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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On March 3, 1887, Helen Keller Meets Her Teacher Anne Sullivan
Teach Your Nonprofit to Adopt Ten (10) Policies
