Behind every successful nonprofit organization is a Board of Directors that implements and follows best practice policies and procedures. Such policies help to ensure that the Board remains aware of the status of the organization, creates accountability, and helps the Board make unbiased decisions in the best interests of the organization. Outlined below are some practices and key policies that every organization’s Board should consider implementing. It is important to note that effective January 1, 2017 an employee of an organization cannot also function as the “chair” of its Board. Employees can still be on the Board, but this is no longer considered best practice. The actual functions of the Board position, not the title itself (chair, president, etc.), is most relevant.
- A formal IRS Form 990 review process should be implemented whereby a completed copy of IRS Form 990 is distributed or made available to all members of its governing body before filing the form. The Board should create and implement a set process to be followed by the organization to review the 990. This helps to ensure that the Board is aware of what is being reported to the IRS and the outside world, as an organization’s 990 is posted on GuideStar and other websites, and is accessible to anyone that would like to review it.
- The Board must have written conflict of interest policies that will govern the independence of directors, officers, and employees, as well as transactions in which directors, officers, and employees have a financial interest. This policy must cover definitions; disclosure procedures; that the person with the conflict not be present for the deliberation or vote; that he/she not improperly influence the deliberation or voting; and the existence of the conflict and process must be documented in the minutes of any meeting where discussed or acted on. There must also be annually-signed disclosure statements that the Secretary or Secretary’s designee provides to the Chair of the Audit Committee or if there is not one, to the Chair of the Board. The Board will need to actively assess and approve transactions between the nonprofit and its directors, officers, and key employees, including their relatives and other organizational affiliations. An interested person will have to disclose the material facts of his or her relationship to a related party transaction to the Board, and be absent from Board discussions and votes. The Board will need to approve and document that the transaction is fair, reasonable, and in the best interests of the nonprofit, and consider alternative options. The Attorney General will have power to bring action to enjoin or rescind any related party transaction which it determines do not meet the standards.
- The Board should have in place or implement a written whistleblower policy to encourage employees to make anonymous, good faith reports of suspected fraud, corruption, misappropriation, etc., without being fearful of retribution.