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Nonprofits: Know the Risks of International Activities
Nonprofits: Know the Risks of International Activities
by Virginia L. Benda and Jill M. Helling
There is more international activity in the nonprofit world than you might realize. And with this activity comes risks that organizations may not be aware of or fully understand. It is imperative that you evaluate international risks to ensure your organization is in compliance with laws and regulations here and abroad, and that risks associated with foreign activities are recognized and adequately addressed.
Even if your organization doesn't have an international focus or a location overseas, you can still encounter risks. Answer a few simple questions to see where you stand.
- Do you have an international employee?
- Are you an educational institution with international students?
- Do you hold a board meeting overseas?
- Does your organization hold investments with international holdings?
If you answer yes to even one of these questions, there may be issues that need your attention.
Knowing where to look
Among the concerns facing international nonprofits are employee, filing, and valuation risks.
- Employee risks may include hiring a non-United States citizen, hiring an employee in a foreign country, or maintaining kidnapping or health insurance for employees traveling overseas. Issues related to work visas, personal safety, and access to public services in the U.S. and other countries can be complex and time-consuming.
- Filing risks may include U.S. income tax filings, foreign bank accounts that must be reported, and filings required in foreign countries for meetings, events, and activities. Increasing scrutiny by the IRS is just part of the picture; other countries may have equally strict laws.
- Valuation risks may include alternative investments with overseas holdings, as well as currency exchange agreements, and currency losses and gains.
Additional risks may stem from meetings held in foreign countries; international students at higher education organizations; grants and donations to or from non-U.S. companies, organizations, and individuals; and membership in international associations. You may also need to consider grantee due diligence and reputational issues arising from negative publicity or chronic late filings with foreign governments.
What is an international activity and what are the risks?
Identifying international activities and their associated risks can be a cumbersome task, but it is not impossible. Take taxes, for example. Activities requiring reporting and disclosure to the IRS include:
- Financial interest in a foreign bank account
- Maintaining offices, employees, or agents outside of the United States
- Revenues or expenses of $10,000 or more from grant making, business, investment, or program services outside of the United States
- Foreign investments valued at $100,000 or more
- $5,000 or more of grants or assistance to organizations, individuals, or agents outside of the United States
- Transfers of cash or property to, or equity interest in, a foreign organization
Of course, these requirements only apply in this country. Consider developing a list of important regulations and risks in the countries where your organization operates or has connections. Are there any tax issues in Europe? Are there travel restrictions in Central America? Does the South African government allow solicitation of donations? There are resources on the internet to aid you in answering these questions, though you should take precautions to identify only legitimate sources of information.
We also suggest having a conversation with your auditors about your organization’s assessment of its cross-border activities. They may have seen other organizations assess the same types of risks and have contacts at those organizations that you would find useful.
Consider costs and benefits
It is also important to weigh the costs, benefits, and associated risks of entering into activities, soliciting donations, or providing services in other countries. For example, is it worthwhile to pay a consultant, lawyer, and tax professional in order to hold an international meeting? Maybe not, but before the decision is made, your organization should be ahead of regulations and laws in the country where the proposed meeting will be held, rather than paying fines and penalties for noncompliance after the fact.
While the world of cross-border nonprofit activity can seem daunting, the opportunity costs of not entering this world should also be considered. We see examples all of the time how for-profit entities must become global organizations in order to achieve their goals. Should nonprofits be different? Can you afford not to cast a wider net for donors? As the markets have experienced fluctuation in the past few years, can you afford not to diversify your funding sources or investments?
International expansion can be one more way for your organization to fulfill its mission. Stay tuned for articles on a variety of international topics featuring ideas and tools to assist your organization as it increases its global presence. In the years ahead, this area will continue to transform the nonprofit sector and impact your organization’s ability to reach its full potential.
Virginia L. Benda, Nonprofit Senior Associate
email@example.com or 703-825-2113
Jill Helling, Nonprofit Manger
firstname.lastname@example.org or 612-376-4805