According to the Council of Nonprofits, “A policy on conflicts of interest should (a) require those with a conflict (or who think they may have a conflict) to disclose the conflict/potential conflict, and (b) prohibit interested board members from voting on any matter in which there is a conflict.”

In rural America, avoiding Conflicts of Interest can be difficult as many of us serve on more than one board of directors and we try to shop local, meaning we might want to purchase from or contract with one of our board members’ company.

A Conflict of Interest Policy does not say that this is not possible.  It does say that the conflict must be disclosed and limits are placed on how much that board member can contribute to the discussion and decision.

That board member should recuse themselves and it should be noted in the official board minutes.

Here’s how the motion might be recorded:

MOTION to purchase 2 new computers from ABC Corporation per attached bid and Technology Committee recommendation: 1^st, Smith; 2^nd, Jones; vote of 10 ayes, 0 nays, and 1 abstention; Baker abstains due to conflict of owning ABC Corporation.

Here in rural America we also deal with “perceived” Conflict of Interest.  If your last name is the same as a big company in the area owned by your 3^rd cousin once removed and you have no financial interest in the company, you might want to abstain from that vote.  Have it recorded in the minutes so that no one (a competing company?) can come back on the organization and accuse them of favoritism thereby drawing unnecessary negative attention.

Rural American towns have only a finite number of accountants, attorneys, and financial advisors, and we all want them on our boards, so this is another place where a real or perceived Conflict of Interest might arise.

In addition to the policy, a nonprofit needs to have forms prepared and signed annually by each member of the board.  Here each board member will list their real and perceived conflicts, such as “my daughter is an attorney in the firm who handles some of the organization’s legal advice, although she is not the lead attorney.”

The Conflict of Interest policy does not mean that you must avoid all real and perceived conflicts – you just need to be transparent about them, not allow that board member to influence the decision, and record the conflict and abstention.

There is a longer detailed explanation of Conflict of Interest on the Council of Nonprofits website, as well as sample Conflict of Interest policies that your organization can edit for your use and circumstance:  https://www.councilofnonprofits.org/tools-resources/conflicts-of-interest

In Part II of our monthly “Grundy Nonprofit Tools for Success,” the topic is Whistleblower Policy, which is required as part of your nonprofit’s annual federal and state 990.

Whistleblower and other corporate transparency policies are the result of the Sarbanes-Oxley Act of 2002, which is a result of the Enron accounting scandal.  And even though we small nonprofits in Grundy County are not on the scale of Enron, we are corporations and need to adopt and follow the various policies coming out of Sarbanes-Oxley , plus subsequent laws and best management practices.  It is important to note that Illinois has a Whistleblower Act also, so be sure to pay attention to both federal and state guidelines when drafting your local policy.

According to the instructions on the federal 990:  “A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members or outside parties to whom such information can be reported.”

Let’s break this paragraph into main points.

One: staff and volunteers have the right to come forward, so make sure your policy specifies how volunteers can report wrongdoing.

Two: credible information.  Both federal and state laws address that the information has to be credible and gives guidance for how to address false accusations.

Three: illegal practices or violations of adopted policies of the organization.  I believe the bigger exposure for nonprofits is being called out on violation of adopted policies more than illegal practices.  I think it’s also important to distinguish between governance policies and program procedures.  A Whistleblower Policy does not cover how your organization will deal with a client who is unhappy with your services.

Four: specifies how the organization will protect the individual from retaliation.  This gets into employment law, and since I’m not an attorney, I refer you to the Society for Human Resource Management and the National Council of Nonprofits.

Five: identifies those staff or board members or outside parties to whom such information can be reported.  For (especially small) nonprofits in Grundy County, this will take the most discussion and planning.  Where will illegal actions and policy violations most likely occur?  With the executive director and/or board?  Who then will be the person or position to receive the complaint and how will the complaint then be investigated?

Lastly, if this is to assure transparency, the board, staff, and volunteers need to be informed that such a policy exists.  Like Conflict of Interest policies require an annual collection of signatures, I believe an annual reminder of the Whistleblower Policy should occur.  For staff, it should be included in the employee handbook and then give a verbal reminder at a staff meeting.  Copies should be readily available for any board, staff, or volunteer who wants to read it and boards should review it every few years to assure that it remains current and relevant to changing times and related policies.

In Part III of our Grundy County Nonprofit Tools for Success series, we’re highlighting the need for a nonprofit to have a Document Retention and Document Destruction Policy.  This is asked on the IRS 990 in Section B, line 14.

 

As you know, I am not an attorney, but there’s plenty of free and detailed information on the internet – provided that you are careful about the sources you choose to use.

 

Always start with the IRS.  The document “Compliance Guide for 501c3 Public Charities” can be found at https://www.irs.gov/pub/irs-pdf/p4221pc.pdf.  The conversation about document retention and destruction beings on page 14.

 

The second always is to check with Illinois law and the best place for that is the Illinois Attorney General’s Office, Building Better Charities page, found at https://www.illinoisattorneygeneral.gov/charities/index.html

 

Non-legal resources include a state’s “association of nonprofits.”  For Illinois, that is Forefront.org, which used to be Donors Forum.

 

My favorite site for all things nonprofit governance, rules, and best practices is the Council of Nonprofits.

 

If you go to https://www.councilofnonprofits.org/tools-resources/document-retention-policies-nonprofits, you’ll find all sorts of details about document retention and destruction policies, samples policies, and the law behind the requirement that nonprofits adopt and enforce this policy.

 

And with technology changing and advancing and more companies (including nonprofits) starting to scan documents, store documents in the cloud, and using email rather than postal mail, here are a few pointers from the Council of Nonprofits that I like:

 

Document retention policies apply equally to documents saved in the cloud, on a server, or in a filing cabinet. If your nonprofit is using digital storage, make sure you have a back-up plan!

While having a document retention policy gives staff the green light to toss certain documents (on a schedule, preferably), as you are creating a policy specifically for your nonprofit, think about whether there are certain types of documents or specific documents that for the sake of history, or institutional memory, should be maintained permanently.

State laws relating to employment (such as those governing employment/payroll) vary state to state and often have implications for document retention policies.

Nonprofits serving minor children may need to retain records relating to minor children at least until the child reaches majority age, plus the time allowed by the state statute of limitations for the child-now-adult to bring a claim against the nonprofit.

Check with the professional advisor/accounting firm that prepares your nonprofit's annual returns to the IRS and ask what documents may be needed in the event of an IRS audit, and how long to retain them.

Your nonprofit may want to include a preamble to its policy, emphasizing the connection between a document retention policy and the fiduciary duty of the board of directors. This language is from the Minnesota Council of Nonprofits, Principles and Practices for Nonprofit Excellence.

While it may not be obvious, email records are "documents" that should also be addressed in the nonprofit's document retention policy.

 

When it comes to shredding, the Grundy County Land Use Department hosts free shredding events at the county administrative building, usually two times per year.  The limit is usually two “banker” boxes, which works out really well for small nonprofits.

 

If you need a larger amount shredded because you’ve taken advantage of the pandemic shut-down to purge files, you can hire a company to bring a shred truck to you.  And I encourage you to post to the listserv of the Grundy County Interagency Council to see if there are others who need a shred truck so that you can share the expense.

 

Lastly, even if your nonprofit is small enough that you do not have to file a full 990, adopting and using these governance policies will only make your nonprofit better.

 

As a funder, the Community Foundation of Grundy County looks for evidence of good governance when reviewing grant applications.  Please keep this in mind when your board discusses whether it’s worth the time and effort to adopt and enforce policies.

 

 

 

In our continuing series “Nonprofit Tools for Success,” we take a look at Gift Acceptance Policies. As always, here’s my disclaimer: I am not an attorney nor accountant, but I do base my opinion and recommendations on experiences with a number of nonprofits of all shapes and sizes over my career. Always check with your organization’s professional advisors before making any final decisions.

Like all policies, your nonprofit needs one in place before you need to use it. And just like it sounds, when a donor approaches you with a donation (gift), under what terms will you accept it?

At first this may sound a bit goofy. What? Donations are donations. Why wouldn’t we take any donation that comes our way? Why do I need a policy? Two main reasons: a) donors are getting more sophisticated with their charitable planning and are finding better tax advantages to donating items other than cash, and b) donors may want a benefit that is out of line with IRS regulations.

Donors can be very bold about what they want their donation to 1) be and 2) do, and a Gift Acceptance Policy helps you to be prepared as well as demonstrate your nonprofit’s governance and transparency.

For “be,” your Gift Acceptance Policy needs to spell out all of the types of assets that your organization will accept, so spend time with your board to brainstorm all of the items you’ve heard about over the years, how you would assess its market value, if and how you would sell it, and how labor intensive it is to evaluate and sell that gift. To quote Jim Baum, “Is the juice worth the squeeze?”

Some assets such as cash, stock, insurance policies, and IRA distributions are pretty straightforward and easy to assess a market value. Other assets are more complicated, might be difficult to sell, and might simply be a way for a donor to get it off their hands and dump the work onto you. This can include gifts of art, jewelry, autos, real estate, bitcoin, cemetery plots, and equipment. Proceed with caution and consult a variety of independent experts, such as art and antique dealers as well as real estate appraisers.

Language in your Gift Acceptance Policy around “be” can be as simple as: “Gifts of cash and appreciated securities are accepted at any level with no board review. All gifts of appreciated securities shall be liquidated upon receipt. All gifts other than cash and stock shall be reviewed and approved by the Board of Directors before acceptance.”

As for “do,” we take a look at what donors want charities to do with their gift, which can be frustrating for the charity and can void the charitable tax receipt for the donor.

Donors may approach your nonprofit and say they want their donation to only go toward a particular program or project. This would be a “restricted” gift, which might be great timing because that program needs growth or the restriction might be limiting because that program is already well-funded and the nonprofit could better use that money elsewhere in the organization. In a perfect world, donors would make all gifts “unrestricted” so that the charity has the flexibility to apply it where it is most needed. Your Gift Acceptance Policy should state how restricted gifts are evaluated before acceptance.

A big caution for charities to watch for is the donor who has a plan for not only gifting you an asset but also how you can liquidate it quickly. Proceed with caution as the IRS has rules about donor control and benefit. If a donor (or someone close to them or their company) benefits from the gift, then it really isn’t a charitable act. An example of this could be “I’m gifting you a piece of land but I’ve got it set up for my child to buy it from you at half price.” Your Gift Acceptance Policy could include language straight from the IRS about donor control and benefit, as well as an outline of your board procedures for reviewing non-cash asset proposals.

Of course there are situations where a donor benefits from a gift – a Donor Advised Fund (DAF) here at the Community Foundation allows a donor to get full tax advantages for donations into the DAF and then they get to advise the Community Foundation where to make grants from that DAF. There is a difference between donor benefit and donor control.

A Gift Acceptance Policy is an excellent tool for standardizing an activity of the charity, as well as helping an organization envision the future. If there is a particular asset that your nonprofit wants to pursue, you can use excerpts from the Gift Acceptance Policy in your marketing and communications with donors to encourage the donation of that asset type.

The topic of Gift Acceptance Policies is too detailed for a short column, so I encourage readers to search the internet for additional resources. One of my favorite resources for policies and governance is the Council of Nonprofits, which has great articles and links to even more resources. And, as always, you can reach out to us at 815-941-0852 or [email protected].

Again, donors are getting more sophisticated in their choice of assets to donate (which can often have a higher value than a cash gift), so get your Gift Acceptance Policy adopted so that you are prepared to either accept or refuse gifts – you don’t have to accept every gift that comes your way!

— Julianne Buck is the Executive Director of Community Foundation of Grundy County