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Monday, May 29, 2017

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A Legal Audit for Not-for-Profits
Robert C. Harris, CAE

March, 2007

Most not-for-profit organizations rely on a CPA to review and report on financial conditions. A second type of audit is an operations inventory and assessment conducted by staff.

The third type of audit is a comprehensive appraisal of legal affairs and potential liability. It is intended to protect the organization’s volunteer board of directors and staff through preventative maintenance.

An attorney with knowledge of not-for-profit organizations will visit the office and review governing documents, contracts, insurance and common areas of risk. The result will be a discussion and/or report on best-practices and apparent risks.

Because it usually includes an on-site office visit, staff can prepare for a legal audit by pulling the appropriate files to save time and money. Here are the common ingredients of a legal audit:

  • Articles of Incorporation
  • Bylaws
  • IRS and State Income Tax Returns (990s)
  • Minutes and Agendas
  • Endorsement – Affinity Program Agreements
  • Subsidiary Organization Documents
  • Chapter Affiliation Agreements
  • Newsletters and Publications
  • Board Orientation Manual
  • Personnel Manual
  • Policy Manual
  • Contracts (hotels, speakers, decorators, etc.)
  • Original Works of Art Transfer
  • Insurance Policies
  • Pending Litigation and Claims
  • Website Information, Agreements
  • Antitrust Statement
  • Published Documents, i.e. Membership Directory
  • Nominations and Elections Process
  • Employee Review Formats, Files, Application
  • Leases
  • Service Contracts
  • Software Licenses
  • Pending Litigation, Claims

Not every organization can afford or undertakes a legal audit; use this list to familiarize staff and board with operations and the importance of maintaining proper records.



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