Does Your Not-For-Profit Have These Policies in Place?

By Samantha Ramirez, CPA, Tax Manager
ASL Nonprofit Group

Several questions on the Federal Form 990, Return of Organization Exempt from Income Tax, ask about the existence of certain governance policies. While these questions may seem insignificant, the implications of not having these policies in place could be detrimental to the organization. This article will briefly discuss what these policies are and why they are important.

Conflict of Interest Policy – It is vital that not-for-profit (NFP) entities conduct themselves in an ethical and transparent manner. The reputation of the NFP to its supporters and the general public is directly impacted by the decisions and actions of the organization’s leaders. A conflict of interest is described as a transaction or arrangement that might benefit the private interest of a board member or employee. For example, if a museum awarded a landscaping contract to a board member’s business, that would constitute a conflict of interest that should be disclosed. At the very least, the policy should require those with a conflict to disclose the potential conflict and to prohibit the interested board members from voting on any matter which presents a conflict. It is also sound business practice to have a conflict of interest policy in place as it encourages regular discussions among the board members and would offer protection against the appearance of impropriety. The IRS not only asks if such a policy exists on the Form 990, but how the NFP determines whether a board member has a conflict of interest.

Whistleblower Policy – The Sarbanes-Oxley Act includes provisions that prohibit corporations, including NFPs, from retaliating against employees that report on their employer’s accounting practices. Federal and state laws also prohibit employers from retaliating against employees who file complaints. Such a policy encourages employees to come forward when they have information about illegal practices or violations of the organization’s adopted policies. Adopting a written whistleblower policy not only encourages people to report concerns without fear of retaliation; it is also critical to good governance.

Document Retention and Destruction Policy – This is simply a document that specifies how long certain documents should be retained and what person or position is responsible for keeping the documents. A written retention policy ensures that staff and volunteers will follow consistent guidelines and that regular business practices will be followed. Various state laws require different retention periods for certain documents, so the organization should be sure to check with their specific state for the correct document retention period.

Many online resources are available with sample policies in each of these areas, including The National Council of Nonprofits (www.councilofnonprofits.org) and The American Institute for CPAs (www.aicpa.org). Our Nonprofit Group would be happy to discuss any further questions you may have.