North Carolina Department of Cultural Resources
              Office of the Secretary
         Michael F. Easley, Governor
         Lisbeth C. Evans, Secretary
MEMORANDUM

TO:        Boards and Commissions Site Managers Division Directors

FROM: Lisbeth C. Evans
Secretary of the Department of Cultural Resources

DATE:        March 5, 2004


In September of 2002, the Department of Cultural Resources convened citizens from
across the state to address guidelines for best practices for our support groups and their
boards It is our responsibility to provide this document for these nonprofit organizations to
assist them in fulfilling their mission to continue working with state-supported historical and
cultural programs in North Carolina. The result of this effort is the enclosed document
which includes a number of online resources for your reference.

A number of the support groups affiliated with our institutions and sites have merged
these practices into their operations. We hope they will be reviewed by all support group
board members at least once a year and incorporated into all board orientations.

Because the Department of Cultural Resources is a state agency governed by state
policies and regulations, nonprofit organizations affiliated with this agency are required to
follow best practice guidelines. It is critically important that nonprofits conscientiously
implement standards in operating as well-managed and well-governed 501(c)(3)
organizations. Accountability is shared by all of us, and by working together we can
mitigate potential problems.

We hope you will implement these practices as part of your organization's operation and
share with your board leaders. We will continue to provide additional information for your
assistance, in following best practices. Please feel free to call Judy Easley at (919) 807-
7258 with questions and thank you for your continued service to the State of North
Carolina and its citizens.

(Signature: Lisbeth C. Evans)

BEST PRACTICES FOR SUPPORT GROUPS AND NONPROFIT ORGANIZATIONS     
DEPARTMENT OF CULTURAL RESOURCES

The North Carolina Department of Cultural Resources (DCR) is indebted to the many
support groups and their boards for the assistance provided to our cultural and historical
sites and organizations. In an effort to provide information, the following Best Practices
have been outlined for your reference. The majority of these guidelines are based on the
Internal Revenue Code requirements (www.irs.gov), NC Office of the State Auditor
requirements (www.ncauditor.net ) and accreditation for the American Association of
Museums (www.aam-us.org). An excellent source of information for nonprofits to use as a
tool in implementing best practices is the NC Center for Nonprofits' web page (www.
ncnonprofits.org).

•        A membership organization or advisory board for a state agency (state museum,
library, historic site or statutory organization) administered by DCR must have an
established legal status, usually an Internal Revenue Code (IRC) designation as a 501 (c)
(3) or 501 (c)(4) charitable organization or a state commission established by enabling
legislation or executive order.

•        To be tax-exempt as an organization described in the IRC Section, an organization
must be organized and operated exclusively for one or more of the purposes set forth in
the IRC, and none of the earnings of the organization may inure to any private
shareholder or individual. In addition, it may not attempt to influence legislation as a
substantial part of its activities, and it may not participate at all in campaign activity for or
against political candidates.

•        A private shareholder or individual is a person having a personal or private interest
in the activities of the organization. If the organization engages in an excess benefit
transaction with a person having substantial influence over the organization, an excise tax
may be imposed on the person and any managers agreeing to the transaction. It is
recommended that substantially all of the charitable funds generated by a support
organization be expended in direct support. of the affiliated agency.

•        Boards affiliated with institutions that collect artifacts or works of art for the
institution must honor professional museum practices in acquisition, management, and
conservation of collection objects. Disposal or sale of artifacts may be an ethical issue.

•        As support groups are often stewards of state property, collection and conservation
management policies, building management and preservation policies, (i.e.., security, pest
management, landscaping), and other state requirements, should be observed. For
specific information on American Association of Museums guidelines, please refer to: www.
aam-us.org.

•        Activities and programs of a Board associated with a DCR agency should support
the mission of that agency. Board membership should be diverse and representative of
the state's population. Board members should be truthful, objective, and professional and
must avoid any actual or perceived conflict of interest or self-dealing in regard to the state
agency the Board supports. It is recommended that each member be required to sign an
ethics statement to that effect. It is recommended that a 501(c)(3) or 501 (c)(4) conduct
annual reviews to address practices.

•        The DCR Director of Boards and Commissions (919-807-7258) will serve as a
department liaison to the boards in an effort to communicate and share expectations
regularly. The director is available to answer questions regarding changes in the bylaws
and ethics or conflict of interest statements, funding reports and grants, processing
appointments of members to the board, and in providing information or advice when
needed. Current copies of bylaws and annual financial reports should be provided to DCR.

•        The Secretary or her designee will attend board and/or finance committee meetings
at least once a year. Notice of all meetings should be sent to the Secretary in a timely
manner, preferably an annual notice of meetings scheduled for the entire year.

•        A nonprofit organization affiliated with DCR should operate within a Board-approved
budget. Each organization should require two signatures on checks over a given amount,
determined by the board, for expenditures.

•        Tax-exempt organizations, other than private foundations, must file, IRS Form 990,
an annual information return, unless the organization has annual gross receipts not in
excess of $25,000. However, once an organization has filed a Form 990, it is a good
practice to continue to file one annually. For additional information on IRS requirements,
you may check website: www.irs.gov/charities.

•        Annual Financial reports prepared by your support group treasurer or audits
prepared by, your accountant, should be submitted to the Office of the Secretary of
Cultural Resources within six months after the close of your organization's fiscal year.

•        The Nonprofits State Funds Accountability Act - Reports on Use of State Funds by
Non-State Entities under NC General Statute 143-6.1 requires that a nongovernmental
entity receiving a grant from any North Carolina state government agency shall use or
expend the funds provided by this grant agreement only for the purposes for which they
were appropriated by the General Assembly or collected by the State.

•   Any nongovernmental entity receiving $300,000 or more in state funds is required by
statute to submit a complete audit written within six months of the close of the
organization's fiscal year.

•        All nongovernmental entities that receive between $15,000 and $300,000 in state
funds are required to file with the funding agency an accounting of receipts and
expenditures, sworn to by the entity's treasurer and another authorizing officer.

•        If the grantee has incurred $300,000 or more in federal expenditures as defined by
OMB Circular A-133 from any source, including federal funds passed through the State or
other grantors, the grantee should closely examine these requirements and ensure
compliance, if applicable. For additional information on grantee audit reports, please;
refer to website: www.osa.state.nc.us/webproject.

•        DCR will be available for consultation with. support groups on plans to engage in
capital campaigns to generate funding from non-state sources. DCR will convene
discussions with appropriate state agencies regarding capital campaigns and will be in
contact with state agency site managers and museum and archives directors.

•        If a nonprofit wishes to contribute funds for a DCR capital project (building, exhibits,
etc.) on state property, the funds must be placed in a DCR capital budget account and
the project administered by the DCR Capital Projects office.

•        It is the responsibility of the program director of the agency or site manager to notify
the DCR Public Affairs Director (919-807-7386) of emerging issues that may attract
attention. The DCR Public Affairs Office will assist in preparing talking points for media.
•        There are best practices associated with retail operations at museums and historic
sites. Recommendations are being developed and will be available in the near future.
Contact the Director of Boards and Commissions if you have questions in reference to
appropriate practices.
•        Training of best practices boards has led experts to maintain that no board should
loan money to an official of a nonprofit organization. Private loans can create the
appearance of conflict of interest, bring into question whether tax-exempt money is being
used wisely, and could jeopardize a group's tax-exempt status.

•        Generally, any organization that intends to directly solicit contributions in North
Carolina, or intends to hire a person or business to solicit contributions in North Carolina,
must first obtain an appropriate license from charitable Solicitation Licensing .
Organizations must renew their licenses each year to maintain licensed status. There are
several statutory exemptions to this requirement and these exemptions may be found at
www.sosnc.com.

•        It is recommended that Boards hold orientations for all new members. These best
practices should be shared and reviewed at each orientation. The best practices will be
revised and updated periodically as needed. DCR would like to continually have input
from the boards and will be developing new literature.

                      
GLOSSARY

Agency:
whenever the term "agency" is used it shall mean and include, as the context
may require, an existing department, institution (including state museums, libraries,
historic sites or statutory organizations), commission, committee, board, division, officer,
official.

Board: a collective body which assists the head of a principal department or his .
designee in the development of major programs including the tender of advice on
departmental priorities.

Commission: a collective body which adopts rules and regulations in a quasilegislative
manner and which acts in a quasi judicial capacity in rendering findings or decisions
involving differing interests.

Committee: a collective body which either advises the head of a principal department or
his designee or advises a commission in detailed technical areas.

Council: a collective body which advises the head of a principal department or his
designee as representative of citizen advice in specific areas of interest.

Division: the principal subunit of a principal State department.

Non-State Entities: nongovernmental entities including nonprofit or for-profit
organizations and any other organizations that are not part of government.

State Funds: any funds appropriated by the General Assembly or collected by the ,State.
State funds include federal financial assistance received by the State and transferred or
disbursed to nongovernmental entities. State funds expended for purchases of goods and
services are exempt from the requirements of GS 143-6.1.

Grantee: the nongovernmental entity receiving, using or expending state funds.
Fiscal Year: the annual operating year of an entity.

Special Appropriation: state funding from Appropriation Bills that are for special
purposes outlined by the General Assembly.

501(c)(3): a tax-exempt organization under the Internal Revenue Code whose purpose is
charitable, religious, educational, scientific, literary, testing for public safety, fostering
national or international amateur sports competition, and the prevention of cruelty to
children or animals. The term charitable can be used for the erection or maintenance of
public buildings, monuments, or works; lessening the burdens of - government; lessening
of neighborhood tensions; and combating community deterioration. The organization must
be a corporation, community chest, fund or foundation. For further formation, refer to www.
irs.gov.

501(c)(4): a tax-exempt organization under the Internal Revenue Code which must not be
organized for profit and must be operated exclusively for the promotion of social welfare.
The organization must operate primarily to further (in some way) the common good and
general welfare of people of the community (such as bringing about civic betterment and
social improvements). An organization that restricts the use of its facilities to employees of
selected corporations and their guests is primarily benefiting a private group rather than
the community and, therefore, does not qualify as a 501(c)(4) as a social welfare
organization. For further information, refer to www.irs.gov.