The 501 S(c)ene

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Tips for Good Governance of a Not-for-Profit Organization

I was recently reading an article in the September issue of the Journal of Accountancy that highlighted tips for good not-for-profit governance that were presented at this year’s AICPA Not-for-profit Industry Conference.  It was such a concise, solid list that I thought I’d share it with our blog readers:

1. State the organization’s values in a written code of ethics for board members and present it to them during the orientation process. The code should become part of the not-for-profit’s culture rather than a stale document that is easily forgotten.

2. Maintain a conflict-of-interest policy for board members that requires periodic disclosures and consistent monitoring. Some boards read the policy before every meeting, and some have quarterly or semiannual reminders.

3. Develop a whistleblower policy. This should allow everyone associated with the organization to come forward without fear of retaliation.

4. Establish a document retention and destruction policy. This should undergo legal review to make sure it complies with state and federal laws, and requires regular compliance monitoring.

5. Carefully monitor expense reimbursement. This should conform to the rules of Internal Revenue Code Sec. 62(a) and follow IRS guidelines, requiring documentation and receipts for all purchases over a specific dollar amount, which often is $25.

6. Maintain a gift acceptance policy. This also should be reviewed by legal counsel, and potential gifts should be screened to determine whether ethics, financial circumstances, or other interests are compromised by the acceptance of the gift.

7. Review tax returns. All board members should be allowed to review Form 990, Return of Organization Exempt From Income Tax, before it is filed.

8. Develop a board compensation policy. Not-for-profit board members should not be excessively compensated.  However, in some instances, board members do receive stipends. Any compensation should be documented and approved.

9. Oversee the independent review of financial statements. Best practices call for an independent audit committee that monitors financial practices and is involved in auditor selection. Recruiting board members with financial expertise is critical to this process.

10. Cultivate appropriate procedures for selecting and monitoring grant recipients. Grant-making policies should be made public to avoid the appearance of impropriety.

11. Develop and abide by an endowment spending policy. This can help make sure investment is done responsibly.

12. Create and adhere to a fundraising policy. Although this is seen in practice less frequently, it’s wise to have a written policy that’s monitored for compliance and reviewed with management annually to ensure that fundraising statistics are accurate and tactics are ethical.

13. Disclose governing documents. This aids in transparency.

14. Review the size, structure, and independence of the board. There should be at least five members, with at least two-thirds of members independent, and with a diverse background.

15. Adhere to a meeting minutes policy. Minutes should contain enough detail to determine the quality and extent of discussion, and typically are reviewed and approved at a subsequent board meeting.

I believe we’ve discussed each of these items on the Nonprofit GPS at some point, but it’s nice to see them compiled all together in one place.  How does your not-for-profit organization size up compared to this list of best practices?

Jessica Puckett, CPA, CFE