Dorothy S. Ridings is chair of the board of trustees at Louisville Presbyterian Theological Seminary.

In February, the U.S. Internal Revenue Service issued new draft guidelines for nonprofit governance. In March, In Trust editor Jay Blossom discussed the new guidelines with Dorothy S. Ridings, chair of the board of trustees at Louisville Presbyterian Theological Seminary. Formerly president and chief executive officer of the Council on Foundations, Ridings was a member of the national Panel on the Nonprofit Sector that advised the IRS on the new guidelines.

Some people may be thinking to themselves, "These are guidelines, but a guideline now is going to become a rule in the future."

The IRS cannot legislate some of these guidelines. That's the congressional purview.

Will there be a period of public comment on these draft recommendations?

I don't know of any plans to do that. The IRS has issued no plans for a hearing.

Is it possible that Congress will enact these recommendations?

There has been some legislation introduced on some issues and there may be additional legislation on this in the future.

Around Washington there is still talk about making some of the provisions of Sarbanes-Oxley apply to the not-for-profit community. At the same time, the corporate people are trying to get Congress to back off on some of Sarbanes-Oxley's requirements.

There are two areas of Sarbanes-Oxley that already apply to not-for-profits. Both areas are also mentioned in these new draft guidelines. One is the whistleblower policy and the other is records retention. Legislation right now doesn't say that not-for-profits must have a whistleblower policy or a records retention policy, but it does make nonprofits liable for criminal prosecution if they don't do things right in those two arenas. The best way to protect yourself in those two areas is to have the right policies in place.

If a not-for-profit gets audited, after the IRS looks at their Form 990 or 990-T (if they file one), the next thing they're going to ask for is a conflict-of-interest policy. If you don't have a conflict-of-interest policy for both your board and your administrators, you should adopt one. You don't even have to spend much time on this, because there are great draft and model conflict-of-interest policies floating all around.

What are some of the practices in the guidelines that you think are especially important?

I'm going down the list:

The first one is on a mission statement. That's really kind of ground level for not-for-profits. What is it you're in the business to do? Somebody could say, "What does the IRS have to do with telling us we need to have a mission statement?" And I can understand that, but nevertheless, it's a good governance issue. If your mission statement has been around for a long time, it may need updating.

You should have a code of ethics -- not just for trustees but for administrators as well. They may be slightly different.

And you ought to have a whistleblower policy. It's not mandated but that's one of those areas in which we are potentially liable under Sarbanes-Oxley. And a conflict-of-interest policy. The IRS has already told me that a conflict-of-interest policy is the second thing they look at in a nonprofit audit.

The next one is putting stuff on the public Web site. If you don't file a 990, you do have a financial statement, and you've got an annual report. Putting them on your Web site is good.

Fundraising costs, reasonable, accurate and candid promotional materials -- I suspect seminaries are doing well in that arena.

It's a good idea to look at your audit procedures. If you're using the same audit firm year after year, you probably want to change managing partners from time to time. The General Accounting Office does not recommend rotating among different firms. Do take a look at your audit policies and see if they need to be updated.

Most seminaries are not guilty of high living, but it's possible. Check your policies on reimbursable costs. We really shouldn't be flying first class and staying in luxury resorts. That's not indicative of the kind of culture that we want to champion. Seminary board members really should not be compensated.

If a seminary is not compensating its trustees, but they are paying expenses to attend meetings in Florida in the wintertime, is that excessive?

That generally passes the smell test as you described it. Having one meeting in a warm climate in the middle of winter passes may smell test as long as it's not some first-class resort.

What about filing the Form 990? Some seminaries file one; others don't. I guess the message for schools is that if they're not filing a 990 or 990-T, it may be worth going back to the tax counsel to make sure that they don't need to.

Every seminary ought to have good tax counsel, somebody who really knows nonprofit tax law.

Draft guideline No. 5 suggests that the Form 990 should be posted on the organization's public Web site. In our informal survey, only a single school reported posting the 990 on their Web site. Is this something that you think schools ought to do?


Some of the schools said, "We know that this is available through GuideStar. If someone really wants to find it, they can."

That's not good enough. And I have to tell you, my school is one that hasn't put the 990-T on its Web site, and it's because we knew it was available on GuideStar, so why post it? But there is a reason. Let's not make it hard for people. I mean, that's not quite good enough.

I think some of them are sensitive that the 990 lists salaries.

I understand that. That's what "not-for-profit" means. I have to tell you, when I quit being a newspaper publisher and went to the Council on Foundations, everybody knew every penny I made and all the perks I got.

So you're taking a fairly emphatic stance on this that seminaries, as nonprofits and as religious institutions, too, should be models of transparency.

Absolutely. I'm not a purist on this. But within the realm of transparency, I take a pretty strong position.

What they really need to do, in my view, is to bring an In Trust governance mentor on board to help them with establishing the most responsible and responsive and transparent governance structures that they can. I'm not suggesting that any seminaries are doing anything wrong -- certainly not on purpose. When your job is turning out good students, that's what you're interested in spending your time on -- not making sure that your minutes are done correctly. But the governance issues are really imperative.

Transparency is a theological issue, right? Some people see Christians as having a propensity to use religion as a way to take advantage of people. I just wish it were the opposite. I wish that Christians were known for being more scrupulous than necessary.

Absolutely. I agree with you. I think most seminary leaders believe that we should be the gold standard for integrity, not playing catch-up.

Good governance practices for 501(c)(3) organizations

Most of the IRS's good governance guidelines will already be familiar to theological schools. A summary of the guidelines follows, although the complete guidelines include more detail.

  • Nonprofit boards should adopt a clear mission statement that indicates why the organization exists and what it hopes to accomplish.  

  • Boards should adopt a code of ethics and a policy for addressing employee complaints. 

  • Board members should adopt policies and procedures to help them act with the care and diligence appropriate to their role as directors.  

  • Board members' loyalty to the institution should require them to disclose any conflicts of interest.  

  • In the interest of transparency, the organization's financial statement, annual report, and Form 990 should be complete, accurate, and publicly available on the organization's Web site.  

  • Boards should ensure that fundraising costs are reasonable and that promotional materials are accurate and candid.  

  • Organizations should operate with a budget passed by the board of directors.Boards should ensure that audit procedures (appropriate to the organization's size and assets) are in place.  

  • Boards should ensure that employees are compensated fairly. Generally board members should not be compensated except for direct expenses.

  • Written policies should be adopted for document retention, including policies for electronic data. 

In March, In Trust sent an e-mail survey to 236 schools asking how many file a Form 990 and how many link to their Form 990 on their website. Fifty-six schools responded. 

Response Schools
Do file a Form 990, but do not link to it from their Web site 18
Do not file but are part of a university that does 4
Do not file a Form 990 30
Do not file a Form 990 but are thinking of doing so in the future 3
Do file a Form 990 and do link to it from their Web site 1


A sample of comments from schools responding to In Trust's informal survey:

"We are a subsidiary organization under our denomination, and as such, we are not required and have elected not to file a Form 990."

"We are not required to file a Form 990 because we are classified as a church."

"We do not currently do the Form 990. Our accounting firm has indicated us that, to date, we are exempt. However, given the movement toward disclosure of such information we are going to work to make this available and get ahead of the curve."

"We file a 990 every year. We do not publish them on our Web site since they are publicly available elsewhere (like GuideStar). We do have a policy of supplying a copy of the 990 to those who request one. While I think the IRS guidelines do not present much of a problem to responsible organizations, I have many concerns about their increasing aggressiveness in regard to nonprofits and religious organizations, particularly the latter. Our collective challenge is to find ways to affirm the call for transparency and openness, while preserving our unique position in society. On principle there may be some things we will opt not to do."


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