Posts

Happy Birthday, #Pocahontas!

[Conflict of Interest Policies for Nonprofits]

March 21, 2024

Happy Birthday, Pocahontas!

Legend tells us that on this date (March 21), Pocahontas was born. The exact year is unknown but is estimated to be around 1595 or 1596. She is believed to have been born in the vicinity of the present-day Gloucester County Courthouse in Virginia.

Pocahontas: Living Symbol of Love and Peace

For 400+ years, the true story of this remarkable woman was shrouded in mystery, clouded by myths, and told mainly from the point of view of the English colonists.

Fortunately, Pocahontas’s true story has finally been revealed in her definitive biography: The True Story of Pocahontas – The Other Side of History.

The book states directly that the life of Pocahontas is first and foremost a great love story.

“The love that was the moving force within Pocahontas’s life was the spiritual bond and filial affection between Pocahontas and her father, [the] Chief, and the love they [both] had for the Powhatan people.”

Pocahontas’s father was the paramount chief of the Powhatan nation. Pocahontas, for many reasons well-explained in the book, was the very favorite child of the Chief. Even the English colonists were able to figure this out!

Pocahontas, held in such high regard, accompanied her elders when delivery of food and implements were made to the settlers. Her father wanted to put a young girl in a prominent position such that the English would know the Native Americans came in peace, only to help.

Unfortunately, the love and peace that Pocahontas shared was not enough to halt the perhaps inevitable conflict between the colonists and her Powhatan nation. I don’t need to inform readers about the disastrous results for Native Americans. Sometimes conflicts roar out of control.

Nonprofits and Conflict

Obviously nonprofits have far, far less at stake than conflicts occurring in colonial America. Nonetheless, conflicts still happen. To successfully continue their important work, nonprofits must manage conflicts in a positive, professional, and strategically smart manner.

The general term “conflicts” includes the more specific “conflict of interest.” Moving from the 1600s to modern day, our increasingly complex and interconnected world means more conflicts of interest and more potential conflicts of interest.

I have repeatedly written that all Iowa nonprofits should adopt the ten (10) polices which are referenced on IRS Form 990. All ten (10) policies are critically important. But if I was forced to pick just one single policy, a Conflict of Interest Policy might be the most necessary policy for a nonprofit to adopt.

Conflict of Interest Defined

A conflict of interest is present when an individual or entity has competing interests that could influence actions or decisions. Often this results in compromised judgment or lack of objectivity.

Conflicts of interest can lead to ethical dilemmas, biased decisions, or outright breaches of trust. While they can’t always be completely avoided, there are proper handling procedures that can significantly mitigate risks.

Common Examples of Conflicts of Interest

A common example of a conflict of interest, frequently given, is that of an Officer or Director who has a financial stake in a company that the nonprofit is considering for a contract. A similar issue would exist if an Officer or Director had a spouse with a financial stake in a company that the nonprofit is considering for a contract.

Other examples:

An employee works part-time at a nonprofit resale shop and works full-time as a realtor, which includes staging homes. If the employee were to buy furniture from the resale shop at a discount to use for staging in the realtor business, that is a clear conflict of interest.

A conflict of interest can also occur when an Officer for a nonprofit outright violates trust. Imagine, for example, the Treasurer of a nonprofit who owns an antique shop. The nonprofit owns antique desks and antique lamps. If the Treasurer sells the desks and lamps, and makes a commission on the sale, that is most definitely a conflict of interest.

Conflicts of interest can occur in the political realm, too. If a nonprofit organization contributed money to a public official in exchange for the public official agreeing to pass legislation that would benefit the nonprofit, that would also be a major conflict of interest.

What IS a Conflict of Interest Policy, Anyway?

A Conflict of Interest Policy provides a formal set of guidelines and procedures to identify, disclose, manage, and mitigate conflicts of interest. In sum, the Policy should accomplish two major goals:

  1. Require Officers and Directors to disclose any existing or potential conflicts of interest.
  2. Set forth specific procedures for handling conflicts of interest.

The Policy should define what is considered a conflict of interest and strongly encourage individuals and entities to disclose potential conflicts. The Policy should also contain procedures for the nonprofit’s governing Board to evaluate the significance of the conflict.

Once conflicts are defined, disclosed, and evaluated, the Policy should provide mitigation strategies. Often, these will be safeguards to prevent bias and encourage recusal from decision- making. For example, mitigation might mean asking a Director with a conflict of interest to leave the meeting during discussion of the issue and also to refrain from voting on said issue.

Why Does a Nonprofit Need a Conflict of Interest Policy?

Nonprofits have a commitment to serving the public good, relying on community trust and support. This makes the implementation of a Conflict of Interest Policy imperative for several reasons:

Mitigating Bias

Clear guidelines for handling conflicts of interest reduces the risk of biased decision-making that may compromise the nonprofit’s work or even its very mission.

Protecting Stakeholders’ Interests

Such a policy helps Directors, Officers, agents, advisors, consultants, contractors, donors, employees, and volunteers, and other all stakeholders, have confidence that all decisions are made in the best interest of the nonprofits.

Legal and Regulatory Compliance

Transactions can be detrimental to a nonprofit if they breach laws or regulations. A policy can help a nonprofit navigate known conflicts of interest before they bring harm to the organization.

Enhancing Internal Accountability

A Conflict of Interest Policy promotes accountability within the organization, which further ensures stakeholders they can trust the nonprofit to make objective and impartial decisions.

Forbidding Retaliation

the Policy must prohibit retaliation against individuals who report conflicts in good faith, promoting transparency and accountability.

When to Adopt a Conflict of Interest Policy

Conflicts of interest can arise at any time and could even already exist during the formation process. Ideally, a Conflict of Interest Policy, along with other key policies, should be established during initial stages. This ensures proper governance practices are in place from the outset.

If the Conflict of Policy is already in place, it should be periodically reviewed. (I would say at least annually). During review, Officers and Directors need to consider possible revisions to account for internal or external changes.

As nonprofits grow and engage with more stakeholders, the potential for conflicts of interest increases. Therefore, having a clear policy in place as soon as possible helps establish ethical conduct within the organization and prepare for conflicts before and as they arise.

How to Adopt a Conflict of Interest Policy

The general steps you should take when adopting or revising a Conflict of Interest Policy:

  1. Assessment and Review: Evaluate the organization’s structure, operations, and areas where conflicts of interest could arise.
  2. Research and Development: Research existing policies and best practices relevant to the nonprofit sector, while also considering the nonprofit’s unique circumstances. There is lots of information out there about nonprofits, conflicts, and policies and procedures; this is an area where “Doctor Google” can really help.
  3. Drafting or Revision: With the information gathered from the assessment, review, research, and development, consult with a lawyer qualified to draft a Policy. Be sure to explain your nonprofit’s unique features and challenges.
  4. Approval: After legal approval, consider having a committee (perhaps the Executive Committee?) carefully review the Policy. Should any questions or concerns arise, go back to legal counsel. Ultimately, the Conflict of Interest Policy should be given to the full Board of Directors for their thorough review. At a meeting of the full Board, a presentation should be given which considers each of the elements of the Policy and the Policy’s overall importance. Be sure to allow plenty of time for education, discussion,
    and debate. The vote should be unanimous.
  5. Implementation: Communicate the adopted or revised policy to staff, donors, and the public. Include guidance on how the policy will be implemented.
  6. Documentation: Maintain records of conflicts disclosed, actions taken to address them, and any related decisions or actions. Be sure that documents are retained (or destroyed) pursuant to the Document Retention and
  7. Monitoring: Establish procedures for ongoing monitoring and evaluation of the policy.

 

Who Should Have a Conflict of Interest Policy?

Every organization should have a Conflict of Interest Policy.

Conflicts of interest can surface at any time, within any organization. A proper policy is essential for promoting transparency, integrity, and ethical conduct in decision-making processes. All organizations, from small local nonprofits to multinational organizations, should establish and adhere to a Conflict of Interest Policy to safeguard against conflicts that could compromise their mission.

Email Me!

If your organization is interested in drafting (or revisiting!) its Conflict of Interest Policy, don’t hesitate to reach out today to Gordon Fischer Law Firm.

For the month of March, I’m offering a special to Iowa nonprofits. I will draft, revise, and edit, specific to the unique mission of your nonprofit, the ten (10) policies expressly referenced by the IRS on Form 990.

Questions about the ten (10) policies referenced on IRS Form 990? Email me now!

My email is:
gordon@gordonfischerlawfirm.com

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March 7: Happy Birthday to Poet and Activist Amanda Gorman!

[Nonprofits Need Gift Acceptance Policies]

March 7, 2024

Born on this day in 1998, Amanda Gorman was just 22 years-old when she became the youngest

U.S. inaugural poet at the 2021 swearing-in of President Joe Biden. She has said that she drew inspiration for her poem, “The Hill We Climb,” from Abraham Lincoln, the Rev. Martin Luther King Jr., and poet Maya Angelou, who became the first woman to read a poem at a presidential inauguration in 1993.

Ahead of her reading, Oprah Winfrey gave Gorman a ring shaped like a birdcage in reference to Angelou’s, “I Know Why the Caged Bird Sings.” It was a thoughtful and generous gesture.

Nonprofits receive thoughtful and generous gifts, too.

Indeed, they rely on the generosity of the public to support their work. But did you know it’s sometimes wiser to “just say no” to a gift?

Not every gift comes from an “Angel Network”!

Knowing which donations to accept, and sometimes even better, which gifts to decline, is critically important for every nonprofit. That’s because some gifts, offered with the best intentions, can jeopardize a nonprofit’s reputation, create financial headaches, and even compromise its mission.

A well-drafted Gift Acceptance Policy (sometimes referred to as a “GAP”) can help a nonprofit avoid potential pitfalls, as well as establish procedures for accepting, tracking, and managing donations.

The IRS and GAPs

While the IRS doesn’t require a nonprofit to have a Gift Acceptance Policy, its Form 990 does ask that it be filed if available. (You’ll recall that IRS Form 990 is the “tax return” nonprofits must file every year). By expressly referencing the Gift Acceptance Policy on its Form 990, it’s clear the IRS considers adopting and following a GAP “best practice” for nonprofits — and a strong signal your nonprofit should adopt one if it hasn’t already.

Gone are the days when a nonprofit’s responsibilities were no more complicated than depositing checks or acknowledging a donor in a newsletter. Today, accepting and managing gifts is a more complicated undertaking that comes with heightened donor expectations, increased fiduciary obligations for Officers and Directors, and greater reporting requirements. Overall, a Gift Acceptance Policy provides necessary safeguards for both nonprofits and donors.

What IS a Gift Acceptance Policy, Anyway?

Broadly, a Gift Acceptance Policy describes the kinds of gifts a nonprofit will and will not accept and how they will be administered. Adopting a robust written policy regarding gift acceptance is an important part of nonprofit best practices that serve to instill fiduciary discipline, provide legal protection, and contribute to an organization’s long-term viability by ensuring that the nonprofit will not accept gifts that it does not have the time or resources to manage.

The process of developing and adopting a Gift Acceptance Policy also enables staff and boards to understand the complexities and challenges associated with certain kinds of gifts, focuses attention on donor stewardship, presents new opportunities for fundraising, and introduces clarity, control, and consistency into the nonprofit development program.

A case-by-case approach to accepting gifts—or having no policy whatsoever—can lead to poor decision-making by boards who might be tempted by a dazzling but wholly impracticable gift or blinded by their own tastes and personal opinions. Haphazard or arbitrary decisions can also confuse and frustrate potential donors, who are left wondering why their proffered gift was rejected.

Crafting and Adopting a Gift Acceptance Policy

A Gift Acceptance Policy is created through collaboration among a nonprofit’s Officers, Directors, staff, and legal counsel. Because each nonprofit is unique, it needs its own individual policy specific to its needs and mission and not one borrowed from another organization.

In addition to outlining its position on gifts, a Gift Acceptance Policy provides a roadmap for the Board of Directors and other fiduciary decision-makers. A clear and well-designed GAP also gives donors and prospective donors information they need for tax and other reporting purposes.

Approval by Board

Once drafted, the Gift Acceptance Policy must be approved and adopted by the nonprofit’s Board of Directors. Hopefully, a consensus of Directors can be reached on all issues addressed by the GAP.

Regular Reference and Review

The GAP should not be considered written in stone or simply left on a shelf to gather dust. The Gift Acceptance Policy should be readily consulted in any case of a non-cash or unusual gift.

More broadly, the GAP should be reviewed every year, at the least, to take into consideration any changes in the nonprofit’s circumstances, accommodate unexpected types of gifts, or reflect developments in tax law or technology.

Critical Elements of a Gift Acceptance Policy

A well-drafted Gift Acceptance Policy follows best practices in transparency, financial control, legal responsibility, and donor support. It should include the following elements:

  • The nonprofit’s mission statement;
  • The purpose of the Gift Acceptance Policy;
  • The use of legal counsel in matters relating to the acceptance of gifts;
  • The policy on restricted gifts;
  • The types of gifts the nonprofit will and will not accept;
  • Reporting requirements and responsibilities;
  • Gift Acceptance Committee (or another group, such as an Executive Committee, that is prepared to be consulted on gifts); and
  • Adherence to ethical standards and accountability.

Types of Gifts

Donors have a number of options when it comes to charitable giving. For nonprofits, though, not all gifts are created equal. Some gifts may be more costly or complex to manage than a nonprofit can handle, or the nature of a gift might fall outside its mission and goals.

A Gift Acceptance Policy needs to take into consideration all of the issues related to each of these types of gifts and provide clear and objective reasons the nonprofit can point to for accepting—or refusing—a gift.

Refusing Gifts

Refusing a gift is difficult for both a nonprofit and a donor. A Gift Acceptance Policy can help in this regard because it serves to manage the expectations of donors and guide the nonprofit’s decision-making. The reasons for turning down a gift are many and not always obvious.

There is still a mindset among many nonprofits that any donation is better than no donation. For new—or less sophisticated—nonprofits, turning down any gift can seem counterintuitive or even rude. That’s why a Gift Acceptance Policy that clearly sets out an organization’s position on gifts is in the best interest of every nonprofit, no matter its size or its mission. A strong GAP helps nonprofits “just say no” by delineating important strategic and financial reasons for accepting some gifts while rejecting others.

Donors Rights

If nothing else convinces a nonprofit that it must either adopt or revise its Gift Acceptance Policy, the specter of alienating existing donors or discouraging potential ones can often be the spur it needs. Building strong relationships with donors and enhancing donor retention are fundamental to any fundraising strategy and start with a formal Gift Acceptance Policy.

At minimum, a well-thought-out Gift Acceptance Policy assures donors they will receive timely and meaningful recognition. Further, the GAP can emphasis that donor intent will always be followed. After all, donors have a right to expect that their gift will be used as promised and consistent with their intentions.

Whether it is determining the criteria for naming rights for new building or deciding how to acknowledge a ten dollars ($10) check, a Gift Acceptance Policy helps to enhance and preserve donor relationships—especially when gifts are rejected. For example, if a nonprofit has a formal, written policy of rejecting, say, anonymous gifts, this makes it easier to explain to the donor why his or her anonymous donation cannot be accepted even though it might be generous—and tempting.

Conclusion

A Gift Acceptance Policy is critical for promoting charitable giving as well as limiting risk to nonprofits. They also help donors by providing clarity and enhancing transparency when deciding to make a gift. A GAP should be as integral to a nonprofit as professionally prepared employee and endowment policy handbooks, governing documents like articles and bylaws, and practices like board training.

Importantly, a Gift Acceptance Policy can make it easier for a nonprofit to say, “thanks, but no thanks” to a gift. And, who knows, it could mean the opportunity to say “yes” to an even better one.

Email Me!

If your organization is interested in adopting (or revisiting!) a Gift Acceptance Policy, please don’t hesitate to reach out to Gordon Fischer Law Firm.

For the month of March, I’m offering a special to Iowa nonprofits. I will draft, revise, and edit the ten (10) policies expressly referenced by the IRS on Form 990 (which of course includes a Gift Acceptance Policy) specific to the unique mission of your nonprofit.

My email is:
gordon@gordonfischerlawfirm.com

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On March 6, 1945, Iowan George Nissen patents the trampoline

Iowa Nonprofits Need to Jump Into Adopting and Implementing a Flexible-But-Firm Document Retention Policy

March 6, 2024

Iowa native George Nissen built his first “tumbling device” in 1934 out of angle iron, canvas, and rubber springs. He perfected the contraption, renamed it the “trampoline,” after the Spanish word for springboard. On March 6, 1945, Nissen received a patent for the springy piece of equipment.

Nissen’s trampoline was used to train aviators in World War II and astronauts during the Space Age. Athletes still use it for cross-training and trampolining has become a competitive sport in itself.

The backyard trampoline with a safety net is as ubiquitous as the swing set and — even better — can be repurposed for other uses after the kids get tired of it. People have turned them into everything from chicken coops to greenhouses to sunshades.

You could say a Document Retention Policy is like a trampoline — it will always give you something good to fall back on. (Ouch!)

Seriously, though, nonprofits need a good Document Retention Policy to ensure all information related to their business operations, employees, and finances is managed in a systematic and well-organized manner.

A well-drafted Document Retention Policy sets guidelines for how long particular records and documents — both electronic and paper — must be kept and how and when they should be destroyed. It serves two primary functions. First, making sure your nonprofit meets federal and state legal and regulatory requirements. Second, and just as important, it protects the reputation, privacy, and interests of you and your employees.

It should include a description of each kind of document the Policy covers and the retention time for each, because these can vary. For example, bank statements should be kept for at least three (3) years. On the other hand, the IRS requires that year-end financial statements be kept permanently, while the minimum retention period for general correspondence is two (2) years.

The Policy must also provide detailed information about how to label and store paper documents and electronic files. There should be guidelines for backing up electronic files, as well as a secure method for purging this information.

Following the guidelines of a Document Retention Policy might seem rather time-consuming and nit-picky, but in reality it will improve the efficiency of your record management while at the same increasing the security of the sensitive information in your files.

If you’re dedicated to elevating your nonprofit to new heights, creating, implementing, and observing a Document Retention Policy is essential. (Double ouch!)

 

If your organization is interested in adopting (or revisiting!) a Document Retention Policy, please don’t hesitate to reach out to Gordon Fischer Law Firm.

For the month of March, I’m offering a special to Iowa nonprofits. I will draft, revise, and edit the ten (10) policies expressly referenced by the IRS on Form 990 (which of course includes a Document Retention Policy) specific to the unique mission of your nonprofit.

My email is:
gordon@gordonfischerlawfirm.com

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March 5, 1770: The Boston Massacre

And, The “Must-Have” Conflict of Interest Policy in Nonprofit Governance

March 5, 2024

On March 5, 1770, a group of American colonists gathered outside Boston’s Custom House on King Street and began taunting the British private who was guarding it.

The soldier sent word to his regiment that he needed backup, and the colonists sent word to anyone who would listen that they wanted more people to join them. You know the rest — someone in the rowdy mob threw an object that hit a British soldier in the head and when he fired into the crowd other soldiers discharged their muskets as well.

After the smoke had cleared, 11 colonists had been shot and five would die from their injuries.

In America, the event became known as the “Boston Massacre” while in Britain it was referred to as “the incident on King Street.” Whatever you call it, the tensions between the two sides had become a deadly conflict.

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Conflicts of interest rarely — if ever — turn bloody. But that doesn’t mean they can’t harm a nonprofit.

Conflicts of interest can arise in a nonprofit when someone there has a personal interest in the outcome of a decision.

A Conflict of Interest Policy is one of the most powerful tools a nonprofit can adopt to protect itself from situations that involve mixing personal and organizational interests that might compromise its reputation and mission.

Donors and the public want to feel good about supporting an organization that is committed to ethical principles. Implementing and enforcing a Conflict of Interest Policy sends a message that their interests are aligned with yours.

Conflicts of interest aren’t always clear cut, which is why a well-drafted policy is so important.

Board members are frequently in the position of having a conflict of interest because of their decision-making role. A conflict might arise when a board member has a financial stake in a company that the nonprofit is considering for a contract. Or is involved in an issue that might impact a family member, friend, or business associate.

If not managed properly, conflicts can lead to actions that violate a nonprofit’s mission, erodes public trust, and even threatens its tax-exempt status.

Although the IRS doesn’t require nonprofits to have a Conflict of Interest Policy to maintain their tax-exempt status, the IRS Form 990 specifically asks if they have one. (You’ll recognize the IRS Form 990 as the “tax return” that all nonprofits must file every year.) This means the IRS considers it a “best practice” — and your nonprofit should adopt one if it hasn’t already.

A comprehensive Conflict of Interest Policy addresses a range of situations, describes how they can arise, and provides guidelines for handling them. It explains the process for individuals to disclose any potential conflicts they may have, and if a conflict is present, a way to recuse themselves.

The Policy should establish how to handle a conflict of interest if one does occur, such as documenting its nature, the steps to address it, and the outcome. Having a clear record of how conflicts were handled demonstrates accountability and transparency — the kind of values donors and the public look for in nonprofits they want to support

That’s because even the hint of a conflict of interest that is not managed properly can lead to a lack of trust and disillusionment.

A Conflict of Interest Policy can protect your nonprofit from a lot of potential problems — you don’t want to go down in history as having made a bad decision that could have been avoided.

If your organization is interested in adopting (or revisiting!) a Conflict of Interest Policy, please don’t hesitate to reach out to Gordon Fischer Law Firm.

For the month of March, I’m offering a special to Iowa nonprofits. I will draft, revise, and edit the ten (10) policies expressly referenced by the IRS on Form 990 (which of course includes a Conflict of Interest Policy) specific to the unique mission of your nonprofit.

My email is: gordon@gordonfischerlawfirm.com

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March Fourth (Forth)!

Your Fave Iowa Nonprofits MUST Adopt These Ten (10) Policies

March 4, 2024

I. INTRODUCTION

The date that is also a command: MARCH FOURTH! Your fave Iowa Nonprofit MUST Adopt these Ten (10) “must-have” polices.

II. IRS FORM 990

Every nonprofit, every year, must complete and file a version of Form 990, which the IRS calls its “Return of Organization Exempt From Income Tax.” The “long” version of Form 990 asks about many financial matters – donations, money on hand, non-cash assets, breakdown of expenses, and so on.

Form 990 goes even further, however, and asks nonprofits if they have certain policies in place. In fact, there are ten (10) specific policies that the IRS asks about on Form 990.

To be clear, the IRS does not mandate adopting these ten (10) policies. But the IRS, at least to me, is signaling what policies nonprofits should have in place. Again, my read of Form 990 is that the IRS is showing nonprofits what it considers to be “best practices.”

III. REASONS FOR THESE TEN (10) POLICIES AND THEIR BENEFITS

One might ask, if these policies are not absolutely required, why have them? These ten (10) policies provide substantial benefits, including but hardly limited to:

  • Enhanced confidence of donors and other stakeholders
  • Consistent framework for decision making
  • Increased compliance with federal, state, and local laws
  • Reduced risk to the nonprofit and its management and governing board

The existence of policies doesn’t mean compliance is always assured of course, but having policies in place provides a framework and sets expectations for a nonprofit’s Officers, Directors, donors, employees, volunteers, and other stakeholders. Such policies can be referenced if (when) issues arise.

Another major reason to invest in adopting these policies is because the IRS audits tax-exempt nonprofits, just as it audits companies and individuals. Having certain policies in place will only serve to benefit the nonprofit should it happen to be audited. Also, proper policies provide a foundation for soliciting, accepting, and facilitating charitable donations.

Last, but not least, Form 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 nonprofit’s Form 990 to ensure the nonprofit is compliant, putting charitable donations to good use, and continuing to operate in alignment with its overall mission.

IV. WHAT POLICIES ARE WE TALKING ABOUT?

Let’s cover all ten (10) policies the IRS asks nonprofits to report on in its Form 990.

I’ll discuss each policy in alphabetical order.

1. COMPENSATION

Data related to compensation is reported in multiple sections on Form 990: Part I, Part VI, Part VII, Part IX, and Schedule J.

Competitive compensation is equally crucial for nonprofits as it is for for-profits. Not only does a Compensation Policy establish salary ranges, but it also outlines updated job descriptions, relevant salary administration, and performance management to establish equality and equity in the nonprofit’s compensation practices.

Additionally, a Compensation Policy should include a statement outlining the organization’s philosophy and strategy regarding compensation. This statement clarifies to both current and prospective employees, as well as Officers, Directors, donors, and other stakeholders, how the compensation structure aligns with and supports the nonprofit’s mission.

2. CONFLICT OF INTEREST

Found on Form 990 Part VI, Section B, Line 12 a-c.

A Conflict of Interest Policy serves two crucial purposes. Initially, it mandates that Officers and Directors disclose any conflicts or potential conflicts they may have. Subsequently, it prohibits individual Officers and Directors from participating in votes related to matters in which a conflict exists.

Form 990 inquires about the existence of a Conflict of Interest Policy and questions how the nonprofit determines and manages Officers and Directors who have an actual or perceived conflict of interest. This Policy is of considerable importance, as inadequately and unethically managed conflicts of interest can lead to sanctions against both the nonprofit and the individual(s) involved with the conflict(s).

3. DOCUMENT RETENTION AND DESTRUCTION

Found on Form 990 Part VI, Section B, Line 14.

The Document Retention and Destruction Policy (sometimes called “DRD Policy”) is like sanctioned spring cleaning. It clearly defines what is no longer needed and when.

A well drafted DRD Policy clarifies four (4) practices related to the handling of documents:

  • What types should be retained;
  • How they should be filed;
  • For what duration; and
  • Deletion and destruction techniques.

Such a Policy is very useful for ensuring important documents such as financial information, employment records, contracts, etc. are stored properly for the standard period of time as may be needed for tax, business, and other regulatory purposes. No doubt, a proper DRD Policy is incredibly important for both ease of operation and should litigation or governmental investigation arise.

4. FINANCIAL POLICIES AND PROCEDURES

While Form 990 doesn’t make a specific ask about a nonprofit’s financial policies, they are equally valuable. A Financial Policy guides a nonprofit in the organization, collection, and reporting of financial data.

Different than the Investment Policy (as discussed below), financial policies specifically address guidelines for making financial decisions, reporting the financial status of the nonprofit, managing funds, and developing financial goals. The financial management policies and procedures should also outline the budgeting process, investment reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing will take place.

5. FORM 990 REVIEW

Found on Form 990 Part VI, Section B, Line 11.

Form 990 asks the following questions:

Has the organization provided a complete 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 posing these questions, the IRS is indicating that careful distribution and review of Form 990 prior to filing is highly advisable. This Policy proves highly beneficial in outlining the specific procedures for distribution and review by the governing body, such as the Board of Directors. It also acts as a reminder to nonprofit leaders that Form 990 is coming due!

6. FUNDRAISING

The topic of fundraising gets substantial attention on Form 990; fundraising income and expenses are asked about in Part I, Part IV, Part VIII, Part IX, and Schedules G and M.

Any nonprofit that conducts some type of charitable fundraising, which is most, needs a Fundraising Policy. This Policy should include provisions for compliance with local, state, and federal laws, as well as the ethical norms the nonprofit chooses to abide by in fundraising efforts. Remember that fundraising encompasses not only the solicitation of donations, but also the receipt of donations.

7. GIFT ACCEPTANCE

Gifts and contributions are referenced many times on Form 990: Part I, Part IV, Part V, Part VIII, Part IX, and Schedule M.

Don’t mistake the Gift Acceptance Policy with the Fundraising Policy. While related, they are completely separate, and both necessary. A well written Gift Acceptance Policy provides written direction on evaluating proposed non-cash donations. This Policy should also grant some much-needed guidance for kindly rejecting donations that can carry extraneous liabilities an obligations the nonprofit is not readily able to manage.

8. INVESTMENT

One way Officers and Directors may fulfill their fiduciary responsibilities to the nonprofit is through investing assets to further the nonprofit’s goals. As you can imagine, before investing, the nonprofit should have an Investment Policy in place to define who is accountable for the investment decisions. Additionally, this Policy should offer guidance on activities of growing/protecting the investments, earning interest, and maintaining access to cash if necessary.

A nonprofit’s Investment Policy should be written to give management personnel the authority to make investment decisions, as well as preserve the governing authority’s oversight ability. Beyond the specifics of investments, this Policy can also govern financial management decisions regarding situations like accepting charitable gifts of securities.

If a professional financial advisor or investment manager is hired to implement investments and offer advice, this person’s role can be accounted for in the Investment Policy as well. Form 990 does not ask if a nonprofit has a specific Investment Policy, but it does refer to investments in multiple places throughout the form, and the need for a defined policy is clear.

9. PUBLIC DISCLOSURE

Found on Form 990 Part VI, Section C, Lines 18-20.

Speaking broadly, nonprofits exist to serve the public in some way or another, and some nonprofit documents must be made available to the public upon request. Other documents can be kept entirely internal. This Policy should overview both what documents the nonprofit must disclose and also to what extent other non-required documents and information will be shared.

Form 990 specifically asks the filing nonprofit to report if certain documents are made available to the public, such as governing documents (like the bylaws), financial statements, and the Conflict of Interest Policy. Additionally, Form 990 asks for the name, address, and phone number of the individual(s) who possesses the financial “books” and records of the nonprofit.

10. WHISTLEBLOWER

Found on Form 990 Part VI, Section B, Line 13. 

All organizations, including nonprofits, are prohibited from retaliating against employees who “blow the whistle” against employer practices. A Whistleblower Policy will help protect a nonprofit from state and federal law violation and will encourage timely investigation and solutions to complaints. Overall, the Policy should set a process for complaints to be addressed and include protection for the whistleblower(s).

A Whistleblower Policy also serves as encouragement for staff, volunteers, and other stakeholders to come forward with credible information on illegal practices or violations of the nonprofit’s policies. It does this by specifying that the nonprofit will protect the individual from retaliation, and identifies those Officers, Directors, employees, or outside parties to whom such information can be reported.

 

If your organization is interested in adopting (or revisiting!) these ten (10) must-have policies, please don’t hesitate to reach out to Gordon Fischer Law Firm.

For the month of March, I’m offering a special to Iowa nonprofits. I will draft, revise, and edit the ten (10) policies expressly referenced by the IRS on Form 990 specific to the unique mission of your nonprofit.

My email is:
gordon@gordonfischerlawfirm.com

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With Lots of Help From My Friends:

On March 3, 1887, Helen Keller Meets Her Teacher Anne Sullivan

Teach Your Nonprofit to Adopt Ten (10) Policies

March 3, 2024

On this date (March 3), in 1887, Anne Sullivan began teaching six (6) year-old Helen Keller, who lost both her sight and hearing after a severe illness as an infant. Under Sullivan’s tutelage, including her pioneering “touch teaching” techniques, Keller flourished, eventually graduating from college and becoming an international lecturer and activist. Sullivan, later dubbed “the miracle worker,” remained Keller’s interpreter and constant companion until Sullivan’s death in 1936.

It won’t take a miracle for your favorite Iowa nonprofit to level up, way up.

You simply need to invest in adopting the ten (10) “must-have” policies. The policies will help Officers, Directors, donors, employees, volunteers, and other stakeholders work better together by providing a framework for making decisions in the best interest of the organization and its mission.

One of the primary reasons a nonprofit should invest in strongly written, organization-specific policies is these can assist the nonprofit in maintaining compliance with IRS tax-exemption rules. The IRS Form 990 asks nonprofits about policies and procedures that demonstrate they are qualified for tax-exempt status by conducting their activities consistent with that purpose.

The IRS doesn’t require nonprofits to adopt governance policies. But the fact it specifically asks about them on the Form 990 is a very strong indication it considers these “best practices.” Consider it a nonprofit’s Braille of success – a tactile roadmap that, like Helen Keller and Anne Sullivan taught us, ensures everyone sees the mission clearly. In short, your favorite Iowa nonprofit needs to do this.

Here is the list of the ten (10) policies referenced by the IRS on its 990 Form:

1. Compensation Policy
2. Conflict of Interest Policy
3. Document Retention and Destruction Policy
4. Financial Policies and Procedures
5. IRS Form 990 Review Policy
6. Fundraising Policy
7. Gift Acceptance Policy
8. Investment Policy
9. Public Disclosure Policy
10. Whistleblower Policy

 

Let’s look at each policy.

1. COMPENSATION

Data related to compensation is reported in multiple sections on Form 990: Part I, Part VI, Part VII, Part IX, and Schedule J.

Competitive compensation is just as important for employees of nonprofits as it is for for-profit 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 Officers, Directors, donors, employees, volunteers, and other stakeholders how proper compensation supports the nonprofit’s mission, should be included in the Compensation Policy.

2. CONFLICT OF INTEREST

Found on Form 990 Part VI, Section B, Line 12 a-c.

A Conflict of Interest Policy should do two important things. First, require board members with a conflict (or a potential conflict) to disclose said conflict. Second, 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 conflict of interest policy defines conflicts of interest, identifies the classes of individuals within the organization covered by the policy, facilitates disclosure of information that can 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, manager, or key employee can 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 doesn’t 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 don’t 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 nonprofit determines and manages board members who have an actual or perceived conflict of interest. This policy is hugely important, as conflicts of interest that are not successfully and ethically managed can result in sanctions against both the nonprofit and the individual with the conflict(s).

3. DOCUMENT RETENTION AND DESTRUCTION

Found on Form 990 Part VI, Section B, 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 (sometimes called, simply, a “DRD Policy”) is useful for a number of reasons. The principle rational as to why any nonprofit 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 is incredibly
important should litigation or governmental investigation arise.

A strong, clear DRD Policy also allows nonprofits to save time, 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!

4. FINANCIAL POLICIES AND PROCEDURES

Different than the Investment Policy (as discussed below), Financial Policies and Procedures specifically address guidelines for making financial decisions, reporting financial status of the nonprofit, managing funds, and developing financial goals. The Financial Policies should also outline the budgeting process, investment reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing will take place. Form 990 does not make a specific ask about a nonprofit’s financial policies, but this type of policy will serve as an indispensable guide
to organizing, collecting, and reporting financial data.

5. FORM 990 REVIEW

Found on Form 990 Part VI, Section B, Line 11.

Form 990 asks the following questions:

Has the organization provided a complete 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 careful distribution and review of Form 990 prior to filing is optimal. This policy is extremely useful in clarifying the specific process for distribution and procedure review by the governing body (such as the Board of Directors). It also acts as a reminder to nonprofit leaders that Form 990 is coming due!

6. FUNDRAISING

The topic of fundraising gets substantial attention on Form 990; fundraising income and expenses are asked about in Part I, Part IV, Part VIII, Part IX, and Schedules G and M.

Almost every nonprofit needs a Fundraising Policy, as so many nonprofits 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 nonprofit chooses to abide by in fundraising efforts. Remember that fundraising doesn’t just include solicitation of donations, but also receipt of donations.

7. GIFT ACCEPTANCE

Gifts and contributions are referenced many times on Form 990: Part I, Part IV, Part V, Part VIII, Part IX, and Schedule M.

While related to the Fundraising Policy, the Gift Acceptance Policy is different, as it relates to how nonprofits will handle certain types of assets. 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 nonprofit is not readily able to manage.

8. INVESTMENT

One way a board of directors can fulfill their fiduciary responsibility to the nonprofit is through investing assets to further the nonprofit’s goals. But, before investment vehicles are used, the nonprofit 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 Investment 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 nonprofits 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 a nonprofit has a specific Investment Policy, but it does refer to investments in multiple places throughout the form, and a well-drafted Investment Policy is an obvious need.

9. PUBLIC DISCLOSURE

Found on Form 990 Part VI, Section C, Lines 18-20.

Speaking broadly, nonprofits exist to serve the public in some way or another, and some nonprofit documents must be made available to the public upon request. Other documents can be kept entirely internal. This policy should overview (1) what documents the nonprofit must 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 nonprofit to report if certain documents are made available to the public, such as governing documents (like the Bylaws), financial statements, and the Conflict of Interest Policy. Additionally, Form 990 asks for the name, address, and phone number of the individual(s) who possesses the financial “books” and records of the nonprofit.

10. WHISTLEBLOWER

Found on Form 990 Part VI, Section B, Line 13.

Nonprofits, along with all organizations, 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 nonprofit from the risk of state and federal law violation and encourage sound, swift responses of investigation and solutions to complaints.

A Whistleblower Policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of the nonprofit’s policies, specifies that the nonprofit will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported.

Investing in these 10 policies is no optical illusion – it’s a visionary step towards nonprofit success and well-being. They will help you toward achieving the financial, operational, and strategic goals of your nonprofit. You will feel good about putting into place practices that provide clarity of action, a framework for ethical practices, and systems for decision-making.

If you already have some, any, or all of these policies in place, when were they last updated? Changes in the size of your nonprofit and the scope of its activities may have changed since the policies were adopted. State and federal laws regarding nonprofits change as well. It might be time to review what policies your nonprofit has in place and identify any out-of-date content, gaps, or errors that need to be fixed.

Don’t wait for a miracle to make an investment in your organization by adopting these ten (10) policies that will go a long way toward its success and well-being.

If your organization is interested in adopting (or revisiting) these ten (10) must-have policies, please don’t hesitate to reach out to Gordon Fischer Law Firm.

For the month of March, I’m offering a special to Iowa nonprofits. I will draft, revise, and edit, the ten (10) policies expressly referenced by the IRS on Form 990 specific to the unique mission of your nonprofit.

My email is:
gordon@gordonfischerlawfirm.com

 

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In Honor of the Birthday of Dr. Seuss

A Special Rhyme for Iowa Nonprofits About the Importance of a Compensation Policy

March 2, 2024

The nonprofit didn’t plan.
It had no policy for pay.
So folks never knew
What might happen one day.

And then it arrived!
A plan for the pay!
And not just a plan, a policy — hooray!

It was clear!
It was fair!
It was legal and true!
Staff, the board, and donors all said, “Yoo-hoo!”

Today would have been the 115th birthday of Theodor Seuss Geisel (March 2, 1904-Sept. 24, 1991) — the author and illustrator of The Cat in the Hat, Green Eggs and Ham, The Lorax, and Horton Hears a Who! and many, many more classic books for children.

And to quote Dr. Seuss, no matter your nonprofit’s size and mission, you need a compensation policy for all employees that is not a Grinchy “two sizes too small.”

Oh, the places you’ll go with good policy!

A clear and strong compensation policy isn’t just about wages and benefits, it signals to employees, donors, and the public that the care you put into fulfilling your nonprofit’s mission extends to the people who are integral to its success.

By adopting such a policy, you make clear the nonprofit’s values and philosophy when it comes to compensating its employees. A well-drafted Compensation Policy lays out pay tiers and benefits and how they are determined and approved; describes potential conflicts of interest and how they can be avoided; and includes comparability data information that shows how your nonprofit determines compensation based on similarly-situated organizations.

Your nonprofit’s compensation policy will help keep you on track when making hiring decisions and planning — and sticking to! — your budget.

And, remember, a good Compensation Policy doesn’t just tell employees where they are on a pay scale within the organization and the benefits that are available. It lays out for them in plain language how compensation decisions are made, who makes them, and what they can (should?) do to be successful in the organization.

Even if you’re comfortable with your nonprofit’s current Compensation Policy — when was the last time it was reviewed by the Board of Directors and a qualified attorney with expertise in nonprofit law? Whether it’s a revision to reflect a new labor law or fine-tuning to add clarity, a robust up-to-date Compensation Policy provides a fair and consistent framework for making sure employees are paid appropriately for their work.

Delaying or blowing off a review of a Compensation Policy can have dire consequences for a nonprofit. There are a host of state and federal legal requirements when it comes to employees and hiring, from pay to working conditions to benefits. In addition, the IRS requires nonprofits follow specific rules when it comes to compensation in order to maintain their tax-exempt status.

A compensation policy, you will find
Is beneficial to all inclined.

You will like it on a boat.
You will like it with a goat.

You will like it in the rain.
You will like it on a train.

You will like it here or there
You will like it ANYWHERE!

If your organization is interested in drafting or revisiting its compensation policy, don’t hesitate to reach out to Gordon Fischer Law Firm.

For the month of March, I’m offering a special to Iowa nonprofits. I will draft, revise, and edit, the ten (10) policies expressly referenced by the IRS on Form 990 specific to the unique mission of your nonprofit.

My email is: gordon@gordonfischerlawfirm.com 

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Happy Birthday Dr. Seuss! 

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March: Lamb or Lion?

While Iowa’s Weather Changes, Some Things Never Do – Every Iowa Nonprofit Should Adopt Ten (10) Policies

March 1, 2024

Did March come in like a lamb or lion?

Wow, Iowa weather has been completely crazy the last few days. In the last week we’ve experience all four seasons: Fall, Spring, Summer, Winter. In just a single week!

While Iowa’s weather may be ever-changing, some things never change. Such as the ten (10) specific policies that every nonprofit should adopt. Adopting a strong set of policies that provide operational, financial, and legal guidelines is one of the best things a nonprofit can do to steer and guide its board and staff.

During this month of March (2024), I’ll be explaining the policies nonprofits need to establish a solid foundation for maintaining their financial health, improving their operations, and fulfilling their missions.

A well-drafted nonprofit policy will:

  • Enhance the confidence of donors and other stakeholders;
  • Establish a consistent framework for decision-making;
  • Improve compliance with federal, state, and local laws;
  • Reduce myriad risks to its board, staff, volunteers, and donors.

The IRS requires nonprofits to file Form 990 every year. IRS Form 990 is the “tax return” which all nonprofits must file. IRS Form 990 expressly references ten (10) specific policies on its Form 990.

The IRS does not currently require nonprofits to adopt these polices. However, by expressly asking about these specific policies on Form 990, it is clear the IRS is strongly, strongly encouraging nonprofits to adopt these policies.

In alphabetical order, the ten (10) policies referenced on IRS Form 990:

1. Compensation Policy. States compensation ranges for positions, keeps job descriptions current, outlines salary administration, and establishes a process for management performance and discipline. It also explains philosophy of how compensation supports the organization’s mission.

2. Conflict of Interest Policy. Requires members with a conflict (or potential conflict) to disclose it and excludes individual board members with a perceived conflict from voting on matters in which they may unfairly benefit.

3. Document Retention and Destruction Policy. Clarifies the types of documents that should be retained, how they should be filed, and for how long, as well as describes proper deletion and/or destruction techniques.

4. Financial Policies and Procedures. Provides specific guidelines for financial decision-making, reporting the nonprofit’s financial status, managing funds, and developing financial goals. It should also outline the budgeting process, investment reporting, what accounts may be maintained by the nonprofit, and when scheduled auditing must occur.

5. Fundraising Policy. Describes provisions for compliance with local, state, and federal laws, as well as ethical practices the nonprofit follows in its fundraising efforts, including soliciting donations.

6. Gift Acceptance Policy. Different from a Fundraising Policy, it establishes how certain types of assets — specifically non-cash donations — are handled by providing protocols for their evaluation and steps for accepting or politely declining them.

7. Investment Policy. Designates who is accountable for investment decisions and offers guidance on growing and protecting investments and maintaining access to cash.

8. IRS Form 990 Review Policy. Lays out the specific steps for distribution and the procedural review of IRS Form 990 to ensure compliance and maintain tax-exempt status.

9. Public Disclosure Policy. Describes what organizational documents must be made available to the public upon request and those that will be kept internal.

10. Whistleblower Policy. Establishes a process for handling whistleblower complaints and specifically prohibits retaliation against employees reporting on credible suspicions of illegal practices or nonprofit policies.

Iowa nonprofits make transformational investments in their communities in a wide range of areas: education, animal welfare, the environment, children, and the arts, among many others. Adopting these 10 policies is an investment that nonprofits must make in themselves to successfully carry out their missions forever.

For the month of March, I’m offering a special to Iowa nonprofits. I will draft, revise, and edit, the ten (10) policies expressly referenced by the IRS on Form 990 specific to the unique mission of your nonprofit. 

Questions about the ten (10) policies referenced on IRS Form 990?

My email is: gordon@gordonfischerlawfirm.com

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YOUR FAVORITE NONPROFIT NEEDS THESE TEN (10) POLICIES

I. IRS FORM 990

Every nonprofit, every year, must complete and file a version of Form 990, which the IRS calls its “Return of Organization Exempt From Income Tax.” Just when the “long” version of IRS Form 990 asks about many financial matters – donations, money on hand, non-cash assets, breakdown of expenses, and so on.

IRS Form 990 goes even further, however, and asks nonprofits if they have in place certain policies. In fact, there are ten (10) specific policies which the IRS asks about on Form 990. To be clear, the IRS does not mandate adopting these ten (10) policies. But the IRS, to me, is at the least signaling what polices nonprofits should have in place. Again, my read of Form 990 is
that the IRS is showing nonprofits what it considers to be “best practices.”

II. REASONS AND BENEFITS TO ADOPT THESE TEN (10) POLICIES

One might ask, if these policies are not absolutely required, why have them?

Generally, these ten (10) policies provide substantial benefits, including but hardly limited to:

  • Enhanced confidence of donors and other stakeholders
  • Consistent framework for decision making
  • Increased compliance with federal and state laws
  • Reduced risk to the nonprofit and its management and governing board

The existence of a policy doesn’t mean compliance is assured, of course, but having policies in place provides a framework and sets expectations for a nonprofit’s board members, employees, donors, volunteers, and other stakeholders. Such policies can be referenced if (when) issues arise.

Another major reason to invest in adopting these policies is because the IRS audits tax-exempt nonprofits, just as it audits companies and individuals. Having certain policies in place will only serve to benefit the nonprofit should it happen to be audited. Also, proper policies provide a foundation for soliciting, accepting, and facilitating charitable donations.

Last, but not least, Form 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 nonprofit’s Form 990 to ensure the nonprofit is compliant, putting charitable donations to good use, and continues to operate in alignment with its overall mission.

III. WHAT POLICIES ARE WE TALKING ABOUT?

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, non-cash assets, and more. Let’s cover all ten (10) policies the IRS asks nonprofits to report on in its Form 990. I’ll discuss each policy in alphabetical order.

1. COMPENSATION

Data related to compensation is reported in multiple sections on Form 990: Part I, Part VI, Part VII, Part IX, and Schedule J.

Competitive compensation is just as important for employees of nonprofits as it is for for-profit 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 nonprofit’s mission, should be included in the compensation policy.

2. CONFLICT OF INTEREST

Found on Form 990 Part VI, Section B, Line 12 a-c.

A conflict of interest policy should do two important things. First, require board members with a conflict (or a potential conflict) to disclose said conflict. Second, 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 conflict of interest policy defines conflicts of interest, identifies the classes of individuals within the organization covered by the policy, facilitates disclosure of information that can 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, manager, or key employee can 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 doesn’t 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 don’t 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 nonprofit determines and manages board members who have an actual or perceived conflict of interest. This policy is hugely important, as conflicts of interest that are not successfully and ethically managed can result in sanctions against both the nonprofit and the individual with the conflict(s).

3. DOCUMENT RETENTION AND DESTRUCTION

Found on Form 990 Part VI, Section B, 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 (sometimes called, simply, a “DRD policy”) is useful for a number of reasons. The principle rational as to why any nonprofit 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 is incredibly important should litigation or governmental investigation arise.

A strong, clear DRD policy also allows nonprofits to save time, 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!

4. FINANCIAL POLICIES AND PROCEDURES

Different than the investment policy (as discussed below), financial policies specifically address guidelines for making financial decisions, reporting financial status of the nonprofit, managing funds, and developing financial goals. The financial management policies and procedures should also outline the budgeting process, investment reporting, what accounts may be maintained by
the nonprofit, and when scheduled auditing will take place. Form 990 does not make a specific ask about a nonprofit’s financial policies, but this type of policy will serve as an indispensable guide to organizing, collecting, and reporting financial data.

5. FORM 990 REVIEW

Found on Form 990 Part VI, Section B, Line 11.

Form 990 asks the following questions:

Has the organization provided a complete 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 careful distributing and reviewing Form 990
prior to filing is optimal. This policy is extremely useful in clarifying the specific process for
distribution and procedure review by the governing body (such as the board of directors). It also
acts as a reminder to nonprofit leaders that Form 990 is coming due!

6. FUNDRAISING

The topic of fundraising gets substantial attention on Form 990; fundraising income and expenses are asked about in Part I, Part IV, Part VIII, Part IX, and Schedules G and M.

Almost every nonprofit needs a fundraising policy, as so many nonprofits 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 nonprofit chooses to abide by in fundraising
efforts. Remember that fundraising doesn’t just include solicitation of donations, but also receipt
of donations.

7. GIFT ACCEPTANCE

Gifts and contributions are referenced many times on Form 990: Part I, Part IV, Part V, Part VIII, Part IX, and Schedule M.

While related to the fundraising policy, the gift acceptance policy is different, as it relates to how nonprofits will handle certain types of assets. 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 nonprofit is not readily able to manage.

8. INVESTMENT

One way a board of directors can fulfill their fiduciary responsibility to the nonprofit is through investing assets to further the nonprofit’s goals. But, before investment vehicles are used, the nonprofit 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 nonprofits 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 a nonprofit has a specific investment policy, but it does refer to investments in multiple places throughout the form, and there is an obvious need.

9. PUBLIC DISCLOSURE

Found on Form 990 Part VI, Section C, Lines 18-20.

Speaking broadly, nonprofits exist to serve the public in some way or another, and some nonprofit documents must be made available to the public upon request. Other documents can be kept entirely internal. This policy should overview (1) what documents the nonprofit must 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 nonprofit to report if certain documents are made available to the public, such as governing documents (like the bylaws), financial statements, and the conflict of interest policy. Additionally, Form 990 asks for the name, address, and phone number of the individual(s) who possesses the financial “books” and records of the nonprofit.

10. WHISTLEBLOWER

Found on Form 990 Part VI, Section B, Line 13. 

Nonprofits, along with all organizations, 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 nonprofit from the risk of state and
federal law violation and encourage sound, swift responses of investigation and solutions to complaints.

A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the nonprofit, specifies that the nonprofit will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported.

IV. CONCLUSION

With nonprofits passion should always lead the way, but good policy will guide and protect your efforts. You can have a huge impact by having your favorite nonprofit adopt the ten (10) policies referenced on IRS Form 990.

I’ll draft these ten (10) policies for only $990. Email me right now at:
gordon@gordonfischerlawfirm.com

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FEBRUARY SUPER SPECIAL SALE:

SHOW LOVE TOWARD YOUR FAVORITE IOWA NONPROFIT, AND GET THE TEN (10) POLICIES WHICH APPEAR ON IRS FORM 990 FOR ONLY $990

$990 FOR THE TEN POLICIES ON IRS FORM 990

Do you want to show love toward your favorite Iowa nonprofit in February? Of course you do! I have just the thing to help. For the ten (10) policies which appear on IRS Form 990, if you act this month, I’m offering the very special, very reasonable flat fee of $990.

Let me provide further details.

Every year, Iowa nonprofits must complete and file IRS Form 990, essentially the “tax return” for nonprofits. The “long version” of Form 990 expressly refers to ten policies, briefly discussed below. While the IRS says it doesn’t require nonprofits to adopt these ten policies, the IRS is clearly signaling what it considers to be “best practices.”

All Iowa nonprofits should adopt (or revise and update) these critically important policies.

In February, to share the love, I will provide Iowa nonprofits the ten documents for the flat fee of $990 (nine hundred and ninety dollars). The flat fee of $990 includes as many conferences with me as you deem reasonably necessary.

The ten policies which appear on IRS Form 990 include (in alphabetical order):

1. Compensation — formalizes the process of determining compensation that is reasonable and not excessive, while also rewarding enough to attract and retain the best possible management and staff

2. Conflict of Interest — assists the organization in avoiding financial or other material benefits flowing to individuals in positions of authority in the nonprofit, and protects it against charges of impropriety involving officers, directors, employees, volunteers, and other stakeholders

3. Document Retention and Destruction — defines what types of documents should be retained, duration of storage, and how documents should be filed/stored for tax, business, and other regulatory purposes

4. Fiscal — specifically addresses guidelines for making financial decisions, reporting the financial status of the organization, managing funds, and developing financial goals

5. Form 990 Review — governs the process for distributing IRS Form 990 to the Board of Directors for review and approval, and identifies any areas that need particular scrutiny

6. Fundraising — guides compliance with local, state, and federal laws, and defines the organization’s own fundraising criteria

7. Gift Acceptance — evaluates non-cash gifts, such as identifying non-cash gifts which could and should be accepted and under what circumstances, and offers guidance on how to decline gifts with liabilities and obligations the organization is not able to
sufficiently manage

8. Investment — determines accountability for investment decisions, offers guidance on growing and protecting investments, and governs overall financial management decisions

9. Public Disclosure — establishes which organizational documents (other than those required by law) will be made publicly available

10. Whistleblower — sets a formal process for grievances (including protection) to encourage sound and swift responses to complaints, and to protect the organization from knowingly (or unknowingly) violating state and/or federal laws

Again, I’ll draft these ten policies for Iowa nonprofits for a flat fee of $990.

Of course, I must always reserve the right to decline representation of any person or entity, for any reason (or even no reason).

If your favorite Iowa nonprofit wants to talk about this super special sale, please email me:
gordon@gordonfischerlawfirm.com

I look forward to hearing from you. Much love to all Iowa nonprofits!

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