The mission of your nonprofit is the foundation for all you do. How can you make sure what you build on your mission is strong? You need the support of clear and defined policies to help build out the programs that will benefit the groups your nonprofit is focused on. Here are the top seven policies your nonprofit needs now:

1. Conflict of Interest Policy

The first and arguably most important policy your nonprofits needs is a conflict of interest policy. While it’s not legally required, your annual Form 990 filing asks three questions related to a nonprofit’s conflict of interest policy:

• Does your organization have a conflict of interest policy?
• Are officers, directors, and key employees required to disclose annually interests that could give rise to conflicts?
• How regularly and consistently does your organization monitor and enforce your conflict of interest policy?

It is in the best interest of your nonprofit to develop and enforce a conflict of interest policy.

A conflict of interest policy should detail the expectations your nonprofit has for conduct by and between officers, directors, key employees, related individuals, and the nonprofit itself. It should specifically outline procedures to follow should a conflict arise. Procedures for how those within the nonprofit who have a conflict must report their conflict of interest to the organization are also important.

2. Whistleblower Policy

Connected to your conflict of interest policy should be your whistleblower policy. Federal law prohibits all corporations, including nonprofits, from retaliating against employees who “blow the whistle” on their organization’s accounting and destruction of documentation practices. When it comes to your nonprofit’s whistleblower policy, though, it’s best to craft a broader policy, one that includes the federal law and language encouraging employees and volunteers to speak up by having an open door policy and standard of no retaliation for anyone that comes forward with credible information on illegal practices or violations. This helps build trust within your organization and makes it much easier to recognize and address any issues that may come up.

A good whistleblower policy also signals to the IRS and the public that your policies and procedures are transparent and your nonprofit is accountable to uphold the high standards you set for your organization.

3. Document Retention/Destruction Policy

Many laws and regulations require your organization to hold documents for a certain period of time. In addition, Form 990 asks about your document retention policy, so this is a policy you need to implement and enforce. How long you keep records depends on a few factors. Certain documents should be maintained in perpetuity including (but not all inclusive): articles of incorporation, audit reports, corporate resolutions, the organization’s determination letter, insurance policies, minutes to the board meetings, deeds, and tax returns.  The Ohio Attorney General office provides guidance for certain documents also (link).  Detailed accounting records usually fall into the 7-year range, with some documentation falling to only 3 years.

You don’t necessarily need to keep paper copies of records on hand, but it’s a good idea. Digital records are certainly convenient and take up significantly less space, but if there’s a data breach or loss, that could cause problem if you ever need to reference the documents in question. Finally, include in your document retention/destruction policy language that states documents will not be destroyed or altered when there is pending, threatened or reasonably foreseeable governmental investigation.

4. Employee Compensation Policy

Form 990 asks about your employee compensation policy. Your nonprofit needs a procedure where an independent portion of your board is comparing the compensation of your officers and key employees to determine if their compensation is reasonable. Compensation isn’t just about direct salaries. It includes any reimbursement for personal expenses or other benefits remitted to officers and key employees. The IRS does not explicitly set limits for compensation, relying on the use of the word “reasonable”, so it is important that your nonprofit can justify employee compensation based on a person’s experience, job requirements, and financial ability in comparison with similar organizations.

5. Gift Policy

Accepting generous gifts from donors is not as simple as sending a detailed thank you note. Your nonprofit needs a gift acceptance policy to address all gifts, but especially gifts in kind. Gifts in kind are non-monetary gifts like buildings, vehicles, technology, gift baskets, raffle items, furniture, etc., and require special presentation. Stating that gifts, other than cash and publically traded stock, must undergo a review process before acceptance, makes it clear that your board, officers, and key employees treat all gifts thoughtfully and gives you the opportunity to ensure you’re reporting those gifts properly.

In addition, we recommend having policies around gifts of donated stock as well as cryptocurrency.  Both policies should detail the organization’s acceptance of these items, whether they will be held or immediately sold, and how they are recorded.

6. Investment Policy

Often overlooked at many organizations is the investment policy.  Even without an endowment, nonprofits may find themselves in a position of having extra cash on hand.  Defining expectations for investments will prevent any surprises that fall against the Board’s comfort level including cash that is not earning income, is invested in a portfolio that is too risky, is not diversified properly, or goes against endowment or other agreements.  An investment policy  should define who is responsible for overseeing investments (a broker, committee, or management), what the overall goals are for the investment, what percentage is restricted, if any, and what allowable % range the Nonprofit is comfortable investing in money market funds, equities, and fixed income.

7. Accounting Policies and Procedures Manual

Financial management will look different for every nonprofit, but a strict documented plan to track where each dollar goes from gift to mission and who is responsible at each step protects your nonprofit and your team. As auditors, consultants, CPAs and colleagues, at Corrigan Krause, we are often granted the chance to provide an outside perspective of “what ifs” for our nonprofit clients.

For example:

• What if a key financial personnel doesn’t come to work tomorrow? Do you have all of the processes documented of what happens when checks come in the mail, what items are direct deposited, and who reconciles the bank account?
• What if your payroll provider is unavailable? Do you have access to your current contacts, where time sheets come from, and how the payroll is entered and approved? How are checks cut, and who has the ability to sign them?

Each nonprofit’s policies will likely look a little different here depending on roles, staffing, volume of transactions, etc.  With clearly outlined responsibilities, your management team and donors can be confident their dollars and gifts are maximized and helping to achieve your mission.

Corrigan Krause can help

The Corrigan Krause Nonprofit team can help your nonprofit develop the necessary policies to operate smoothly and efficiently. You can connect with any of the Nonprofit team members here or email info@corrigankrause.com.