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Nonprofit Board Policies & Procedures

Behind every successful nonprofit organization is a Board of Directors that implements and follows best practice policies and procedures. Such policies help to ensure that the Board remains aware of the status of the organization, creates accountability, and helps the Board make unbiased decisions in the best interests of the organization. Outlined below are some practices and key policies that every organization’s Board should consider implementing. It is important to note that effective January 1, 2017 an employee of an organization cannot also function as the “chair” of its Board. Employees can still be on the Board, but this is no longer considered best practice. The actual functions of the Board position, not the title itself (chair, president, etc.), is most relevant.

  • A formal IRS Form 990 review process should be implemented whereby a completed copy of IRS Form 990 is distributed or made available to all members of its governing body before filing the form. The Board should create and implement a set process to be followed by the organization to review the 990. This helps to ensure that the Board is aware of what is being reported to the IRS and the outside world, as an organization’s 990 is posted on GuideStar and other websites, and is accessible to anyone that would like to review it.
  • The Board must have written conflict of interest policies that will govern the independence of directors, officers, and employees, as well as transactions in which directors, officers, and employees have a financial interest. This policy must cover definitions; disclosure procedures; that the person with the conflict not be present for the deliberation or vote; that he/she not improperly influence the deliberation or voting; and the existence of the conflict and process must be documented in the minutes of any meeting where discussed or acted on. There must also be annually-signed disclosure statements that the Secretary or Secretary’s designee provides to the Chair of the Audit Committee or if there is not one, to the Chair of the Board. The Board will need to actively assess and approve transactions between the nonprofit and its directors, officers, and key employees, including their relatives and other organizational affiliations. An interested person will have to disclose the material facts of his or her relationship to a related party transaction to the Board, and be absent from Board discussions and votes. The Board will need to approve and document that the transaction is fair, reasonable, and in the best interests of the nonprofit, and consider alternative options. The Attorney General will have power to bring action to enjoin or rescind any related party transaction which it determines do not meet the standards.
  • The Board should have in place or implement a written whistleblower policy to encourage employees to make anonymous, good faith reports of suspected fraud, corruption, misappropriation, etc., without being fearful of retribution. Organizations with 20 or more employees and annual revenue in excess of $1 million are required to adopt a whistleblower policy and they must distribute a copy of the policy to all directors, officers, employees, and volunteers who provide substantial services to the organization. The distribution requirement may be satisfied by posting the policy on the organization’s publicly available website or at its offices in a conspicuous location accessible by employees and volunteers. The policy must have procedures for reporting suspected violations, preserving confidentiality, and protecting whistleblowers from retaliation. The policy should designate an employee, officer, or director to administer and report to the Audit or other committee of independent directors, or if no committee, to the Board.
  • The process for determining compensation for the organization’s top management official (CEO, Executive Director, etc.), as well as other officers and key employees should include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision. This ensures that there is adequate support of the thought process for setting salaries and bonuses, instead of just paying someone unsubstantiated additional compensation.
  • The Board should have in place or implement a policy that makes IRS forms 1023 and 990, as well as its governing documents, conflict of interest policy, and financial statements available to the public. This can be achieved by making these documents available on the organization’s website, or outlining how and where they can be obtained on request. This creates transparency in your organization.
  • The Board should have in place or implement a policy whereby minutes of all Board meetings (and committee meetings for each committee with authority to act on behalf of the governing body) are maintained. This creates a historical log of topics discussed and decisions made, and supports the diligence of the governance process in running the organization.
  • The Board has a fiduciary responsibility to protect the assets of the nonprofit and to use those assets to further the nonprofit’s philanthropic mission. One way to achieve this may be to invest the nonprofit’s cash in investment vehicles, such as stocks and bonds, and other financial investments that can grow the nonprofit’s assets. The Board should develop an investment policy before investing significant assets. The policy should focus on a prudent approach to investing assets by: defining the nonprofit’s objectives for investing, identifying the nonprofit’s risk tolerance, and adopting an investment policy. There are three competing interests for any funds that a nonprofit invests: (1) protecting (and growing) the investment, (2) earning a reasonable interest rate, and (3) maintaining access to the invested cash when needed. An investment policy can address all three, as well as define who is accountable for investment-related activities. The full Board may delegate the authority to oversee the nonprofit’s investment portfolio to an Investment Committee and/or the nonprofit may hire a professional investment manager. Evaluating the performance of the invested portfolio and the investment manager’s performance are the responsibilities of the Board (or the Investment Committee of the Board).
  • Having a gift acceptance policy in place is considered a best practice by the IRS. A well- considered gift acceptance policy should be implemented by the Board to assist with managing the expectations of donors, and also serve as guidance for Board and staff members who are on either the asking, or receiving end, of contributions. Adopting a gift acceptance policy will help guide the organization with regard to accepting or declining some types of gifts that may run counter to the nonprofit’s values and a nonprofit may simply not be equipped to either dispose of or manage the ongoing requirements of maintaining the value of certain gifts, such as real estate.

Other policies and procedures to consider, which apply to specific organizations, are outlined below.

  • If the organization has local chapters, branches, or affiliates, then the Board should have policies and procedures that govern the activities of such chapters, affiliates, and branches to ensure their operations are consistent with the organization’s exempt purpose.
  • If the organization invested in, contributed assets to, or participated in a joint venture or similar arrangement with a taxable entity during the year, then the Board should have in place or implement a written policy or procedure requiring the organization to evaluate its participation in joint venture arrangements under applicable federal tax law, and take steps to safeguard the organization’s exempt status with respect to such arrangements.

All policies should be reviewed by legal counsel before implementing them. Otherwise, you may be opening your organization and Board of Directors to potential, unintended liabilities.

Please don’t hesitate to contact us should you require any assistance or have any questions related to the various policies and procedures outlined above. Head to http://bit.ly/2d024a4 for access to various policy templates. If you intend to rely on a policy template from us it is important that you use the template only as a guide. Read everything carefully to ensure that what is established as YOUR policy is applicable to your situation as well as legal in your state. While many policies can be somewhat generic and cover all types of nonprofit operations, you may need additional policies to address issues that are unique to your organization.

Download the full guide for Nonprofit Board Members

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