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3 Policies a Nonprofit Should Consider Adopting

Written Policy questions on IRS Form 990

On IRS Form 990, and on Form 1023, the IRS asks each organization to indicate whether it has adopted any of the following three policies:

  1. Written Conflict of Interest Policy.
  2. Written Whistleblower Policy.
  3. Written Document Destruction Policy.

There is currently no law, regulation, or IRS ruling that requires any of these policies. However having such policies in place is generally considered a “best practice.”

The IRS goes so far as to include a sample conflict-of-interest policy in the instructions to Form 1023.

Adopting any of these policies is a serious undertaking, not because it is complicated or difficult, but because having such policies can create liabilities for the officers and directors. Why?

Many organizations, particularly the smaller nonprofits, have a very informal governance structure and a high turnover of directors. Policies are often not enforced or communicated to succeeding board members. A board which is not following its own policies could find itself in breach of its duty of care to the organization. So, in some cases, it may be better not to adopt any of these policies if it seems likely that they will not be carefully followed.

On the other hand, a board that is unable to effectively follow a conflict-of-interest policy, a whistleblower policy, and a document destruction policy, is not a very effective board, and should take a good look at itself and consider changes.

Where does one find samples of these policies? A quick Google search will turn up quite a few sample policies that an organization can customize to fit its needs. Involving an attorney is probably a very good idea, but many small organizations take a DIY approach. Here are some samples of each of the three policies (links take you to the Blue Avocado website for nonprofits and will open in a new window):

Conflict of Interest Policy

Whistleblower Policy

Document Retention/Destruction Policy

Two More Policies Nonprofits Should Consider Adopting.

Another important policy for all sizes of organizations to adopt is a Tax Compliance Policy. It sound boring, but it can be very simple and may save the organization unwanted correspondence from the IRS. I’ll be writing about that in an upcoming article and will link to it from here when it is published.

Additionally, many nonprofit organizations reimburse officers, directors, employees, and volunteers for expenses they pay on behalf of the organization. In order that these reimbursements do not become taxable income to the recipients, a written Accountable Plan should be adopted. More on that soon.

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