Essential Policies in a Nonprofit Organization

Nonprofit organizations exist to make a difference in communities and to improve lives. Because nonprofit organizations are accountable to donors, volunteers, program recipients, and the public community, it is essential that integrity and trust remain intact.

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Implementing best-practice policies and procedures aids in providing a framework that contributes to the effectiveness, transparency and accountability in a nonprofit organization. 

Below are common, but not all-inclusive, policies:

Code of Ethics

This is also referred to as a “statement of values.” It makes clear the organizational beliefs and standards of performance, quality and accountability to the public. The code of ethics is adopted for volunteers, staff and board members.

Confidentiality

This communicates the legal and organizational duties of privacy related to information sharing. This could include prohibiting information related to volunteers, memberships, donors, financial information, etc., without appropriate authorization. The policy should include consequences of violation.

Conflict of Interest

A conflict of interest may exist when a board member, employee or volunteer has competing interests or loyalties. It may hinder impartiality, whether actual or perceived. A policy defining circumstances deemed to create conflicts of interest, methods of resolving conflicts, and possible consequences of inaction related to conflicts of interest will protect an organization’s interests and reputation. Board members and staff should be required to annually declare the existence of any potential conflicts.

Document Retention

There are some documents that have federal and state legal requirements for retention. For example, Articles of Incorporation, Bylaws, IRS Determination Letter, real estate deeds and tax returns should be kept permanently. State laws and organizational preferences may dictate the retention of employment records, bank statements, audit reports, donor records, leases and fundraising activities, to name a few. This policy should document the period of time for retention, the storage method and means of destruction. This policy will provide clear direction for all documents and may help cut down on storage and other document management costs. 

Financial

Financial policies and procedures define the responsibilities of the board of directors, management and staff related to recording and supervision of accounting processes. This is the most detailed of all policies and procedures and may be made up of multiple individual policies. There are many facets related to financial activities, and this is certainly not one size fits all. The most common policies in this category pertain to budgeting, recording receipts, expenditure procedures, compensation and payroll, travel and expense reimbursements, credit card expenditures, contractual agreements, loans, banking and investments, and fixed assets. Segregation of duties is key to fraud prevention and in the preparation of these procedures.

Whistleblower

A whistleblower policy is a prudent means of risk management, by encouraging reporting of law violations or unethical behavior, as well as prohibiting retaliation. It should include reporting responsibilities and procedures. 

Human Resource and Volunteer Management

As with any other type of entity, a nonprofit must comply with all local, state and federal employment laws in hiring and employing personnel.

Specific human resource policies and procedures for employees and volunteers should be in writing. Management and the board need to consider compliance with sexual harassment, discrimination, equal opportunity, and safe working environment laws and regulations. Other personnel policies may relate to compensation, training and performance evaluations, to name a few.  

Make sure to have these policies reviewed or drafted by an employment law consultant or attorney. Additionally, employment practices liability insurance needs should be carefully reviewed.

Getting Started

Policies and procedures are most effective when practiced and espoused by management. Policies should be written, clearly communicated and kept current. They provide good internal controls and outline the expectations of all members of an organization. 

Contact Lindquist LLP for checklists, practice aids and further guidance in developing your organization’s policies and procedures.

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