Every nonprofit needs to adopt governance policies and procedures to ensure that its leaders, employees, and volunteers have a clear plan for handling important parts of the organization’s operations. Adopting good governance policies protects not only the nonprofit from inconsistencies and mistakes, but it also protects nonprofit leadership from having to make uncomfortable or difficult decisions on the spot. A nonprofit attorney can help a board examine which policies are most important for the specific organization’s work.
The following are governance policies every nonprofit should have:
The IRS requires that a nonprofit’s conflict of interest policy be approved and adopted prior to filing an application for 501(c)(3) status. In Arizona, nonprofits whose assets exceed $10 million or whose revenues exceeded $2 million the previous year are required to have conflict of interest policies in place. Having a clear procedure for identifying and addressing conflicts of interest ensures that when conflicts arise, they can be handled in a way that is fair and predictable. It also helps to ensure that the nonprofit’s tax-exempt status is protected.
By adopting a clear policy about who has authority to spend money or commit the organization to a financial obligation, and setting limits on how high those obligations can go without board approval, the organization can ensure that assets are protected. This goes beyond just spending money; a good budget policy should also address the process for dealing with budget overages.
Executive compensation policy
Nonprofit leaders should never be a part of the decision-making process for determining their own compensation. The IRS has parameters for what is permissible for tax-exempt nonprofits in setting executive compensation levels. An executive compensation policy for the nonprofit should set the process for determining and documenting executive compensation.
Whistleblower protection policy
Employees who report illegal activities by an employer that could cause public harm are protected by state and federal laws that shield whistleblowers from being retaliated against for those activities. Nonprofits need to make it clear that not only is it the responsibility of directors, officers, and employees to report any breaches in ethical or legal conduct but that those reporting such incidents will not suffer any adverse consequences.
Management should spell out the methods an organization will use to raise money and how it manages donor relationships. In particular, a governance policy describing how the organization will handle offers of large or complicated gifts (like real estate or stock) should be adopted before such things become issues.
Document and records retention policy
Central to any strategy for managing risk is a clear set of rules governing how long an organization will keep its records, and how it will go about destroying them when the time comes. A document retention policy is an important backstop in the event of regulatory review, tax audit, or litigation.
When a church, ministry, or other nonprofit organization in Arizona needs advice about the liability of its Directors, Board Members, or other volunteers, Provident Law’s church and nonprofit attorneys are here to help. We recognize how essential these organizations are to society, and we provide broad transactional and general counsel services to keep them running smoothly. Contact us to learn more.