• Stephen Usery

Fundamentals #3: Board Policies and Procedures

This is the third in a series on non-profit and association fundamentals. (To start at the beginning of this series, click here.) In this post, we address the critical importance of Board level policies and procedures.

Sometimes viewed as simply a bureaucratic exercise, or ignored altogether, sound Board policies and procedures are fundamental to good governance. So much so, IRS Form 990 includes a section (Part VI, Section B) for organizations to confirm that they have key Board policies in place. Just as important as having a policy is making sure it is up to date, includes clear procedures for implementation, and is communicated to the Board at least annually. Implementing regular and consistent monitoring and enforcing compliance with policies are core duties of management and the Board.

The IRS asks organizations to confirm the existence of Board level policies related to:

1. Conflict of Interest

2. Whistleblowers

3. Document Retention and Destruction

4. Executive compensation

5. Local chapters, branches, or affiliates (if any)

6. Joint Ventures (if any)

7. Board review of the 990, prior to filing.

In addition to the policies called out by the IRS, there are three additional and very critical Board level policies which should be in place:

8. Lobbying guidelines (if applicable)

9. Anti-trust compliance (for associations)

10. Anti-discrimination.

The IRS requires the Conflict of Interest Policy be disclosed publicly and asks (in Form 990 Part VI, Section C and Schedule O) for documentation to prove it. In our experience, the Conflict of Interest Policy deserves special attention because not all potential conflicts are obvious. For example, an organization selling surplus equipment to a Board member could trigger conflict concerns if not properly handled. We’re aware of one case where a scholarship program sponsored by an organization had to be restructured to avoid conflicts of interest, much to the surprise of those who originally designed it.

We’ve also seen firsthand what happens when an organization does not have a whistleblower policy, executive compensation policy, or 990 review policy. Suffice it to say that the consequences for the organization were dire and the Board found itself in a very precarious position once things started to unravel.

For association Boards, the anti-trust compliance policy is especially critical. This is one area where Board members may have personal legal liability if the organization runs afoul of competition law.

There are real world consequences for the failure to follow sound governance practices. Properly implemented Board policies and procedures are a critical safeguard.

Numerous operational policies and procedures, especially in the realm of personnel and finance, are also critical for an organization’s success. We’ll touch on these in future posts.

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