Louis E. Michelson, A Professional Corporation

Providing Legal and Tax Advisory Services to Nonprofit Organizations

One Size Does Not Fit All: Governance and Management Policies

December 3rd, 2009 · No Comments · Charity, Federal Income Taxes, Governance

The new Form 990 (Part VI) contains a section on governance. The IRS’s general view is that a “well-governed charity is more likely to obey tax laws, safeguard charitable assets and serve charitable interest than one with poor or lax governance.”

Nonprofit managers and CPA have are increasingly focusing on the questions posed in the Form 990. The section consists of three parts: composition of the organization’s governing body, its governance and management policies, and its disclosure practices. As is typical of an IRS form, there are two boxes, “yes” and “no,”one of which should be checked.

The goal of many is to be able to answer the questions “yes” (i.e. we have the policy) and move on to other matters. Answering “no” (we do not have the policy) can subject a nonprofit or its managers to uncomfortable questions from the auditors, not to overlook the peer-pressure from other nonprofit organizations.

The questions ask about: a conflict of interest policy, a whistle-blower policy, a document retention and destruction policy, policy on participation in joint ventures, financial information review policy, and a compensation policy. This is only a few; there are many more policies.

One approach is to look for “off the shelf” policies. Even the IRS claims that they are not trying to lay down or enforce a”one size fits all” rules about governance. One certainly can agree that there is not only one right answer or way of doing things.

A more deliberate approach should be considered. Charities should consider their own facts and circumstances, including their size, type and culture, when evaluating whether to adopt or revise their policies and practices. Each organization should develop systems of internal controls (otherwise referred to as policies) which are appropriate to the organization. The board of directors should be engaged and informed; after all they have the ultimate responsibility for operation of the organization.

The lesson from the three bears seems apropos: the policies should not be too hot and not too cold: they should be warm and feel just right.


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