4 Items That Need to Be on Your Nonprofit or Church’s Mid-Year To-Do List

By Mike Grubbs, Esq. and Robert Showers, Esq.

1. Review your budget and financial controls

For churches and nonprofits on a calendar-year budget cycle, mid-year is the perfect time to consider a mid-year budget adjustment. Collect all expenses and donations and other revenue for January – June, and, in early July, project out for the remaining calendar year. If revenue is exceeding budget, you may be able to fund a project this year instead of next, or you may be able to increase your reserve. (According to Evangelical Council for Financial Accountability (ECFA) and other charity watchdog organizations, reserve should be 3-6 months of operating expenses.) If revenue (donations and other revenue) is falling short of expectations, then now is the time to reduce spending strategically — not in “panic mode” in December!

In addition to a mid-year budget adjustment, as you walk through the budget, we advise churches to review financial controls every 6 months. There are dozens of issues related to financial controls — for example:

• Update and re-train ushers and/or counting teams on the proper handling of money
• Ensure all invoices and payments are up-to-date and accurate
• Review the signatory authorities on your bank accounts
• Update and re-train staff, volunteers, and vendors on your disbursement and/or accounts payable policies
• Update background checks for staff and volunteers charged with financial duties
• Consider whether internal or external review and/or audits will be necessary and if so then make sure your nonprofit QuickBooks or whatever financial accounting system you are using is easily reviewed
• Review Financial Accounting Standards Board (FASB) Issues Accounting Standards in light of update on Financial Statements for Non-profit and churches (such as key requirement of the new accounting standards update (net assets, underwater endowments, cash flow statement, liquidity and availability of resources, expense reporting, investment return etc.) www.fasb.org

Again, these are just some of the issues involved in assuring proper financial controls in a church. If we can assist you in drawing up or updating policies, we are here to serve. You can also review white papers and policies on www.ecfa.org for other ideas and updates.

2. Hold an annual meeting

Any corporation must hold an annual meeting once per year and churches and nonprofits are not exempt. Typically, because the summer months are slower for church and nonprofit staff, they usually opt to hold their annual meeting in June or July (unless you are a Christian camp etc.). The annual meeting requirement for most churches or nonprofits is typically met by a gathering of the official Board of Directors of the corporation, depending on how the corporation is organized or calling the congregation together for such meeting. Items for the agenda usually include a ministry update, voting for approvals to any budget adjustments, and a Q&A time for the Board to the church staff. Our colleague at Simms Showers, Justin Coleman, just published an excellent article on annual meetings, “A Walkthrough of an Annual Meeting,” that goes into much more detail. But the important question is — “If you are incorporated as a church or nonprofit, are you actually having an annual meeting?” If no, then need to start and keep minutes. Even if you are not incorporated (and you should be — click here to read why), then an annual gathering is still an important time to gather important decision-makers and influencers.  We would be happy to assist you in incorporation matters and in advising you on your annual meeting process to comply with legal requirements.

3. Review your background check systems and policy

Background checks are essential for every staff member, and every volunteer that interacts with children, youth, and/or money. These checks should be renewed every 12 months. Are you renewing them? Do you have a system that flags out-of-date background checks? Do you have a policy that outlines the standards for each volunteer position? (For example, you could decide to permit a person with a low credit score to serve in the nursery, but not deal with money. For some positions, you may want to require a membership requirement, or that the person be attending for at least 6 months, or conduct a person interview with staff. These are decisions that you must make, and write down in the form of a policy, so that you are holding yourself accountable to your own standards.) Once a background check is requested, who on staff is responsible for reviewing the applicant? What system do you have in place to ensure the confidentiality of background check results? Who on staff is responsible for “owning” the background check systems and policy? If need help with developing a background check system and policy, let us help. Click here to learn more about the common pitfalls to avoid in hiring and firing.

4. Review your employment policies to make sure you are legally compliant

According to insurance companies and EEOC, the majority of claims against churches and nonprofits are in the employment area. The majority of employment-related claims fall into FOUR categories:

• Wrongful termination — An employee is dismissed for reasons that are discriminatory and unlawful.
• Discrimination — Unfair treatment of an employee based on race, age, gender, disability, religion or other considerations.
• Harassment — Offensive discriminatory conduct in the workplace. This includes unwelcomed sexual advances and other verbal or physical conduct of a sexual nature, as well as verbal or physical conduct that degrades, offends, bullies or belittles an individual.
• Exempt and nonexempt violations or independent contractor –A employee is misclassified as an exempt employee when he/she is nonexempt and subject to overtime or misclassified as Independent Contractor when they are in fact an employee which subjects one to past due benefits and penalties.

Preventing employment liability claims begins with an understanding of expectations between the employer and employees as well as clearly outlined policies and procedures.

Employment policies and training

Every Church and nonprofit should have an employee handbook that outlines basic expectations of employees, as well as general benefit information and employment policies. These policies should state whether the employee is exempt or nonexempt, and should include anti-harassment and anti-discrimination policies, a family medical leave policy for larger churches and nonprofits and a workers’ compensation policy. All new employees should receive a copy of the handbook as well as training about expectations or policies included in the handbook.

Require all employees to sign a document stating they read and received a copy of the handbook and agree to abide by it. This document should be kept in the employee’s personnel file.

Employee handbooks should be reviewed and updated annually. It is important to involve legal counsel when developing, reviewing, and updating your handbook. Employment laws vary from state to state, and the laws change frequently. Clearly state that all employees are at will which means they can resign at any time and can be terminated with or without cause at any time.

In addition to training new employees on expectations and policies, supervisors should also receive regular training on topics such as interview skills and performance review procedures and methods to help prevent and identify instances of harassment and discrimination.

Reporting and resolving complaints

Establish guidelines on how employees should report instances of embezzlement, financial wrongdoing, discrimination, and harassment. The guidelines should identify an appropriate contact person, other than a direct supervisor, and offer employees several ways to report a complaint. All complaints must be investigated in a timely and professional manner and the IRS requires all nonprofits and churches to have whistleblower and conflict of interest policies.

With any complaint, an investigation should be conducted analyzing eyewitness accounts along with any evidence that is available. If there are possible conflicts of interest that make it difficult for an employer to make a decision free of bias, an outside investigation should be conducted, preferably a law firm to protect the sensitive information discovered. After the investigation is complete, immediate action should be taken, resulting in either discipline or dismissal of the complaint. All steps of the process should be clearly documented — from the initial complaint through the final judgment and action.

Should the employee proceed with a lawsuit, it will reflect favorably in court that the offending employee was punished swiftly for the wrongful conduct. However, if the employee proceeds with a lawsuit for a dismissed complaint, having the paperwork that led to the final decision can be critical.

Managing terminations

Terminations are a regular part of business practice and in churches and nonprofits are often handled poorly. However, churches and nonprofits need to take steps to ensure terminations are handled in a manner that minimizes their risk of litigation and treats the dismissed employees with dignity and respect. Reducing your risk for a wrongful termination suit begins long before the decision to dismiss an employee is made and is often contained in your policies and procedures.

For example, careful documentation should be maintained from the time an employee is hired until (his or her) employment ends, which includes everything from regular performance reviews to any disciplinary action. Consistency also is important regarding any corrective action or performance improvement plans.

The process should be outlined in the employee handbook and might include multiple steps, such as oral or written warnings, a formal final warning and eventual termination. Before taking any final action, perform a careful review of the employee’s personnel file to confirm that proper procedures were followed and that the reasons for dismissal are clearly documented. Seek legal counsel for any “problematic dismissals” such as an employee who has previously filed a work-related complaint, as well as long-term employees and employees in a protected class.

Use of legally well drafted separation agreements with some severance and waiver of claims and non-disparagement clauses can be invaluable to avoid lawsuits and treat the dismissed employee well upon departure.  We have many examples and can help you in this process since limited legal dollars are best spent in employment areas to avoid serious financial and reputational losses.

Employment practices liability insurance

Clear employment policies, management training and well-handled dismissal can help prevent claims, but they will not protect a church or nonprofit once a claim is filed. Employment practices liability insurance, or EPL, can provide insurance coverage for defense costs and indemnification connected with claims of discrimination, harassment, and wrongful termination.

Most general liability policies exclude employment-related claims, requiring a separate EPL policy or coverage form to be purchased. Consider the following areas when reviewing policies:

• Types of claims covered
• Types of employees covered
• Damages covered
• Premiums, deductibles, and coinsurance payments required
• How claims will be handled and paid

Conducting a mini legal HR or employment audit which our firm offers and getting a few insurance companies to compete for your business by giving you some free insurance audits will be a great mid-year adjustment that will reap great dividends for the future.

By adding these four items (budget and financial controls, annual meeting, background checks, and employment policies) to your mid-year task list, you can get ahead of the curve in protecting your church body or nonprofits.

Legal Disclaimer:  This Article and related material have been prepared specifically for non-profits and churches seeking general information about annual meetings and meeting minutes.  It is not meant to provide legal advice or substitute for competent legal counsel that can address specifics of each non-profit or church.  Any reader is encouraged to seek appropriately trained and experienced professional legal counsel who specializes in corporate, tax exempt, and church law for questions on or related to these issues and you can contact us at mrg@simmsshowerslaw.com.