Does Your Non-Profit Organization Need to Adopt New Policies?

The Form 990 contains new sections that ask extensive questions about organizations’ governance practices and policies.  The Internal Revenue Code has no specific governance requirements, but the IRS believes good governance ensures better compliance with tax laws and more effective safeguarding of assets.  To encourage organizations to adopt policies the IRS feels are beneficial, they have required that organizations disclose whether or not they have certain written policies and in some cases the organization is asked to describe the policy and how it is enforced.  We have outlined the policies mentioned on the Form 990 and the specific disclosures required related to each policy.

Conflict of Interest Policy
A conflict of interest policy is implemented to monitor how people who have influence over the resources of the organization might benefit from this influence.  The IRS has several questions regarding the conflict of interest policy. 

• Does the organization have a written conflict of interest policy?
• Are officers and directors required to disclose annually interests that could give rise to conflicts?
• Does the organization regularly and consistently monitor and enforce compliance with the policy? If yes, describe.
  
  Organizations can have board members and officers sign the conflict of interest policy and a statement indicating interests that could give rise to conflicts each year. 

Compensation Policy
The form contains compensation related questions, which are very specific and require a good deal of disclosure. The organization can only check yes to having a compensation policy if their process for setting compensation for directors and top management includes all of the following:

• Review and approval by independent persons
• Comparability data
• Contemporaneous substantiation of the deliberation and decision
  
  The organization is also asked to describe the process.  The form does not ask if the organization has a written policy related to compensation. The form only asks if the above process is used. We recommend boards adopt a written policy if they feel the organization has the means to comply with the IRS’s guidelines.

Board Review of the Form 990
The organization is asked to disclose if a copy of the Form 990 was provided to each member of the governing body before it was filed.  The entire board does not have to review and approve the Form 990 to check ‘yes’ for this question.  Organizations can simply email the Form 990 to each board member before it is filed.  Some organizations may delegate the Form 990 review to a certain board member or the executive director. A brief description of the review process is required on the Form.

Other Policies
The organization is asked to disclose if it has a written whistleblower policy.  The organization is not required to utilize a whistleblower hotline or other third-party service.  They can simply provide a written process for employees or other stakeholders to voice concerns.  The organization is also asked to indicate ‘yes’ or ‘no’ whether or not it has a written document retention and destruction policy.  The IRS does not provide guidelines for the policy.

The policies outlined in this article are not required by law, and some organizations may have valid reasons for not implementing some of the policies.  However, most organizations will find that adopting these policies will help foster good governance for their organization.