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Q&A #59 – What policies are recommended for a newly formed nonprofit?
For new nonprofit organizations, Part VI, Section B on page 6 of the Form 990 is a good starting point to look for basic guidance related to which governing policies should be adopted in the organization’s early start-up phase. While some of these policies may not be relevant, most new organizations should start, at a minimum, with a conflict of interest policy, whistleblower policy, and document retention and destruction policy. Additionally, I recommend that new organizations consider adopting a code of ethics policy.
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Using Banking Professionals as Trusted Business Advisors [SUBSCRIBERS-ONLY]
When assembling a team of trusted business advisors (“TBAs”), banking professionals should be at the top of your list. By the nature of their work, banking professionals interact with many different types of clients that are experiencing an ever-changing variety of different challenges. Thus, banking professionals generally bring value-added perspectives, opinions, and experiences that make them an important part of any team of TBAs.
Q&A #58 – Are amendments to a nonprofit organization’s Bylaws required to be filed with the government?
A nonprofit organization is not required to file Bylaws amendments with the state or federal government in order for the amendments to go into effect. This treatment is different than amendments to the Articles of Incorporation, which are not considered official until submitted and approved by the state government.
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Assembling a Team of Trusted Business Advisors [SUBSCRIBERS-ONLY]
In the search for different types of information, tactics, and strategies, it is important to draw on traditional internal sources (senior management, staff, and volunteer leadership) as well as external professional business sources. Assembling an experienced team of trusted business advisors (“TBAs”) from nontraditional sources will pay many dividends.
Q&A #57 – Should Board policies be included in a nonprofit organization’s employee handbook?
A good general rule of thumb is that any Board policies that affect the duties of an organization’s staff should be reflected in the employee handbook. How you reflect these policies in an employee handbook is largely a matter of style, preference, and efficiency. There are several different common and acceptable methods.
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The Practical Side of Annual Conflict of Interest Disclosure Statements [SUBSCRIBERS-ONLY]
Most nonprofit organizations have adopted a code of ethics, statement of values, or code of conduct. Within these statements there is always a reference to monitoring, oversight, and transparency related to conflicts of interest. Having a strong conflict of interest policy strengthens your code of ethics posture. Adding robust annual conflict of interest disclosure statements will project an even higher level of assurance that your organization takes its code of conduct seriously.
Q&A #56 – Who should fill out an organization’s annual conflict of interest disclosure statement?
Processes for applying and monitoring conflict of interest policies vary widely for different nonprofits, but the Form 990 is a good starting point for basic guidance. As a practical matter, you want to ensure that the annual conflict of interest disclosure statement is at least filled out by all directors, officers, and “key employees,” as these terms are defined for purposes of Part VI, Line 12b on the Form 990. As a technical matter, all employees and volunteer leaders who are (or could be) “disqualified persons” as defined in Treas. Reg. § 53.4958-3 should also be required to disclose conflicts of interest, so it is prudent to err on the side of distributing the annual conflict of interest disclosure statement more widely.
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Always Add Written Management Responses When There Are Audit Findings [SUBSCRIBERS-ONLY]
Audit findings are not unusual. Most nonprofit organizations will have many more years with audit findings reported by their auditors than years for which there are no findings. Audit findings tend to produce feelings of negativity and thoughts that something is wrong. Adding thoughtful written management responses will turn negative feelings into positive and constructive actions
Q&A #55 – What Board members are considered independent for purposes of reviewing executive compensation?
The key guidance addressing independent review and approval of executive compensation for Form 990 purposes is set forth in Treas. Reg. § 53-4958-6. The key principle is that the persons reviewing and approving executive compensation should not be in a position to economically benefit from the compensation and should not be family members of the person receiving the compensation or otherwise have a business or employment relationship with this person.
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Auditor Continuance: An Annual Question, Not an Annual Change [SUBSCRIBERS-ONLY]
The question of how long to continue with the same auditor is often sitting somewhere off the radar screen. This is both the problem and the answer. The process of asking and answering the auditor continuance question should be part of the audit committee’s standard operating procedures and a standard annual checklist item for the audit committee.
Q&A #54 – What comparability data must a small 501(c)(3) organization review when determining executive compensation?
For small organizations, the rule for reviewing comparability data when determining compensation amounts is relatively easy to satisfy. This Form 990 question is based on Treasury Regulations issued under the “intermediate sanctions” rules. Treas. Reg. § 53-4958-6 provides that organizations with less than $1 million in annual revenue (averaged over the three prior tax years) can satisfy this standard by reviewing “data on compensation paid by three comparable organizations in the same or similar communities for similar services.”
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Recruiting and Using Finance Volunteers in Governance Roles [SUBSCRIBERS-ONLY]
Finance should always have a seat at the leadership table within a nonprofit organization. There is an embedded financial impact in all Board and management decisions. To ensure the delicate balancing act of mission vs. financial health is kept front and center, make thoughtful positioning of volunteers with financial experience a priority when finding and seating your Board of Directors and various committees.
Q&A #53 – How should a nonprofit provide a copy of its Form 990 to the Board before filing?
Virtually all organizations check “Yes” to Part VI, Line 11a on page 6 of the Form 990, to affirm that they provided a complete copy of the Form 990 to all members of their governing Board, and failure to check “Yes” can negatively impact an organization’s reputation and appearance to honor transparency (and for publicly supported charities, affect their rating on charity watchdog websites). However, organizations should put careful thought into what it means to satisfy this standard.
Q&A #52 – Is it better to provide combined PTO or have separate vacation and sick leave policies?
In evaluating whether to provide combined PTO vs. separate vacation and sick leave policies, there is no one answer that applies to all organizations. Both approaches have pros and cons. The choice involves weighing which pros and cons best match your organization’s priorities and capabilities. In general, combined PTO policies are easier to administer, while separate vacation and sick leave policies potentially have lower financial burdens on the organization.
There Is No Perfect Financial Dashboard and That Is Good
The problem with financial dashboards is that everybody has a different idea about what makes up a “perfect” dashboard. Opinions are important and the sharing of those opinions in a collaborative process is value-added. It is important to set up a proper framework for this discussion to develop a financial dashboard that fulfills most of the needs of your organization’s many different end-users, which may be quite different from other organizations. The question to ask is not whether a financial dashboard is “perfect” but whether it is “useful” to your particular organization.