By Sharon Hall
There is a growing trend among credit unions to start their own non-profit affiliates. The interest peaks following a strategic planning session, an exhilarating management retreat, or an inspiring credit union convention. There are many motivators including making a greater impact on in their community, qualifying for grant funds only available to a nonprofit, or consolidating a credit union’s charitable giving under one umbrella.
But, there are perils to operating a nonprofit that should be carefully considered.
There are three reasons to not start a non-profit:
#1 Compliance. The cost and burden of compliance is a beast at any credit union, and nonprofit compliance comes with its own rulebooks. Federal tax laws, recordkeeping requirements, reporting and disclosure rules add risk and expense. Examples include the work involved in completing an additional Form 990, ensuring activities are aligned with the exempt purpose, and IRS prohibitions against nonprofits engaged in political activities. Hazards of noncompliance include revocation of exempt status, the imposition of UBIT and back payment of taxes owed.
#2 Governance. Boards require care and feeding, including time spent recruiting the right directors and planning for orderly succession. As an organization separate from the credit union, your nonprofit will need its own board of directors, which means more than an additional set of bylaws and board meetings. Nonprofits depend on their board members to raise funds and awareness of the nonprofits’ programs. A good governing board should be composed of people who are informed and active in overseeing operations, programs and financial activities. While it would be easy to simply appoint board members from among credit union staff, to be transparent and guard against excess benefit transactions (the nonprofit equivalent of insider trading), the nonprofit’s governing board should include independent community members passionate about the nonprofit’s purpose.
#3 Management Expense. Running an effective nonprofit is a skill set distinct from operating a credit union. If you’re interested in competing for grant funds, grant writing is a hard-won skill, and much of nonprofit work is the direct result of actively cultivating community relationships among funders and community leaders. Competition for funding can be fierce, and the management talent needed to ensure your nonprofit’s success won’t come free.
Extending social good through a nonprofit is attractive to credit unions because the cooperative business model puts people first. Boards and executives should weigh these three sobering reasons for NOT chartering a nonprofit against the opportunity of partnering with an existing non-profit to establish fiscal sponsorship. As a final precaution during the due diligence, not all non-profits have the powers to act as a fiscal sponsor.
Sharon Hall is Executive Director of the National Council for Financial Opportunities and Chief Financial Officer with CU Strategic Planning. The National Council for Financial Opportunities is a non-profit with the unique power to support a network of partner credit unions through fiscal sponsorship. It accepts grant funds credit unions aren’t eligible to accept and performs the administrative functions of a non-profit on behalf of the credit union’s charitable programs.For more, contact sharon@thencfo.orgor visit www.theNCFO.org.