The Critical Policies Every Nonprofit Needs
Policies are an absolutely critical part of any nonprofit’s infrastructure, and it’s important to set them up correctly from the beginning. The right policies help everyone know what’s expected of them and helps create the right habits and patterns from the beginning. Without the right policies to start, organizations end up creating them as a reaction to things that happen, and that’s both expensive and ineffective.
Nonprofit organizations need at least written bylaws and a conflict of interest policy in order to file for 501(c)(3) status with the IRS. Your bylaws define board positions and how people are elected and removed from board positions, and your policies guide how the organization operates. For effective nonprofit operations, these are the minimum policies we recommend, though others may be needed based on the specifics of each organization.
Conflict of interest policy
The conflict of interest policy protects the organization and its officers/directors from potential conflicts of interest by outlining what’s acceptable and not and defining when potential conflicts must be disclosed to the organization.
Your governance policies lay out the job descriptions for your committees that help keep your organization running smoothly. Committees help spread out the work to avoid burnout of board members or founder’s syndrome where one or two people have disproportionate power.
There are typically three committees we recommend, though the number of committees and their assigned duties can vary based on each organization’s needs. Larger organizations may also have an executive committee of specific board officers.
The governance committee is responsible for board development. They’re the social butterflies who go out and find people to sit on the board. It’s an important task, as around 85% of boards report having an issue with finding board members.
The finance committee is typically chaired by the treasurer of the board and is responsible for monitoring the financials. They oversee reporting, make sure the Form 990 is filed correctly and on time, and keep an eye on the organization’s financial health.
The fundraising/events committee focuses on getting money into the organization. They apply for grants if there aren’t staff members to do so, and they help ensure money coming into the organization abides by the financial policies in place.
The financial policies of an organization govern who does what and ensures appropriate separation of duties. That include things like gift acceptance policies and other guidelines for how money flows into the organization. It also includes how money flows out, including who has authority to sign checks, what the cap is for when two signatures are required on a check, and how expenditures are approved.
Annual reporting requirements and procedures should also be included in either your financial policies or governance policies. That includes IRS reporting requirements, any state-level requirements, and records retention policies that outline how long you keep specific records and why.
Employee or volunteer policies
If your organization has employees or volunteers, it’s important to have clear policies for each, which are typically compiled into an employee or volunteer handbook. It tells people what to expect from you and what you expect from them. That includes things like background checks, drug testing, paid time off, benefits, etc. It should also cover rules for hiring family members, dress code, and minimum age of volunteers. Even if you only have one employee or are an all-volunteer workforce, you need policies that outline how things work.
Policy is what protects you if you have to fire an employee or ask a volunteer to leave. You do not want to set people up to violate a rule they didn’t know existed, so be sure your employees and volunteers all receive a copy of the handbook and sign an acknowledgement that they have read it.
Policies create a foundation for how your organization operates, and it’s critical to have the right policies in place from the very beginning. With the right policies in place, you set your organization up for long-term success. Without them, you could be setting your organization on a path to failure.