As 2013 comes to a close and we look forward to the New Year, it is a perfect time to consider an important but often overlooked component of nonprofit leadership: policy review.
Policies are an important tool in providing consistency and continuity for your organization.
Certain policies are now required of all nonprofit organizations by the IRS and the Sarbanes-Oxley Act. You might recall the Sarbanes-Oxley Act, or SOX, was enacted by Congress as a result of the corporate financial scandals involving Enron, WorldCom and other large corporations. While most of SOX is focused on publicly-traded companies, certain concepts of this legislation trickled down to even the smallest nonprofits.
For example, you may notice that your auditor pays more attention to the system of internal controls that you have implemented with respect to your accounting processes, and they will ask you questions about the susceptibility of the organization to fraud. Additionally, IRS form 990 has a host of questions regarding policies and board governance. Three policies are required of all nonprofit organizations. Nonprofit leaders will want to adopt these policies to ensure they can respond favorably to the policy compliance questions on the annual form 990.
Conflict-of-interest policy: No individual should benefit from an organization simply by being in a position of authority. Nevertheless, conflicts might arise from time to time between an organization and the individuals serving as board members or key employees, their immediate families, and/or business partners. Each board member should review this policy, disclose any conflicts, and sign this policy. All disclosures should be reviewed by the board and updated annually. Remember, it is not illegal to have a conflict, provided the conflict is disclosed to all board members, the conflicted board member recuses himself from any business where interests create a conflict, all transactions are conducted at “arm’s length,” and such dealings are adequately documented by the organization.
Record retention and destruction policy: This policy will provide guidelines for what documents to retain and for how long. Remember, it is important to adhere to this policy regarding document retention, but also to ensure procedures for destroying documents as indicated in the policy.
Whistleblower compliance policy: This policy is required of all nonprofits and provides an avenue for employees to report wrongdoings while offering protection to such whistleblowers from retaliation. You must name a whistleblower compliance officer and indicate a response time as part of this policy.
While the above three are required of all nonprofits, other policies might be required depending on the specific activities of an organization. For example, any organization providing scholarships or grants should have a recordkeeping and nondiscriminatory policy. This policy will ensure that awards are made based on specific criteria and not in an arbitrary fashion, require recordkeeping in accordance with IRS guidelines, and, for awards to individuals, provide guidelines to ensure the organization does not discriminate on the basis of race, sex, religion, or otherwise discriminate against protected classes.
You can find sample policies to adopt on the IRS website – www.IRS.gov. Another great resource is www.Boardsource.org. Boardsource is a well-respected organization that provides resources for nonprofit leaders.
• Nancy Gonsiorek is a certified public accountant providing audit, tax and consulting services to nonprofit organizations. Her firm, Nancy L. Gonsiorek, CPA, LLC is based in Crystal Lake. She can be reached at 815-455-9462 or firstname.lastname@example.org.