The lack of effective internal controls may enable the thief to be successful. Even a small nonprofit with very limited resources could lose it all if an employee or volunteer steals or squanders its money. Legal Requirements Nonprofit organizations, as holders of the public's trust, are subject to specific laws and regulations. Organizations must meet IRS requirements to maintain their tax-exempt status. The Internal Revenue Code addresses the organization's charitable mission, political and lobbying activities and proper accounting of income and expenses.
Violations can lead to fines, loss of tax-exempt status or possible dissolution.
Besides the IRS, every state has charitable solicitation and other laws applicable to nonprofit organizations. In addition to laws regulating the operation of nonprofits, many organizations must follow operational rules and regulations. Medical clinics must follow hazardous waste handling procedures and meet state requirements for a medical facility. Organizations serving children must report suspected cases of child abuse and follow other health and safety regulations. If an organization fails to comply with these regulations, the regulatory authority may impose a fine, suspend its operating license or permanently close the operation.