Essential policies to have in place at your nonprofit
Nonprofit governance is an essential part of running an organization that works toward the greater good. But what, exactly, are the board governance best practices that you should be striving for, and what policies should a nonprofit have? While this varies depending on the type of organization you run, there are definitely certain practices that will help legitimize your group.
These practices are especially important because, as a nonprofit, you may be selected for an Internal Revenue Service (IRS) audit at some point. An audit may be the result of random selection or of a specific trigger, such as compensation issues or expense discrepancies. Regardless of the reasons, you should be prepared to explain your practices to the IRS. The following are a few policies which a nonprofit should have in place.
Nonprofit financial policies
Conflict of interest policy
A nonprofit conflict of interest policy is important to ensure that an organization is operated solely for charitable purposes and for the public good. A nonprofit cannot operate for the benefit of private interests. A conflict of interest policy helps to ensure that board members disclose any conflicts they may have with the nonprofit governance, and that board members refrain from voting on any matters in which they have a conflict of interest. The IRS wants to make sure the people who run your organization have the best interests of the organization in mind, and not private interests.
Whether your organization has paid staff members or is run solely by volunteers, it is important to have a whistleblower policy for a nonprofit in place. Such a policy assures staff and volunteers that they can bring forward any concerns about illegal practices or misuse of assets without fear of retaliation. Not only is a whistleblower policy good for your organization, it also shows you are transparent and hold yourself accountable for meeting the highest standards of conduct for nonprofit governance.
Document retention policy
A nonprofit certainly does not need to keep every document it generates for an indefinite amount of time. But if the wrong document is deleted at the wrong time, that can spell trouble. A document retention policy for a nonprofit is a record of the types of documents you will keep and how long you will keep them.
Gift acceptance policy
A nonprofit gift acceptance policy is especially important because your organization likely relies on donations to stay afloat. A carefully thought-out policy outlines what types of gifts your organization will accept, under what kinds of circumstances those gifts will be accepted, and how you will handle major gifts such as will bequests, real estate and stock shares. Not only is it helpful to have a gift acceptance policy for tax purposes, but it can also guide the people who want to contribute to your mission. Many profits outline their gift acceptance policy on their website, so that members of the public have a clear idea of their nonprofit policies and procedures.
Because nonprofits handle donations from so many different entities, they need to show that they are handling that money in a responsible manner. Thus, a nonprofit investment policy is an important component of the overall policies and procedures. Such a policy includes performance measure standards the board uses to evaluate an individual investment, guidelines for investing, guidelines for how much it should keep in the reserve fund, and a detailing of which board members are responsible for managing investments. A good investment policy is paramount to good nonprofit governance.
Credit card policy
For any nonprofit credit card policy, it’s important to establish a very clear approval process. No employee or volunteer should have complete autonomy over what they use the organization’s credit card for. If that should lead to money mishandling, it would be difficult for the organization to rationalize why it allowed so much freedom. A good nonprofit credit card policy communicates the rules of using the credit card, limits access to those who truly need to use the card, and requires clear documentation.
Other board governance best practices
In addition to having these policies, you should also:
Keep accurate board meeting minutes – At the beginning of an audit, the auditor will request a copy of the board meeting minutes for the year being audited. The minutes should reflect any discussions and decisions made by the board on operations, including contracts and expenditures that are subject to board approval. It is very important that all compensation decisions are documented and that there are objective standards, such as national surveys, used to make compensation decisions.
Review Form 990 on an annual basis – The Form 990 is an annual informational return sent to the IRS documenting a nonprofit’s activities. This is the form that is most likely to trigger an audit. Make sure the information on your Form 990 is completely accurate and representative of your current organization. It is a best practice, even noted by the IRS, that a nonprofit’s board of directors reviews the Form 990 before filing.
At the end of the day, the IRS wants to make sure your organization is operating for the greater good, and not for the benefit of any one individual or private interest. An audit is not something to fear—but you do want to be prepared with appropriate nonprofit governance.