Sunday, June 2, 2013

To Policy or Not to Policy

I know: nonprofit policy is not exactly a sexy subject. But every organization, small or large, needs to have basic governing policies in place.

Why? Some policies are required by law, others strongly recommended by the IRS. Internal policies specific to your organization support consistent and ethical practices for your finances, governance procedures, programs, and facilities. And sometimes the fact that you can say "this is our written policy" can help you deal with challenging people and situations.

So - how can you evaluate your current policies and/or determine what new policies to have in place? Here is some important legal and tax information to guide you:
  • Legal compliance: The Sarbanes-Oxley Act of 2002 has two provisions that are applicable to nonprofits: a prohibition against destruction of documents tied to a criminal investigation and a prohibition of retaliation against whistleblowers. This means you are required by law to have policies on document retention as well as treatment of whistleblowers.
  • Tax compliance: IRS Form 990 (which is required of every California nonprofit, no matter what size) asks whether your organization has adopted a number of specific policies. These are not mandated - there is no law that gives the agency any oversight over corporate governance. However, here's what the IRS says: The absence of appropriate policies and procedures can lead to opportunities for excess benefit transactions, inurement, operation for non-exempt purposes, or other activities inconsistent with exempt status. So it is indeed prudent for your agency to consider having written policies in regard to conflict of interest, Executive Director compensation, gift acceptance, and documentation of Board meeting minutes.
And here are some important questions to ask when you create and/or review organizational policies specific to your nonprofit agency:
  1. Is the policy in alignment with your mission?
  2. Does the policy further the work of the organization?
  3. Will the policy help support staff and volunteers in doing their work better?
  4. Is the policy reflective of your unique organization culture?
  5. Is the policy appropriate for your organization's size, budget, and developmental stage?
  6. Will the policy ensure prudent fiscal and program management?
  7. Does the policy reflect nonprofit best practices, and/or standard practices in your area of service?
Know that you don't have to create policy from scratch. Try googling - there are lots of resources online - or contacting other nonprofits in your network. Feel free to cut and paste. Know too that these policies are not fixed in stone. They are living documents that should be reviewed and revised annually. Lastly, be sure to create a comprehensive policy manual that your staff and board can access readily - there's no point in having policies if you don't use them.