Tax-exempt organizations need to have specific guidelines in place to be compliant and in order to meet the IRS’ expectations. It’s never too late (or early!) to invest in comprehensive internal and external policies and procedures. That’s why I’m offering the Nonprofit Policy: 10 for 990 special. You don’t have to feel overwhelmed or burdened at the thought of trying to draft legally correct and comprehensive policies. I’m offering a special deal for 10 important policies (read on for an overview of each) at the rate of $990. This also includes a comprehensive consultation and one full review round.
If you’re a nonprofit founder, executive, board member, or even an active volunteer, this is an excellent way to ensure the organization you’re deeply invested in is meeting (and exceeding!) the gold standard for tax-exempt organizations.
I don’t know anyone who loves paperwork more than the Internal Revenue Service (IRS). But, if you’re operating a nonprofit, you’re going to have to learn how to embrace paperwork as well. Why? The IRS requires certain information from your organization be submitted annually via Form 990 “Return of Organization Exempt From Income Tax.” This 12-page document (not including schedules) serves as a check to make certain nonprofit organizations are still qualified for that coveted tax-exempt status. To that point, the 990 asks nonprofits about policies and procedures that help ensure the nonprofit is conducting business in a transparent way that’s consistent with their exempt purposes. Specific governance policies encouraged by the IRS limit potential abuse, protect against vulnerabilities, and prevent activities that would go beyond permitted nonprofit activities.
Major Benefits & Reasons for Policies for Compliance
If governance policies are not technically required, why do them?
The existence of a policy doesn’t mean compliance is assured, of course, but having policies in place provides a framework and the expectations for an organization’s executives, employees, volunteers, and board members. Such policies can also be referenced if/when issues arise.
One of the major reasons to invest in strongly written, organization-specific policies is because the IRS audits tax-exempt organizations, just as it audits companies and individuals. (Having certain policies in place will only serve to benefit the organization should it happen to be audited.)
Another major reason to have proper policies and procedures in place is because they provide a foundation for soliciting, accepting, and facilitating charitable donations. Last, but not least, the 990 is made accessible to the public, meaning it can be used as a public relations tool if filled out diligently. Major donors can and often do review a charity’s 990 to ensure the charity is compliant, putting charitable donations to good use, and continues to operate in alignment with the overall mission.
Form 990 also serves the greater nonprofit sector as the data collected allows for the monitoring of growth and trends, tracking the types of needs/issues being addressed by nonprofits, and identifying specific adopted practices.
One thing’s for certain, articles of incorporation and bylaws are just the beginning when it comes to foundational documents.
The IRS made a major revision to Form 990 in 2008. The old version focused largely on financial data. Now, Form 990 reports extensive information on operations such as board governance, fundraising, international programs, non-cash receipts, joint ventures, use of subsidiaries, and more. Let’s cover all the policies the IRS asks tax-exempt nonprofits to report on:
Conflict of Interest
Found on Form 990: Part VI, Line 12 a-c
A conflict of interest policy should do two important things:
require board members with a conflict (or a potential conflict) to disclose it, and
exclude individual board members from voting on matters in which there is a conflict.
The Form 990 glossary defines a “conflict of interest policy” as follows:
A policy that defines conflict of interest, identifies the classes of individuals within the organization covered by the policy, facilitates disclosure of information that may help identify conflicts of interest, and specifies procedures to be followed in managing conflicts of interest. A conflict of interest arises when a person in a position of authority over an organization, such as an officer, director, or manager, may benefit financially from a decision he or she could make in such capacity, including indirect benefits such as to family members or businesses with which the person is closely associated. For this purpose, a conflict of interest does not include questions involving a person’s competing or respective duties to the organization and to another organization, such as by serving on the boards of both organizations, that do not involve a material financial interest of, or benefit to, such person.
Form 990 asks whether the nonprofit has a conflict of interest policy, as well as how the organization determines and manages board members who have an actual or perceived conflict of interest. This policy is all too important, as conflicts of interest that are not successfully and ethically managed can result in “intermediate sanctions” against both the organization and the individual with the conflicts.
If consistently adhered to, this policy can inspire internal and external stakeholder confidence in the organization as well as prevent potential violations of federal and state laws.
This policy should clarify what types of documents should be retained, how they should be filed, and for what duration. It should also outline proper deletion and or destruction techniques.
The document retention and destruction policy (DRD policy) is useful for a number of reasons. The principle rational as to why any organization would want to adopt such a policy is that it ensures important documents—financial information, employment records, contracts, information relating to asset ownership, etc.—are stored for a period of time for tax, business, and other regulatory purposes. No doubt document retention could be important for proof in litigation or a governmental investigation.
You may have heard of the federal law, the Sarbanes-Oxley Act of 2002. It reaffirms the importance of a DRD policy. Sarbanes-Oxley reads:
Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.
While the Sarbanes-Oxley legislation generally does not pertain to tax-exempt organizations, it does impose criminal liability on tax-exempt organizations for the destruction of records with the intent to obstruct a federal investigation.
Another reason a DRD policy is an excellent idea, is it forces an organization to save space and money associated with both hard copy and digital file storage, by determining what is no longer needed and when…it’s like sanctioned spring cleaning!
Whistleblower
Found on Form 990: Part VI, Question 13
Nonprofits, along with all corporations, are prohibited from retaliating against employees who call out, draw attention to, or “blow the whistle” against employer practices. A whistleblower policy should set a process for complaints to be addressed and include protection for whistleblowers.
Ultimately this policy can help insulate your organization from the risk of state and federal law violation and encourage sound, swift responses of investigation and solutions to complaints. Don’t just take it from me, the IRS also considers this an incredibly helpful policy:
A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported. (Instructions to Form 990)
The Sarbanes-Oxley Act (referenced under the document retention and destruction policy above) also applies here. If found in violation of Sarbanes-Oxley, both an organization and any individuals responsible for the retaliatory action could face civil and criminal sanctions and repercussions including prison time.
Compensation
Competitive compensation is just as important for employees of nonprofits as it is for for-profit employees. Data related to compensation is reported in three different sections on Form 990: “Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees;” “Statement of Functional Expenses,” lines 5, 7, 8, and 9; and Schedule J;” and “Compensation Information for Certain Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees.”
Having a set policy in place that objectively establishes salary ranges for positions, updated job descriptions, relevant salary administration, and performance management, is used to establish equality and equity in compensation practices. A statement of compensation philosophy and strategy, which explains to current and potential employees and board members how compensation supports the organization’s mission, can be included in the compensation policy.
Generally, this policy provides the benefits of:
Enhanced confidence of donors and supporters
Consistent framework for decision making on compensation
Increased compliance with federal and state employment laws
Reduced risk to the organization and its management and governing board
Fundraising
The topic of fundraising gets substantial attention on Form 990; fundraising income and expenses are asked about in Part I, three places in Part IV, Part VIII, Part IX, and Schedules G and M. Almost every nonprofit needs a fundraising policy, as almost all engage in some sort of charitable fundraising. This policy should include provisions for compliance with local, state, and federal laws, as well as the ethical norms the organization chooses to abide by in fundraising efforts. Remember that fundraising doesn’t just include solicitation of donations, but also receipt of donations.
While related to the fundraising policy, the gift acceptance policy relates to charitable contributions. There are no legal requirements for a gift acceptance policy, however this policy provides written protocols for nonprofit board members and staff to evaluate proposed non-cash donations. The policy can also grant some much-needed guidance in how to kindly reject donations that can carry extraneous liabilities and obligations the organization is not readily able to manage.
Investment
One way a board of directors can fulfill their fiduciary responsibility to the organization is through investing assets to further the nonprofit’s goals. But, before investment vehicles are invested in, the organization should have an investment policy in place to define who is accountable for the investment decisions. The policy should also offer guidance on activities of growing/protecting the investments, earning interest, and maintaining access to cash if necessary.
Beyond the specifics of investments, this policy can also govern financial management decisions regarding situations like accepting charitable gifts of securities.
The policy should be written to give the nonprofit’s management personnel the authority to make investment decisions, as well as preserve the board’s oversight ability.
Many organizations hire a professional financial advisor or investment manager to implement investments and offer advice. This person’s role can be accounted for in the investment policy.
Form 990 does not ask if an organization has a specific investment policy, but it does refer to investments in multiple places throughout the form, hence the obvious need.
Financial Policies and Procedures
Different than the aforementioned investment policy, the financial policies and procedures policy specifically addresses guidelines for making financial decisions, reporting financial status of the organization, managing funds, and developing financial goals. The financial management policies and procedures should also outline the budgeting process, investments reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing will take place. Similar to the investment policy, Form 990 does not make a specific ask about an organization’s financial policies, but this type of policy will serve as an indispensable guide to organizing, collecting, and reporting financial data.
Has the organization provided a copy of this Form 990 to all members of its governing body before filing the form?
Describe in Schedule O the process, if any, used by the organization to review this Form 990.
In asking these questions, the IRS is indicating that distribution of the form prior to filing is optimal. (This is also one of those gold standard governing practices that is beneficial when using the form as a public relations material.) There are no federal tax laws requiring Form 990 review, and Form 990 does not mandate a written policy. However, a written policy is incredibly useful in clarifying a specific process for distribution and procedure review by the governing body (such as the board of directors). It also formalizes a review process and acts as a reminder to nonprofit leaders to distribute accordingly.
Public Disclosure
Found on Form 990: Part VI, Section C, Lines 18 – 20
Public charities exist to serve the public in some way or another, and some organizational documents must be made available to the public upon request. Other documents can be kept entirely internal. This policy should overview (1) what documents must the organization disclose, and (2) to what extent does it want to make other non-required documents and information available to the public.
Form 990 specifically asks the filing organization to report if certain documents are made available to the public, such as governing documents (like the bylaws), conflict of interest policy, and financial statements. Additionally, the form asks for the name, address, and phone number of the individual(s) who possesses the financial “books” and records of the organization.
Where Do I Start?
The mission of Gordon Fischer Law Firm is to promote and maximize charitable giving in Iowa, and to that point I want to help every Iowa nonprofit be legally compliant.
The 10 policies part of this promotion will save you time, resources, and you can feel good about having a set of high quality policies to guide internal operations, present to the public (if appropriate), and fulfill form 990 requirements.
If you already have some (or all) of the above listed policies in place, seriously consider the last time they were updated. How has the organization changed since they were written? Have changes to state and federal laws impacted these policies at all? It may be high time for a new set of policies that fits your organization.
Interested? It’s always a good day to contact Gordon Fischer Law Firm via email Gordon@gordonfischerlawfirm.com or by phone (515-371-6077).
A nonprofit is obligated, just like any other employer, to conduct an investigation when nonprofit management knows or has reason to know, that an employee is being subjected to discrimination, harassment, or other unlawful conduct in the workplace. That is true even if the complainant never submits a formal written complaint and no witnesses provide written statements. For today, let’s focus on sexual harassment and what steps nonprofits should take to make certain that allegations are handled seriously and followed-up on thoroughly.
What is Sexual Harassment?
The Equal Employment Opportunity Commission (EEOC) defines sexual harassment to include unwelcome sexual advances, requests for sexual favors, and other verbal or physical harassment of a sexual nature. It also can include offensive remarks about a person’s gender. Both the victim and the harasser can be either a woman or a man, and the victim and harasser can be the same sex. The harasser can be the victim’s supervisor, a manager in another area, a co-worker, or even someone who is not an employee, such as a board member, volunteer, donor, or vendor.
Sexual harassment is considered illegal when it is so frequent or severe that it creates a hostile work environment and/or adversely affects the victim’s job, such as being fired or demoted. Iowa courts and administrative agencies ask, “would a reasonable person find the conduct offensive?”
What Should a Nonprofit Organization Do When They Receive a Complaint?
A. A thorough and complete investigation
All sexual harassment allegations should, indeed must be investigated. If an organization refuses to investigate, it can obviously be later accused of not taking complaints seriously. A superficial investigation could also send the message to employees that the organization doesn’t care, or is more concerned about protecting a person in power.
B. Contact your insurer
The nonprofit should contact, just as soon as possible, their insurance carrier (all nonprofits at a minimum should carry directors’ and officers’ liability insurance), to provide the insurer “notice of a potential claim.” If the nonprofit does not provide the insurance company with notice, the insurance company won’t have the opportunity to mitigate or address a potential claim. As a result, the insurance company may well have grounds to refuse to cover any resulting liability. Keep in mind too the insurance carrier will usually have an incentive to assist the nonprofit in avoiding legal liability and may offer resources and expertise, potentially even advice of legal counsel.
The first step to beginning the investigation is to make a plan and determine the scope of the investigation. Questions to ask and answer: Who will investigate? What evidence needs to be collected? What are the main questions the investigator wants to ask? Who will be interviewed? To protect the integrity of the investigation and the credibility of the process, an organization may
want to bring in an outside, independent investigator.
It is very important to stay neutral throughout the process and focus on the alleged conduct, remembering that harassment is subjective. I cannot emphasize enough that the organization should conduct a thorough investigation. Basic steps include preparing interview questions in advance; gathering evidence that might support or negate the complaint like text messages, voicemails, emails, photos, timecards, business expense reports, and social media posts; check past performance evaluations and prior complaints about the accuser and the accused; document every step; and encourage confidentiality, although never make confidentiality mandatory nor “absolutely guarantee” confidentiality.
After an investigation is conducted, the organization will need to weigh the evidence and make a decision. Here the appropriate standard is what’s known as “preponderance of the evidence.” This is otherwise though of is it more likely than not that the incident occurred?
Then the organization should write a report. If the allegations by the accuser are supported, the employer should take immediate and appropriate corrective action. The EEOC recommends that the written report document the investigation process, findings, recommendation, and any disciplinary action imposed as well as any corrective or preventative action. After the nonprofit has submitted the report to the decision-maker and determined the appropriate action, it should follow up with the parties. The organization should tell the person who filed the complaint that appropriate action was taken, even if it can’t share all the details for privacy reasons.
After an investigation is complete and action is taken, it is very important is to check back with the employee regularly to ensure that no further harassment or retaliation has occurred. It is essential to explain to the victim that the nonprofit will not retaliate, and indeed will protect the victim from retaliation. It is also essential for all involved to understand (especially the alleged harasser) that retaliation is a separate and equally serious violation of the nonprofit’s policies, whether or not the underlying harassment did in fact occur.
G. No retaliation against third parties, such as witnesses
Prohibited retaliation can take place against anyone involved in the investigation, not just the accuser. It can take the form of leaving someone out of activities or decision-making that the person would normally participate in or be as direct as refusing to provide a requested accommodation or terminating employment. It can even be unintentional! A too-common example is moving an individual’s office thinking that by moving the office the employer is “protecting” the alleged victim.
H. Retaliation is the most common mistake
Retaliation for filing a complaint of sexual harassment is the most common mistake employers make in connection with their response to a complaint of sexual harassment. Again, for emphasis: do not retaliate against any employee or independent contractor who participates in the investigation.
Remember: protecting the harassed employee is exactly the same as protecting the nonprofit. In sexual harassment situations, the best way that the board and executive director can protect the nonprofit is to make sure they find out what’s really going on, and if necessary, punish and remove harassers from the workforce. So, protecting employees is really protecting the nonprofit.
What questions or concerns do you have on this topic? What is your nonprofit doing currently in regards to potential situations such as this? Is it time to make a change or implement quality policies and procedures? Please do not hesitate to contact me via email (gordon@gordonfischerlawfirm.com) or on my cell phone (515-371-6077).
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A will may provide for disposition of the testator’s assets at the time the will is executed, but of course it may be many years—many decades, even—between the will’s execution and the testator’s death. What if between the execution of the will and the testator’s death, there are changes in circumstances (such as the death of beneficiary) which make it impossible for the executor to follow the dispositive provisions of the will? That’s where estate planning gets complicated and can open the door to litigation.
Changed Circumstances = Default
Of course, we would first look to the language of the will. But, what if the will fails to address the changed circumstances? In such cases, Iowa law provides default rules. Obviously, it is much preferable for the estate planner to raise the possibility of changed circumstances with the testator during the drafting process, and address them accordingly with clear language in the will. (Yet, another reason to use a lawyer to draw up your estate plan.) And, yes, you should keep your will (and overall estate plan) updated.
If Grace provides in her will, “I give Lawrence $10,000,” and Lawrence dies before Grace, the will can’t be followed exactly as written. Of course, this situation can and should be avoided by careful drafting – the estate planner asking what the testator wants if a beneficiary should predecease the testator. If, continuing this example, Grace wants the bequest to pass to Lawrence’s estate or Lawrence’s children if Lawrence predeceases her, Grace should so specify in her will. If instead Grace wants the bequest to go to other beneficiaries, the will should spell that out, too.
The Doctrine of Lapse
Let’s take our example and apply the doctrine of lapse. Under the common law, a bequest would fail, or lapse, if the beneficiary predeceased the testator. The bequest would simply fall back to the estate.
Iowa’s Anti-Lapse Statute
Iowa is among the majority of states which have adopted anti-lapse statutes. Iowa Code Section 633.273 provides that if a beneficiary (actually, the statute uses the legal term devisee) dies before the testator, leaving children who survive the testator, the devisee’s children inherit the property devised, unless the terms of the decedent’s will is clear and explicit to the contrary.
Real Life Case
Clyde Guthrie executed a will in 2002 and died in 2006. His wife predeceased him, and so did two of his five children. Both of the predeceased children died before Guthrie executed his will. That turned out to be a key fact. Guthrie’s will left his entire estate equally to his five children except “in the event any of my children should predecease me leaving issue who survive me, then the share of such predeceased child shall go in equal shares to his or her issue who survive me . . .” His three surviving children claimed that the will language meant to include only them—the decedent’s children that survived him, and not the grandchildren of one of their deceased siblings. That predeceased sibling only had one child, and that child also predeceased the decedent, but left two surviving children–great-grandchildren of the decedent. (The other predeceased child died without having had children).
Application of Facts to Iowa Code Section 633.273
On first glance Guthrie’s will appeared to be clear. Again, his will stated that if children predeceased him, “the share of such predeceased child shall go in equal shares to his or her issue who survive me.” However, the Iowa anti-lapse statute defines “devisee” as a person who dies after execution of the decedent’s will unless the will clearly specifies otherwise. Here the pre-deceased child that left surviving issue died long before the decedent executed his will. So, the anti-lapse statute didn’t apply, and the great-grandchildren were not beneficiaries of their great-grandfather’s estate.
Guthrie of course knew that two of his children had already died. The language of the Guthrie’s will, the Iowa Court of Appeals reasoned, could only possibly refer to the possibility of any or all of the three remaining children dying before he did – and the decedent’s will did not clearly state that issue of an already pre-deceased child should be included. (Review the case: Estate of Guthrie v. Busch, No. 8-093/07-1427 (Iowa Ct. App. May 14, 2008).
Back to the Basics: Let’s Review
With that example in mind, let’s review again the basics of the doctrine of lapse. Under the common law, if a beneficiary dies before the testator, the bequest lapses, i.e., goes back to the estate.
Iowa changed this rule by adopting an anti-lapse statute. Under current Iowa law, if the beneficiary dies before the testator, but leaves children who survive the testator, the beneficiary’s children inherit the property devised, unless the terms of the decedent’s will are clear and explicit to the contrary.
Of course, the problem of lapse/anti-lapse can be avoided through careful drafting by a trained professional, as well as annual reviews to see if your estate plan needs updating.
Have questions about your own estate plan that may be in need of revisions after learning about lapse? Contact me and we can talk about what changes would be wise for you to incorporate into your estate plan.
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Nonprofit Policy Special: 10 for Form 990
NonprofitsTax-exempt organizations need to have specific guidelines in place to be compliant and in order to meet the IRS’ expectations. It’s never too late (or early!) to invest in comprehensive internal and external policies and procedures. That’s why I’m offering the Nonprofit Policy: 10 for 990 special. You don’t have to feel overwhelmed or burdened at the thought of trying to draft legally correct and comprehensive policies. I’m offering a special deal for 10 important policies (read on for an overview of each) at the rate of $990. This also includes a comprehensive consultation and one full review round.
If you’re a nonprofit founder, executive, board member, or even an active volunteer, this is an excellent way to ensure the organization you’re deeply invested in is meeting (and exceeding!) the gold standard for tax-exempt organizations.
I don’t know anyone who loves paperwork more than the Internal Revenue Service (IRS). But, if you’re operating a nonprofit, you’re going to have to learn how to embrace paperwork as well. Why? The IRS requires certain information from your organization be submitted annually via Form 990 “Return of Organization Exempt From Income Tax.” This 12-page document (not including schedules) serves as a check to make certain nonprofit organizations are still qualified for that coveted tax-exempt status. To that point, the 990 asks nonprofits about policies and procedures that help ensure the nonprofit is conducting business in a transparent way that’s consistent with their exempt purposes. Specific governance policies encouraged by the IRS limit potential abuse, protect against vulnerabilities, and prevent activities that would go beyond permitted nonprofit activities.
Major Benefits & Reasons for Policies for Compliance
If governance policies are not technically required, why do them?
The existence of a policy doesn’t mean compliance is assured, of course, but having policies in place provides a framework and the expectations for an organization’s executives, employees, volunteers, and board members. Such policies can also be referenced if/when issues arise.
One of the major reasons to invest in strongly written, organization-specific policies is because the IRS audits tax-exempt organizations, just as it audits companies and individuals. (Having certain policies in place will only serve to benefit the organization should it happen to be audited.)
Another major reason to have proper policies and procedures in place is because they provide a foundation for soliciting, accepting, and facilitating charitable donations. Last, but not least, the 990 is made accessible to the public, meaning it can be used as a public relations tool if filled out diligently. Major donors can and often do review a charity’s 990 to ensure the charity is compliant, putting charitable donations to good use, and continues to operate in alignment with the overall mission.
Form 990 also serves the greater nonprofit sector as the data collected allows for the monitoring of growth and trends, tracking the types of needs/issues being addressed by nonprofits, and identifying specific adopted practices.
What Policies are We Talking About?
One thing’s for certain, articles of incorporation and bylaws are just the beginning when it comes to foundational documents.
The IRS made a major revision to Form 990 in 2008. The old version focused largely on financial data. Now, Form 990 reports extensive information on operations such as board governance, fundraising, international programs, non-cash receipts, joint ventures, use of subsidiaries, and more. Let’s cover all the policies the IRS asks tax-exempt nonprofits to report on:
Conflict of Interest
Found on Form 990: Part VI, Line 12 a-c
A conflict of interest policy should do two important things:
The Form 990 glossary defines a “conflict of interest policy” as follows:
Form 990 asks whether the nonprofit has a conflict of interest policy, as well as how the organization determines and manages board members who have an actual or perceived conflict of interest. This policy is all too important, as conflicts of interest that are not successfully and ethically managed can result in “intermediate sanctions” against both the organization and the individual with the conflicts.
If consistently adhered to, this policy can inspire internal and external stakeholder confidence in the organization as well as prevent potential violations of federal and state laws.
Document Retention and Destruction
Found on Form 990: Part VI, Line 14
This policy should clarify what types of documents should be retained, how they should be filed, and for what duration. It should also outline proper deletion and or destruction techniques.
The document retention and destruction policy (DRD policy) is useful for a number of reasons. The principle rational as to why any organization would want to adopt such a policy is that it ensures important documents—financial information, employment records, contracts, information relating to asset ownership, etc.—are stored for a period of time for tax, business, and other regulatory purposes. No doubt document retention could be important for proof in litigation or a governmental investigation.
You may have heard of the federal law, the Sarbanes-Oxley Act of 2002. It reaffirms the importance of a DRD policy. Sarbanes-Oxley reads:
While the Sarbanes-Oxley legislation generally does not pertain to tax-exempt organizations, it does impose criminal liability on tax-exempt organizations for the destruction of records with the intent to obstruct a federal investigation.
Another reason a DRD policy is an excellent idea, is it forces an organization to save space and money associated with both hard copy and digital file storage, by determining what is no longer needed and when…it’s like sanctioned spring cleaning!
Whistleblower
Found on Form 990: Part VI, Question 13
Nonprofits, along with all corporations, are prohibited from retaliating against employees who call out, draw attention to, or “blow the whistle” against employer practices. A whistleblower policy should set a process for complaints to be addressed and include protection for whistleblowers.
Ultimately this policy can help insulate your organization from the risk of state and federal law violation and encourage sound, swift responses of investigation and solutions to complaints. Don’t just take it from me, the IRS also considers this an incredibly helpful policy:
A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported. (Instructions to Form 990)
The Sarbanes-Oxley Act (referenced under the document retention and destruction policy above) also applies here. If found in violation of Sarbanes-Oxley, both an organization and any individuals responsible for the retaliatory action could face civil and criminal sanctions and repercussions including prison time.
Compensation
Competitive compensation is just as important for employees of nonprofits as it is for for-profit employees. Data related to compensation is reported in three different sections on Form 990: “Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees;” “Statement of Functional Expenses,” lines 5, 7, 8, and 9; and Schedule J;” and “Compensation Information for Certain Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees.”
Having a set policy in place that objectively establishes salary ranges for positions, updated job descriptions, relevant salary administration, and performance management, is used to establish equality and equity in compensation practices. A statement of compensation philosophy and strategy, which explains to current and potential employees and board members how compensation supports the organization’s mission, can be included in the compensation policy.
Generally, this policy provides the benefits of:
Fundraising
The topic of fundraising gets substantial attention on Form 990; fundraising income and expenses are asked about in Part I, three places in Part IV, Part VIII, Part IX, and Schedules G and M. Almost every nonprofit needs a fundraising policy, as almost all engage in some sort of charitable fundraising. This policy should include provisions for compliance with local, state, and federal laws, as well as the ethical norms the organization chooses to abide by in fundraising efforts. Remember that fundraising doesn’t just include solicitation of donations, but also receipt of donations.
Gift Acceptance
Found on Form 990: Schedule M, Part I, line 31
While related to the fundraising policy, the gift acceptance policy relates to charitable contributions. There are no legal requirements for a gift acceptance policy, however this policy provides written protocols for nonprofit board members and staff to evaluate proposed non-cash donations. The policy can also grant some much-needed guidance in how to kindly reject donations that can carry extraneous liabilities and obligations the organization is not readily able to manage.
Investment
One way a board of directors can fulfill their fiduciary responsibility to the organization is through investing assets to further the nonprofit’s goals. But, before investment vehicles are invested in, the organization should have an investment policy in place to define who is accountable for the investment decisions. The policy should also offer guidance on activities of growing/protecting the investments, earning interest, and maintaining access to cash if necessary.
Beyond the specifics of investments, this policy can also govern financial management decisions regarding situations like accepting charitable gifts of securities.
The policy should be written to give the nonprofit’s management personnel the authority to make investment decisions, as well as preserve the board’s oversight ability.
Many organizations hire a professional financial advisor or investment manager to implement investments and offer advice. This person’s role can be accounted for in the investment policy.
Form 990 does not ask if an organization has a specific investment policy, but it does refer to investments in multiple places throughout the form, hence the obvious need.
Financial Policies and Procedures
Different than the aforementioned investment policy, the financial policies and procedures policy specifically addresses guidelines for making financial decisions, reporting financial status of the organization, managing funds, and developing financial goals. The financial management policies and procedures should also outline the budgeting process, investments reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing will take place. Similar to the investment policy, Form 990 does not make a specific ask about an organization’s financial policies, but this type of policy will serve as an indispensable guide to organizing, collecting, and reporting financial data.
Form 990 Review
Found on Form 990: Part VI, Section B, Line 11
Form 990 asks the following questions:
In asking these questions, the IRS is indicating that distribution of the form prior to filing is optimal. (This is also one of those gold standard governing practices that is beneficial when using the form as a public relations material.) There are no federal tax laws requiring Form 990 review, and Form 990 does not mandate a written policy. However, a written policy is incredibly useful in clarifying a specific process for distribution and procedure review by the governing body (such as the board of directors). It also formalizes a review process and acts as a reminder to nonprofit leaders to distribute accordingly.
Public Disclosure
Found on Form 990: Part VI, Section C, Lines 18 – 20
Public charities exist to serve the public in some way or another, and some organizational documents must be made available to the public upon request. Other documents can be kept entirely internal. This policy should overview (1) what documents must the organization disclose, and (2) to what extent does it want to make other non-required documents and information available to the public.
Form 990 specifically asks the filing organization to report if certain documents are made available to the public, such as governing documents (like the bylaws), conflict of interest policy, and financial statements. Additionally, the form asks for the name, address, and phone number of the individual(s) who possesses the financial “books” and records of the organization.
Where Do I Start?
The mission of Gordon Fischer Law Firm is to promote and maximize charitable giving in Iowa, and to that point I want to help every Iowa nonprofit be legally compliant.
The 10 policies part of this promotion will save you time, resources, and you can feel good about having a set of high quality policies to guide internal operations, present to the public (if appropriate), and fulfill form 990 requirements.
If you already have some (or all) of the above listed policies in place, seriously consider the last time they were updated. How has the organization changed since they were written? Have changes to state and federal laws impacted these policies at all? It may be high time for a new set of policies that fits your organization.
Interested? It’s always a good day to contact Gordon Fischer Law Firm via email Gordon@gordonfischerlawfirm.com or by phone (515-371-6077).
Sexual Harassment Allegations: What Nonprofits Need to Do
Nonprofits, UncategorizedA nonprofit is obligated, just like any other employer, to conduct an investigation when nonprofit management knows or has reason to know, that an employee is being subjected to discrimination, harassment, or other unlawful conduct in the workplace. That is true even if the complainant never submits a formal written complaint and no witnesses provide written statements. For today, let’s focus on sexual harassment and what steps nonprofits should take to make certain that allegations are handled seriously and followed-up on thoroughly.
What is Sexual Harassment?
The Equal Employment Opportunity Commission (EEOC) defines sexual harassment to include unwelcome sexual advances, requests for sexual favors, and other verbal or physical harassment of a sexual nature. It also can include offensive remarks about a person’s gender. Both the victim and the harasser can be either a woman or a man, and the victim and harasser can be the same sex. The harasser can be the victim’s supervisor, a manager in another area, a co-worker, or even someone who is not an employee, such as a board member, volunteer, donor, or vendor.
Sexual harassment is considered illegal when it is so frequent or severe that it creates a hostile work environment and/or adversely affects the victim’s job, such as being fired or demoted. Iowa courts and administrative agencies ask, “would a reasonable person find the conduct offensive?”
What Should a Nonprofit Organization Do When They Receive a Complaint?
A. A thorough and complete investigation
All sexual harassment allegations should, indeed must be investigated. If an organization refuses to investigate, it can obviously be later accused of not taking complaints seriously. A superficial investigation could also send the message to employees that the organization doesn’t care, or is more concerned about protecting a person in power.
B. Contact your insurer
The nonprofit should contact, just as soon as possible, their insurance carrier (all nonprofits at a minimum should carry directors’ and officers’ liability insurance), to provide the insurer “notice of a potential claim.” If the nonprofit does not provide the insurance company with notice, the insurance company won’t have the opportunity to mitigate or address a potential claim. As a result, the insurance company may well have grounds to refuse to cover any resulting liability. Keep in mind too the insurance carrier will usually have an incentive to assist the nonprofit in avoiding legal liability and may offer resources and expertise, potentially even advice of legal counsel.
C. The investigation
The first step to beginning the investigation is to make a plan and determine the scope of the investigation. Questions to ask and answer: Who will investigate? What evidence needs to be collected? What are the main questions the investigator wants to ask? Who will be interviewed? To protect the integrity of the investigation and the credibility of the process, an organization may
want to bring in an outside, independent investigator.
D. Stay neutral
It is very important to stay neutral throughout the process and focus on the alleged conduct, remembering that harassment is subjective. I cannot emphasize enough that the organization should conduct a thorough investigation. Basic steps include preparing interview questions in advance; gathering evidence that might support or negate the complaint like text messages, voicemails, emails, photos, timecards, business expense reports, and social media posts; check past performance evaluations and prior complaints about the accuser and the accused; document every step; and encourage confidentiality, although never make confidentiality mandatory nor “absolutely guarantee” confidentiality.
E. Decision in written report
After an investigation is conducted, the organization will need to weigh the evidence and make a decision. Here the appropriate standard is what’s known as “preponderance of the evidence.” This is otherwise though of is it more likely than not that the incident occurred?
Then the organization should write a report. If the allegations by the accuser are supported, the employer should take immediate and appropriate corrective action. The EEOC recommends that the written report document the investigation process, findings, recommendation, and any disciplinary action imposed as well as any corrective or preventative action. After the nonprofit has submitted the report to the decision-maker and determined the appropriate action, it should follow up with the parties. The organization should tell the person who filed the complaint that appropriate action was taken, even if it can’t share all the details for privacy reasons.
F. NO Retaliation
After an investigation is complete and action is taken, it is very important is to check back with the employee regularly to ensure that no further harassment or retaliation has occurred. It is essential to explain to the victim that the nonprofit will not retaliate, and indeed will protect the victim from retaliation. It is also essential for all involved to understand (especially the alleged harasser) that retaliation is a separate and equally serious violation of the nonprofit’s policies, whether or not the underlying harassment did in fact occur.
G. No retaliation against third parties, such as witnesses
Prohibited retaliation can take place against anyone involved in the investigation, not just the accuser. It can take the form of leaving someone out of activities or decision-making that the person would normally participate in or be as direct as refusing to provide a requested accommodation or terminating employment. It can even be unintentional! A too-common example is moving an individual’s office thinking that by moving the office the employer is “protecting” the alleged victim.
H. Retaliation is the most common mistake
Retaliation for filing a complaint of sexual harassment is the most common mistake employers make in connection with their response to a complaint of sexual harassment. Again, for emphasis: do not retaliate against any employee or independent contractor who participates in the investigation.
Keep Protection Top of Mind
Remember: protecting the harassed employee is exactly the same as protecting the nonprofit. In sexual harassment situations, the best way that the board and executive director can protect the nonprofit is to make sure they find out what’s really going on, and if necessary, punish and remove harassers from the workforce. So, protecting employees is really protecting the nonprofit.
What questions or concerns do you have on this topic? What is your nonprofit doing currently in regards to potential situations such as this? Is it time to make a change or implement quality policies and procedures? Please do not hesitate to contact me via email (gordon@gordonfischerlawfirm.com) or on my cell phone (515-371-6077).
Legal Word of the Day: Lapse (and Anti-Lapse)
Estates & Estate Planning, Legal Word of the Day, Wills, Trusts & EstatesA will may provide for disposition of the testator’s assets at the time the will is executed, but of course it may be many years—many decades, even—between the will’s execution and the testator’s death. What if between the execution of the will and the testator’s death, there are changes in circumstances (such as the death of beneficiary) which make it impossible for the executor to follow the dispositive provisions of the will? That’s where estate planning gets complicated and can open the door to litigation.
Changed Circumstances = Default
Of course, we would first look to the language of the will. But, what if the will fails to address the changed circumstances? In such cases, Iowa law provides default rules. Obviously, it is much preferable for the estate planner to raise the possibility of changed circumstances with the testator during the drafting process, and address them accordingly with clear language in the will. (Yet, another reason to use a lawyer to draw up your estate plan.) And, yes, you should keep your will (and overall estate plan) updated.
Death of a Beneficiary
If Grace provides in her will, “I give Lawrence $10,000,” and Lawrence dies before Grace, the will can’t be followed exactly as written. Of course, this situation can and should be avoided by careful drafting – the estate planner asking what the testator wants if a beneficiary should predecease the testator. If, continuing this example, Grace wants the bequest to pass to Lawrence’s estate or Lawrence’s children if Lawrence predeceases her, Grace should so specify in her will. If instead Grace wants the bequest to go to other beneficiaries, the will should spell that out, too.
The Doctrine of Lapse
Let’s take our example and apply the doctrine of lapse. Under the common law, a bequest would fail, or lapse, if the beneficiary predeceased the testator. The bequest would simply fall back to the estate.
Iowa’s Anti-Lapse Statute
Iowa is among the majority of states which have adopted anti-lapse statutes. Iowa Code Section 633.273 provides that if a beneficiary (actually, the statute uses the legal term devisee) dies before the testator, leaving children who survive the testator, the devisee’s children inherit the property devised, unless the terms of the decedent’s will is clear and explicit to the contrary.
Real Life Case
Clyde Guthrie executed a will in 2002 and died in 2006. His wife predeceased him, and so did two of his five children. Both of the predeceased children died before Guthrie executed his will. That turned out to be a key fact. Guthrie’s will left his entire estate equally to his five children except “in the event any of my children should predecease me leaving issue who survive me, then the share of such predeceased child shall go in equal shares to his or her issue who survive me . . .” His three surviving children claimed that the will language meant to include only them—the decedent’s children that survived him, and not the grandchildren of one of their deceased siblings. That predeceased sibling only had one child, and that child also predeceased the decedent, but left two surviving children–great-grandchildren of the decedent. (The other predeceased child died without having had children).
Application of Facts to Iowa Code Section 633.273
On first glance Guthrie’s will appeared to be clear. Again, his will stated that if children predeceased him, “the share of such predeceased child shall go in equal shares to his or her issue who survive me.” However, the Iowa anti-lapse statute defines “devisee” as a person who dies after execution of the decedent’s will unless the will clearly specifies otherwise. Here the pre-deceased child that left surviving issue died long before the decedent executed his will. So, the anti-lapse statute didn’t apply, and the great-grandchildren were not beneficiaries of their great-grandfather’s estate.
Guthrie of course knew that two of his children had already died. The language of the Guthrie’s will, the Iowa Court of Appeals reasoned, could only possibly refer to the possibility of any or all of the three remaining children dying before he did – and the decedent’s will did not clearly state that issue of an already pre-deceased child should be included. (Review the case: Estate of Guthrie v. Busch, No. 8-093/07-1427 (Iowa Ct. App. May 14, 2008).
Back to the Basics: Let’s Review
With that example in mind, let’s review again the basics of the doctrine of lapse. Under the common law, if a beneficiary dies before the testator, the bequest lapses, i.e., goes back to the estate.
Iowa changed this rule by adopting an anti-lapse statute. Under current Iowa law, if the beneficiary dies before the testator, but leaves children who survive the testator, the beneficiary’s children inherit the property devised, unless the terms of the decedent’s will are clear and explicit to the contrary.
Of course, the problem of lapse/anti-lapse can be avoided through careful drafting by a trained professional, as well as annual reviews to see if your estate plan needs updating.
Have questions about your own estate plan that may be in need of revisions after learning about lapse? Contact me and we can talk about what changes would be wise for you to incorporate into your estate plan.