Small nonprofits in New York operate with extraordinary passion but limited resources. Many are founded by educators, community advocates, or faith-based leaders who want to make a difference — not to manage regulatory paperwork. Yet in New York, nonprofit compliance is not optional. A small oversight in filing or governance can result in fines, reputational harm, or even loss of tax-exempt status.

This article outlines the most common pitfalls small New York nonprofits face, and practical steps to strengthen compliance and transparency.

1. State Regulatory & Registration — Don’t Overlook the Basics
Pitfall: Many organizations focus on obtaining IRS 501(c)(3) status but fail to register or maintain filings with New York’s state agencies.
Under New York Executive Law Article 7-A, any organization that solicits contributions from the public or holds charitable assets must register and file annual financial reports with the New York State Attorney General’s Charities Bureau, unless specifically exempt.
Initial registration: Form CHAR410 (for new organizations).
Annual renewal: Form CHAR500 with financial statements, and in some cases an audit or review report.
State filing thresholds: organizations with annual gross revenue over $250,000 must submit reviewed financial statements; those over $750,000 must provide audited financials.
What to do:
Create a compliance calendar that includes CHAR410/CHAR500 deadlines, IRS Form 990 filing, and New York Department of State renewals.
Confirm your organization’s filing threshold each year and plan ahead for audits or reviews.
Keep a permanent file of all registration acknowledgments, confirmations, and financial reports.
Assign a board member or treasurer to verify all filings are complete and timely.

2. Board Governance & Fiduciary Oversight
Pitfall: Small nonprofits often have boards composed of founders, friends, or volunteers without clear structure. This creates risks of conflicts of interest, inconsistent oversight, and failure to meet fiduciary duties.
Under New York Not-for-Profit Corporation Law (NPCL), directors have three core fiduciary duties:
Duty of Care – to act in good faith and with the level of prudence a reasonable person would use.
Duty of Loyalty – to put the organization’s interests above personal interests.
Duty of Obedience – to ensure the nonprofit acts in accordance with its mission and governing documents.
Best practices:
Hold at least 4 board meetings per year, and maintain detailed minutes recording decisions and financial oversight.
Require annual conflict-of-interest disclosures from all board members and key staff.
Document board approval of major transactions, budget adoption, and annual filings.
Provide board training annually on fiduciary duties, Executive Law 7-A obligations, and filing responsibilities — particularly that failure to file required reports can be considered a breach of duty.
Establish committees or designate a compliance officer, even if part-time or volunteer, to monitor filings and policy reviews.

3. Accounting, Expense Classification & Fund Tracking
Pitfall: Small nonprofits often misclassify expenses, fail to segregate program and administrative costs, or neglect to track donor-restricted funds. These mistakes can distort financial statements and Form 990, leading to compliance questions or donor mistrust.
What to do:
Implement an accounting policy manual defining how to classify expenses: program, management & general, and fundraising.
Use accounting software (e.g., QuickBooks Online Nonprofit) that supports class and fund accounting.
Reconcile restricted funds monthly to ensure that donations with donor restrictions are tracked separately and used for their intended purposes.
Document all donor communications — gift letters, grant agreements, and acknowledgments — so restrictions are clear.
If a donor restriction needs to be changed (e.g., project discontinued), obtain written donor consent or formal board approval.
Review expense allocations at least quarterly; provide the board with functional expense summaries.
Tip: The New York Charities Bureau often checks that program expenses represent a reasonable proportion of total expenses — generally 70–80 % is considered healthy, though this varies by mission type.

4. State & Federal Filings: Deadlines, Coordination, and Transparency
Pitfall: Missing federal and state filing deadlines or inconsistencies between filings can lead to revocation or penalties. The IRS automatically revokes exemption for organizations that fail to file Form 990 (or 990-EZ/990-N) for three consecutive years. The New York Attorney General may also impose fines or administrative dissolution for non-filing.
New York specifics:
File Form CHAR500 annually with the Charities Bureau — due 4½ months after fiscal-year end (same as Form 990 due date, with extensions available).
Submit required financial statements (internally prepared, reviewed, or audited, depending on revenue thresholds).
If your organization also reports to the Department of State, coordinate renewal filings to avoid overlap.
New York directors who “willfully fail” to file required reports may be found in breach of fiduciary duty.
Best practices:
Synchronize the due dates of Form 990 and CHAR500, and file both electronically.
Review filings for consistency — mission statement, program descriptions, compensation disclosures, and related-party transactions should align.
Before filing, circulate draft returns to the board for review and approval.
Maintain copies of all filings (including e-file confirmations) for 10 years.
Use a cloud-based compliance tracker (e.g., Google Sheet or Notion dashboard) to monitor due dates and completion status.

5. Audit Readiness & Internal Controls
Pitfall: Even when an audit isn’t required, weak documentation and internal control systems can lead to serious credibility issues during reviews, grant applications, or donor due diligence.
What to do:
Build an Audit-Readiness Folder containing your:
IRS determination letter
Certificate of incorporation and bylaws
Prior Form 990 and CHAR500 filings
Board minutes and conflict-of-interest forms
Chart of accounts and accounting policy manual
List of restricted funds and reconciliation schedule
Perform a mini internal audit at year-end: randomly select 10 transactions, verify source documents, and confirm they were properly classified.
Require dual approval or board review for significant disbursements.
Reconcile all bank accounts monthly, with independent review of reconciliations.
Present financial statements to the board quarterly, comparing budget vs actual and noting any variances.
Engage a CPA for a review or agreed-upon-procedures engagement even when an audit is not required — this strengthens credibility for grantors and state filings.

Final Thoughts

For New York’s small nonprofits, compliance isn’t just about paperwork — it’s about protecting your mission. Proper registration, governance, accounting, and internal control build the transparency that donors, partners, and regulators expect.

At LIN CPA PLLC, we specialize in helping small New York nonprofits establish strong financial systems, meet Charities Bureau filing requirements, and prepare for audit or review engagements with confidence.