The 501 S(c)ene

The latest view on not-for-profit accounting issues

Best Practices for Not-for-Profit Organizations

“Best practices” can be a buzz phrase you hear a lot, especially when it comes to governance of a not-for-profit organization.  With the overload of information available to organizations, it’s easy to see why some view the task of incorporating best practices into their own activities as a bit daunting. The following are some “basics” that I believe should be considered by all organizations, no matter the size. 

Have a sufficient board of directors – The organization must have a minimum of 3 members. Regardless of the size of the board, it’s recommended that at least a third of them are independent. It’s also in good practice to form an audit/finance committee made up of financially-savvy board members to discuss the organization’s financial health and to communicate with auditors. This committee should also review what type of financial statement engagement is necessary in the upcoming years (i.e., audit, review, agreed-upon procedures).

Have a conflict of interest policy – Keep in mind it’s not enough to just have a policy. In order to be effective, it must be a “living document” within the organization. Have your staff and board review it at least annually and sign as an indication of their compliance. 

Have the board approve executive compensation – This includes any changes to compensation or benefits throughout the year.

Have the board review the annual Form 990 – It’s important to have procedures in place for how this return is reviewed by the board before it is filed.  This is a disclosure that gets reported to the IRS.

Have a fraud whistle blower policy-Include in this policy procedures in place to encourage individuals to report information about fraud or illegal acts. This is one of the most effective ways to uncover fraudulent activities within an organization.

Have an expense reimbursement policy – Make sure this policy includes what types of expenses are reimbursable and what types of documentation is required to qualify for reimbursement.

Remember that these are guidelines – so there isn’t a “one size fits all” approach here. Nonprofit organizations vary drastically from one to the next, so it’s essential that a board reviews these thoughtfully to determine how they will most effectively apply to their activities and operations.

If you’ve already got some or all of these in place – kudos to you!

Jessica Puckett, CPA, CFE