Newsletter – Understanding Income and Properties for Nonprofits – Nov. 2019

November, 2019

Nonprofit organisations can continue to enjoy their nonprofit status only if they can keep to their charitable object which requires that they do not pay or transfer income, profit or properties of the organisation to any of their board members. It is expedient that the Board has the ultimate responsibility for the income and properties/assets of the nonprofit organisation including its reputation since they are also responsible for the decisions and actions of the organisation.

The Board is also has the mandate to delegate authority by ensuring suitable internal mechanism controls are put in place which allows efficient monitoring of delegated matters. The tone set by the Board through its leadership, behaviour, culture and overall performance is an important foundation for the success and sustainability of the nonprofit organisation.

It is advised that the Board of a nonprofit is informed enough about the organisation in order to defend the its integrity and strength in terms of decision-making, reporting, internal controls and asset management, for enhanced transparency and accountability processes. This helps ensure that the income and properties/assets of a nonprofit are solely used towards the promotion of the aims and objectives of the organisation as stated in its constitution and no portion of its income and property are paid or transferred directly or indirectly, by way of dividend, bonus or otherwise by way of profit to any of the members of the association.

As an internal control mechanism strategy, it is advised that the board regularly monitors the performance of its nonprofit organisation using a consistent framework, operational performance checks against delivery of the organisation’s objectives, strategic goals, budget and risks.

The Board should agree to reasonable remuneration for staff, taking into account prevailing economic indices and enforce a no-pay policy for members of the board with a clear policy on Board reimbursements for travels and meeting attendance costs.

Also, the Board should agree and oversee an effective process for appointing and reviewing independent external auditors, have a board audit committee that is headed by a chairman who has recent and relevant financial expertise and  would also meet with auditors without the staff of the organisation at least once a year.

This Board audit committee must have the capacity and expertise to consider concerns raised by staff and volunteer about improper conduct that may arise within the organisation including arrangement for proportionate and independent investigation/follow-up. Nonprofit organisations who knowingly violate this part of the Companies and Allied Matters Act shall be liable to refund such income or property as it applies to the organisation.