Churches and other nonprofit organizations are very familiar with policies. Policies provide sound guidance for day-to-day operations. And, the larger the organization, the more policies there seems to be.
Collections of policies grow up to be policy manuals. Policies come in human resource, accounting, facilities and other flavors. The greater the number of policies, the more likely one or more persons will be assigned the responsibilities of enforcing and interpreting the policies.
Policies notoriously collect dust. It is likely some of your organization’s policies are out-of-date and/or not being observed. This highlights the importance of an annual review of policies of all types (board and staff) to determine relevancy.
Organizational policies are fundamental for well-run organizations. ECFA’s best practices include many suggested policies. Our website includes many sample policies. We believe in policies.
For example, as part of a field review, ECFA often recommends a member adopt a conflict of interest policy to provide guidance in avoiding conflicts of interest. If a member has a significant investment portfolio, we will recommend the adoption of an investment policy.
ECFA has Standards which members are required to follow—and these seven Standards are simple, but not simplistic, as the nearly 100 pages of commentary on the Standards reveals. ECFA Standards and an organization’s policies are generally separate issues.
ECFA does not require member organizations to adopt certain policies—members have the flexibility to decide the policies which are appropriate for a particular organization. We are convinced that policies (board and organizational) do not come in a “one-size-fits-all” box!
In recent years, the IRS has shown an increasing interest in nonprofit polices. They have included policy-related questions on the Form 1023 Application for Recognition of Exemption and the Form 990 Return of Organization Exempt from Income Tax. Does the IRS require certain policies? Technically no, but practically—well, it’s a close call.
If an organization applying for tax-exempt status does not have certain key policies (as defined by the IRS), they will be pressed, at a minimum, to adopt the policies. And for organizations required to file Form 990 in 2009, there are a number of questions about specific policies (conflict of interest, whistleblower, document retention and destruction, compensation review and approval, evaluation of joint venture agreements, for example).
What is the importance of asking a few questions about policies? Well, it depends. It depends on how the answers will be used. In the instance of the responses to the new Form 990, the answers will be posted on the Internet for evaluation by the public and the media. It is likely we will see a “feeding frenzy” starting in 2009 based on the responses to some of these “policy” questions.
Many nonprofit policy experts will appear in the great Internet wonderland. They will offer their opinions on policy deficiencies of certain organizations and draw conclusions, going far beyond the presence or absence of policies. This will be our new world!
Even a group formed by the IRS, the Advisory Committee on Tax-Exempt and Government Entities (ACT), expressed concern about the IRS’s increasing interest in charities’ governance policies.
While agreeing that well-governed charities are more likely to comply with the tax laws and pursue charitable goals, ACT warned that if the IRS asks about specific governance practices, charities may feel pressured to adopt policies they otherwise would not consider. It also would place undue burdens on charities in terms of time, resources, forms, and the ability to recruit board members.
Good governance is more than policies. It is shared governance between a board and organizational leaders. It is about accountability. This new focus on policies provides an opportunity for leaders of churches and other nonprofit organizations to demonstrate the use of policies reflecting the culture of a particular organization—policies which will work within the confines of the entity.