Legal Compliance and Ethics
The following post was written by Issela Sono, Nonprofit Management and Governance Intern at the Standards for Excellence Institute®. Issela has volunteered in various nonprofit organizations in the Maryland and Washington, DC area while pursuing her undergraduate studies in Global Business and Public Policy. Issela is certified in Nonprofit Management from Duke University and is currently pursuing a M.B.A., with a concentration in Public Management, at Hood College. News coverage about fraud in the nonprofit sector is truly heartbreaking to say the least. Cases of executive directors, accountants, and others misusing misappropriating, or misspending charitable contributions all have been uncovered in a variety of ways. For instance, independent audits and whistleblower reports are two methods for exposing improprieties. Nonprofits are established to serve the community and, are subject to public scrutiny. As a start, nonprofits should do all that they can to follow the laws at the local, state and federal levels. While these efforts will help your organization comply with all the regulatory requirements, additional internal measures must be taken to encourage accountable and ethical operations and stewardship. The Standards for Excellence® code states: “One of a leadership’s fundamental responsibilities is to ensure that the organization governs and operates in an ethical and legal manner. Fostering exemplary conduct is one of the most effective means of developing internal and external trust as well as preventing misconduct... A nonprofit should have policies in place, and should routinely and systematically implement those policies, to prevent actual, potential, or perceived conflicts of interest.” As the code states, developing, implementing and enforcing policies to safeguard the organization’s assets are sound management practices, as these encourage employees to appropriately and ethically use organizational funds. Similarly, providing a safe and secure mean for staff to report improprieties within the organization will encourage transparency – a core value of nonprofit organizations. The 2.0 version of the Standards for Excellence® code divides the section on Legal Compliance and Ethics sections, each with a correspondeing educational resource packet covering the following areas: Legal Compliance Checklist
- Requirements applicable to: tax exemption/tax exempt status; corporate start up; organizations with employees; solicitations, fundraising, and related activities; lobbying activities; and miscellaneous requirements.
- Featured attachments: Checklist of Compliance with Selected Legal, Regulatory, and Financial Reporting Requirements for Charitable Nonprofits,
Disclose It: A Charitable Nonprofit’s Guide to Disclosure Requirements
- Proper registration for soliciting contributions
- Disclosure requirements for: undraising solicitations; deductibility of donor contributions, in fundraising receipts and acknowledgements; financial documents that must be provided to a member of the public upon request; disclosure information for contests, sweepstakes and promotions
- Sponsorships and taxable Advertisements
Reporting Misconduct and Whistleblower Protection
- Benefits of reporting improprieties; Confidential means to report improprieties; Implementing a policy to promote confidential reporting
- Reporting material diversion of assets on the Form 990
- Featured attachments: Sample policy on Confidential Reporting of Financial Impropriety or Misuse of Organization’s Resources, Sample policy on Reporting Improprieties, Fraudulent or Dishonest Conduct, Sample Financial Impropriety or Misuse Policy, Sample Job Description for Individual (Volunteer or Paid Staff) Managing the Ethics Hotline.
Conflict of Interest
- Benefits and importance of a conflict of interest policy;
- Identifying conduct that raises conflict concern;
- IRS conflict of interest concerns; Disclosure; Independent review and approval; Perceived conflicts and the appearance of impropriety – policy in action; Steps to take in preparing a conflict of interest policy
- Attachments: Model Conflict of Interest Policy, Model Conflicts of Interest Annual Affirmation of Compliance and Disclosure Statement, Sample Questionnaire on Family and Business Relationships and Interested Person Independence
Developing a Code of Ethics
- Guides to crafting a code of ethics that conveys the organization’s values to stakeholders and the public
- Step-by-step strategy for developing a code of ethics
Working Professionally and Respectfully with Program Stakeholders
- Working respectfully with those individuals whom you serve
- Confidentiality policies;
- Grievance procedures
As is the case with all our updated educational resource packets, the documents include sample policies, procedures, and other materials that will guide your organization through the process of developing and implementing essential policies for your nonprofit. The new educational resource packets are available, free of charge, to all our Standards for Excellence® Institute members and can be accessed at this link:https://standardsforexcellence.org/digArticle/New-Educational-Resources-Available-Mission-Strategy-and-Evaluation If you are not a member yet, sign up now to have full access to these educational materials and many more!
About the Author: Amy Coates Madsen
Amy Coates Madsen is the Director of the Standards for Excellence Institute, a national initiative to promote the highest standards of ethics and accountability in nonprofit governance, management, and operations, and to facilitate adherence to standards by all organizations. The Standards for Excellence Institute is a program of the Maryland Association of Nonprofit Organizations where Amy has served for more than twenty-two years. Amy is responsible for coordinating all aspects of the association’s comprehensive ethics and accountability program and efforts to replicate the program nationally. She serves as a frequent trainer and writer in the areas of board conduct, program evaluation, program replication, fundraising ethics, and nonprofit management. She has taught courses on nonprofit ethics and accountability at the Johns Hopkins Institute for Policy Studies Certificate Program on Nonprofit Management. She has held positions at the Trenton lobbying firm of the Princeton Public Affairs Group, and the Public Policy Liaison Unit at the world headquarters of Catholic Relief Services. Amy received her Master of Arts in Policy Studies degree from the Johns Hopkins University – Institute for Policy Studies in Baltimore, Maryland; and her Bachelors degree from the Virginia Polytechnic Institute and State University in Blacksburg, Virginia. Amy is a member of Phi Beta Kappa. Amy serves on the Internal Revenue Service Advisory Committee on Tax Exempt and Government Entities (ACT). Amy is a former member of the Disaster Action Team of the Central Maryland Chapter of the American Red Cross and is qualified to provide disaster preparedness training to children and adults. She has also served as the former President of Central Maryland CAN TOO and was a member of the Board of Trustees of the largest United Methodist Church in Baltimore City. She serves on the board of her children’s preschool PTA and is a volunteer with the Girl Scouts of Central Maryland. Amy is currently leading an effort to establish an endowment for the Virginia Tech University Honors Program.