Legal audits may be particularly timely when an organization undergoes significant organizational changes, including leadership changes, a potential merger or acquisition, or preparation to enter a major growth phase.

Key Areas Covered in a Legal Audit

A legal audit reviews an organization’s compliance and organizational health across a variety of key areas, including the following:

1. Corporate Governance

• Review of articles of incorporation and bylaws
• Verification of current board members and officers
• Board meeting minutes and adherence to governance policies
• Conflict of interest policy and disclosures

2. Tax-Exempt Status and IRS Compliance

• IRS determination letter (501(c)(3), etc.)
• Annual filings (Form 990 or equivalent)
• Compliance with public support test (if applicable)
• Unrelated Business Income (UBI) issues

3. Employment and Labor Law

• Employee vs. independent contractor classification
• Employment contracts and offer letters
• Compliance with wage, hour, and anti-discrimination laws
• HR policies, employee handbook, and training procedures
• Volunteer agreements and waivers

4. Fundraising and Charitable Solicitation

• State charitable registration compliance (multi-state if applicable)
• Donor acknowledgment letters and receipts (substantiation)
• Restricted vs. unrestricted funds tracking
• Compliance with fundraising regulations and platforms

5. Contracts and Agreements

• Review of leases, vendor contracts, MOUs, and grant agreements
• Intellectual property ownership (e.g., logos, content, trademarks)
• Confidentiality and data-sharing agreements
• Insurance policies and liability coverage

6. Financial Oversight and Internal Controls

• Financial policies and procedures
• Audit requirements and practices (external or internal)
• Recordkeeping and document retention policies

7. Risk Management and Insurance

• General liability, directors & officers (D&O), and other coverage
• Event liability and waivers
• Crisis management and disaster recovery plans

8. Privacy, Data, and Technology

• Data privacy and cybersecurity practices
• Website terms of use and privacy policy
• Compliance with applicable data protection laws (e.g., GDPR, CCPA)

Deliverables of a Legal Audit

The findings of a legal audit are often summarized in key documents that allow the organization to make decisions on next steps, and may include the following:

• Audit report summarizing findings and recommendations
• Compliance checklist for ongoing monitoring
• Action plan with prioritized legal fixes
• Updated or new policies, procedures, or templates

The Importance of a Proactive Approach to Compliance

In today’s complex regulatory environment, nonprofit organizations must actively manage legal compliance to protect their mission, reputation, and tax-exempt status. A legal audit provides a structured opportunity to evaluate vulnerabilities, adopt best practices, and strengthen organizational governance. By identifying and addressing potential legal risks early, nonprofits can prevent costly issues and build a solid foundation for long-term success. Whether preparing for growth, funding opportunities, or ensuring daily compliance, a legal audit is a valuable tool for any organization dedicated to operating with integrity and impact.

The post Thinking about a Compliance Check-Up?  Consider a Nonprofit Legal Audit. appeared first on Perlman & Perlman.