Required Governance Policies For Nonprofits

Knowing what good governance is can be hard to recognize, however, whether you are a board or a general member, you know when it’s present and you feel it when it’s not. While certain behaviors are required, such as leadership, accountability, open discussions, and transparent practices, the information below helps to outline what you can put in place today to ensure your club is governed well according to what the IRS mandates.

So much of what is written and taught by Your Sports Resource is about relationships, leadership, and how to be a successful club, but we would be remiss if we didn’t visit the formal requirements occasionally. As we have said time and again, each state has its own rules and regulations however there are consistent requirements that are listed on IRS forms 990 and 990N. Even if you are a small non-profit organization, you should comply with what is required from a good governance perspective.

5 Basic Governance Requirements

1. Nonprofits must keep minutes of their Board of Directors meetings as part of their permanent records(and committee meetings for committees that are authorized to act on behalf of the board, such as an executive committee). (See IRS Form 990, Part VI, Section A, line 8)

2. A policy governing conflicts of interest is perhaps the most important policy a nonprofit board should adopt. To have the most impact, the policy should be in writing, and the board and staff should review the policy regularly. (See IRS Form 990, Part VI, Section B, Line 12)

3. The board of directors is responsible for hiring, and establishing the compensation (salary and benefits) of the executive director/CEO by identifying compensation that is “reasonable and not excessive,” Nonprofits filing IRS Form 990 must describe the process they use to approve executive compensation as part of the nonprofit’s responses on the annual return, IRS Form 990, Section VI, Part B, line 15.

4. Require the board to review a copy of the IRS Form 990 before it is filed. (See IRS Form 990, Part VI, Section B, line 11) For smaller nonprofits that only file Form 990-N, make sure the board knows about the annual filing requirement.

5. Tax-exempt nonprofits are required to disclose to the public their three most recently filed annual information returns (IRS Form 990) to demonstrate a commitment to transparency and to make it easier for those seeking financial information. Also, you must disclose your application for tax exemption and any related correspondence.

Additional Practices

There are four additional governance policies that the IRS Form 990 asks whether a charitable nonprofit has adopted. They are not necessarily requirements by the IRS, however, you might need to double-check state requirements.

Either way, these are still good governance practices that should be engaged:

1. Federal law prohibits all corporations, including nonprofits, from retaliating against employees who “blow the whistle” on their employer’s financial management and accounting practices. Adopting a whistleblower protection policy signals to employees, board members, and the donating public that your nonprofit is open to hearing concerns or complaints about its practices, demonstrating that it values transparency and accountability practices.

2. (Part VI, Section B, line 13)

Developing a document retention/destruction policy may seem overwhelming at first, but think of it as simply a record of what types of documents the nonprofit must retain and for how long. The policy should specify that the nonprofit will also adhere to a regular business practice of document destruction according to the schedule referred to in the policy or adopted by the nonprofit from time to time (Part VI, Section B, line 14).

3. A written gift acceptance policy can help manage the expectations of donors, (while treating them with respect) and also serve as guidance for the board and staff members who are either on the asking or receiving end of contributions.

4. Joint ventures: If the organization has participated in a joint venture, the IRS Form 990 asks whether the nonprofit took steps to avoid prohibited private benefits. (Part VI, Section B, line 16)

Sample Joint Venture policy (University of Notre Dame)

If you are unsure how you stand on the above policies, then the Secretary should do an audit of what policies are in place and which aren’t. This should be addressed at the next board meeting as well as ensuring the current policies are fit for their purpose. As your organization grows and changes, policies need to be adapted for those changes.

As a matter of practice, you should institute a plan that reviews all policies once a year. Having that annual review take place at the first board meeting after the AGM, is a great way to bring new board members up to speed. It re-asserts your priority on honesty, integrity, and openness which allows transparent conversations regarding potential conflicts of interest.

Lastly, we recommend that you review and understand IRS forms 990 and 990N as well as ensure you understand your state requirements when it comes to actual governance policies and reporting.