As a nonprofit professional, you understand the importance of having a solid fundraising strategy. Soliciting individual donations, hosting events, and leveraging corporate philanthropy allow your organization to bring in the revenue you need to make a difference in your community. However, your strategy for managing your nonprofit’s finances is just as critical to furthering your mission.
An important aspect of financial management is developing a standard set of policies and procedures. These guidelines lay the foundation for how your organization uses the funding it brings in, and they help ensure compliance with federal and state regulations for nonprofit operations.
In this guide, we’ll provide an overview of the following four financial policies that nonprofits of all sizes should implement:
- Gift Acceptance Policy
- Conflict of Interest Policy
- Expense Reimbursement Policy
- Staff Compensation Policy
As you establish these policies at your organization, Jitasa’s guide to nonprofit financial management recommends creating a document of fiscal policies and procedures. This document serves as a reference for day-to-day financial operations at your nonprofit and should be reviewed regularly to ensure all information is up to date.
1. Gift Acceptance Policy
Imagine your nonprofit is planning an auction fundraising event. To maximize your fundraising ROI, you decide to solicit in-kind donations of auction items, and you gather a wide variety of prizes that will be popular with participants.
Then, a well-meaning supporter tries to donate a package of at-home spa supplies for the auction. You think this could make a great gift basket—until you realize that some of the products are missing their safety seals, meaning the items could pose a health risk to the winning bidder. How do you tell the supporter your nonprofit can’t accept their donation without seeming ungrateful?
The solution here is to establish a gift acceptance policy, which covers the following:
- The types of donations—both in-kind and monetary—that your organization will and won’t accept.
- The circumstances under which you can accept each type of donation.
- The procedure for recording and tracking various contributions.
When your nonprofit can’t accept a supporter’s generous but misguided donation, like in the auction scenario, telling the supporter about your gift acceptance policy can lessen the blow of your “thanks, but no thanks.” Plus, by providing clear guidelines for what goods and services would be useful for your cause, you can actually encourage more in-kind donations!
2. Conflict of Interest Policy
There may be times when your nonprofit’s directors or board members find themselves in a situation where their business or personal financial interests clash with their duty to the organization. When this happens, it’s known as a conflict of interest.
Let’s say your nonprofit is looking to invest in a new project management solution, and one of your board members is the CEO of a company that makes this type of software. Naturally, they’d want your organization to purchase their company’s product, but their duty as a board member is to choose the best solution for your nonprofit’s unique needs and budget. Letting this outside interest influence their decision could compromise your nonprofit’s integrity.
A conflict of interest policy can mitigate this type of situation. It should outline:
- What constitutes a conflict of interest at your nonprofit.
- How directors and board members will disclose and record conflicts of interest.
- The steps your organization will take to resolve a conflict once it’s discovered.
Depending on your nonprofit’s policy, the board member in the scenario above might have to abstain from voting on which project management solution to purchase. Or, your nonprofit may be required to choose a different software provider. Conflict of interest policies allow your nonprofit to strengthen its risk management strategy and better handle the legal, ethical, and reputational implications of certain financial situations.
3. Expense Reimbursement Policy
Although your nonprofit should have a bank account with funding to cover the various costs you incur, staff members and volunteers may spend their own money on behalf of your organization in some situations. For example, if your programming director travels to a different city to present at a nonprofit conference, they might use their personal credit card to reserve their flight and hotel room. They can later have those costs reimbursed since they were representing your organization at the conference—if your expense reimbursement policy allows.
An expense reimbursement policy should cover:
- What types of expenses can be reimbursed.
- What information should be included in a reimbursement request.
- Who is responsible for providing the reimbursement.
- How your organization records expense reimbursements.
You’ll also need to set a deadline for staff and volunteers to submit reimbursement requests, which is usually 60 days after they incurred the expense. Encouraging this quick turnaround on reimbursements helps protect against fraud and confirm that all funding was actually used on behalf of your nonprofit.
4. Staff Compensation Policy
A common myth about nonprofits is that their employees don’t—and shouldn’t—make a living wage. Although nonprofit staff members may be willing to take a pay cut in exchange for working in a sector they’re passionate about, providing fair and competitive compensation can improve employee retention at your organization.
Like any other employer, nonprofits need to set pay controls and report on their employees’ compensation properly. For this reason, your staff compensation policy should include:
- Information about who is affected by the policy—that is, whether it includes all of your organization’s staff members or just executives.
- Your compensation structure, including the major elements of your plan.
- The procedure and schedule for approving compensation plans and changes.
- Comparability data information, which details how you’ll collect and use data concerning other organizations’ compensation plans to make decisions about yours.
When setting or resetting compensation at your nonprofit, remember to consider more than just your staff members’ salaries. Astron Solutions’ guide to nonprofit human resources recommends taking a “total rewards” approach, meaning that you should include indirect forms of compensation in your plans, such as healthcare and retirement benefits, paid time off, and even a positive workplace culture. Approaching compensation holistically shows your employees that you value them and improves their experience working with your nonprofit.
Establishing the four policies above is essential not only for effective financial management but also for fundraising success. While the guidelines for gift acceptance affect fundraising most directly, the other three policies increase transparency with donors about how your nonprofit uses funding. Over time, this will build a sense of trust that encourages them to continue giving and engaging with your mission.