Paul Mueller, from Mueller & Associates, CPA, an EPNRC Community Give Back Partner, shares his insights.
In the wake of the Enron and Arthur Anderson accounting scandals of the last decade, new rules and policies were imposed on public companies regarding the integrity of their accounting and disclosures.
In 2008, the IRS took a leading role in encouraging nonprofits to adopt many of these “best practices” in their operations. So why should a nonprofit be subject to the same rules that apply to publicly-traded companies?
The answer is quite simple. A nonprofit acts as a steward of funds entrusted to it by individual donors, foundations and government entities. In this fiduciary capacity, the nonprofit needs to be transparent in their activities and their oversight of resources. In essence, a nonprofit is in the “public eye” to a similar extent as a publicly-traded company. After all, nothing could be worse for a nonprofit than appearing on the front page of the local newspaper over an accounting scandal.
There is also a very practical reason for having policies. Policies are unbiased and unemotional. If a policy says board members are term-limited, there is no reason to get worked up over a departing board member. It simply happens by policy.
So what are some of the best practice policies to consider:
1. Whistleblower – there is a sign in every New York City subway station that reads, “If you see something, say something.” This should apply in every nonprofit, too. In their biannual survey of global fraud, the Association of Certified Fraud Examiners cites a whistleblower policy as the single most important tool for combatting workplace fraud.
2. Bank Statements – who receives the unopened bank statement (or has access to the online statement)? This person should NOT be the person who writes and mails checks.
3. Conflict of Interest – this is perhaps the most critical, yet the most contentious of policies. Knowing what is a conflict and annually acknowledging the policy and potential conflicts is a must-do for all board members and officers.
4. Term Limits and Rotation – while it may be hard to say good-bye to a valued board member, there is always something to be gained with new blood and perspectives on the board. In addition, board roles, such as Treasurer, should be rotated every few years to a new board member.
5. Gift Acceptance – having a gift acceptance policy can protect the nonprofit from environmental risks associated with real estate as well as the public relations risk of potentially controversial gifts. This policy allows the nonprofit to say “no thanks” when appropriate without appearing arbitrary.
These are only a few policies to consider to help nonprofits operate on a business as normal basis.