Good governance

How Many Policies Do You Really Need?

Well … it depends. The IRS lacks formal authority to require specific governance policies of nonprofits. Yet, IRS officials have indicated that nonprofits that fail to adopt certain policies have a greater chance of being audited.

Just as important, your organization’s IRS Form 990 (which very specifically asks about your governance policies) is increasingly viewed by potential donors, the media and charitable watchdog groups. A series of “no” answers in this section of Form 990 may raise red flags.

The IRS clearly notes that governance policies may depend on the organization’s “size, type and culture.” In addition, organizations should consider the governance policies and practices that are “most appropriate for that organization in assuring sound operations and compliance.”

That said, nonprofits of all sizes are well-advised to consider the following governance policies:

• Conflict of interest – Procedures for identifying, disclosing and dealing with situations where officers, directors or trustees and key employees may have a financial or other conflict.
• Branch affiliation – If applicable, written policies and procedures governing the activities of chapters, affiliates and branches to ensure that their operations are consistent with your organization’s tax-exempt purpose.
• Whistleblower – A process for employees, customers or suppliers to report suspected breaches in ethics or illegal/inappropriate activity without fear of retaliation.
• Document retention and destruction – Guidance on how long records must be kept by your nonprofit before they are destroyed.
• Executive compensation – A clearly articulated process for ensuring that the board has approved “reasonable and not excessive” compensation for the executive director/CEO.
• Gift acceptance – A policy that requires the review of any “non-standard gifts” and guides a nonprofit in the types of gifts it can accept.
• Joint venture policy – If applicable, a policy that evaluates your organization’s participation in joint ventures or similar arrangements with taxable entities as it relates to your tax-exempt status.

Take action by holding a board meeting to review key policies already in place and discuss whether you should adopt any additional policies.

For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.