and update bylaws/board policies to align with current regulations and best practices. By doing so, you foster transparent communication between the board and organizational leadership.

Failure to submit accurate or complete reports: Some organizations run into difficulties when it comes to submitting accurate and complete tax filings or grant reports. Regulatory bodies and funding sources often require these forms, and failure to complete could result in loss of funding or penalties. It is wise to outline all required reporting deadlines on a reporting calendar and ensure that all financial information, program outcomes and donor data are fully documented throughout the year. Many organizations often have a designated person prepare and review reports well in advance to allow time for final approval.

Failure to adhere to employment laws: You don’t want to be faced with legal issues for failing to comply with employment laws. Things to avoid include: misclassifying employees as independent contractors, lacking comprehensive employee handbooks and mishandling payroll and tax management. To avoid these issues, it helps to conduct an employment classification audit to ensure everyone is classified correctly, develop detailed and up to date employee handbooks, and consult legal or HR professionals to effectively navigate employment laws.