RISK INSIGHTS
NON-PROFIT RISK INSIGHTS
Governance Best Practices
BY GWENYTH P . LUU
Governance refers to the strategic direction of an organization and encompasses a variety of functions , including financial viability and how successfully the organization is fulfilling its mission . For nonprofits , governance entails setting direction , making policy and strategy decisions , overseeing and monitoring organizational performance and ensuring overall accountability .
Effective governance requires leadership and accountability from all involved parties . The CEO , directors , officers , committees , members , advisory board , staff , and volunteers should all be informed of the governance practices and policies of the nonprofit . This will help to advance the organization ’ s principles and mission , as well as reduce liabilities .
This article discusses the importance of nonprofit governance , best practices and the risks of poor governance .
WHY NONPROFIT GOVERNANCE IS IMPORTANT
Nonprofit governance works to advance the organization ’ s principles and mission and provides oversight to ensure companies follow all legal and compliance rules . The benefits of strong governance include :
• Avoiding scandals — Strong internal controls help to protect the company from fraud or embezzlement within the organization . Nonprofits need to avoid scandals because negative press can make individuals and foundations less likely to donate .
• Encouraging growth — Focusing on rules and procedures can ensure that the nonprofit meets legal and ethical standards , improving the organization ’ s overall strength .
• Improving reputation and increasing donations — Potential donors have the opportunity to examine all available public documents before donating . Some public tax documents , such as Form 990 , include descriptions and summaries of how nonprofits use their money . With appropriate governance , these documents can reflect positively on the nonprofit ’ s efforts , improving the organization ’ s reputation .
BEST PRACTICES
Quality processes and policies help nonprofits achieve their goals and serve stakeholders ’ best interests . The following nonprofit governance best practices can help organizations function successfully and address legal requirements for compliance :
• Develop and implement helpful policies . To mitigate legal risks and liabilities , nonprofits should have policies in place for the following topics :
• Whistleblower protection — Federal law prohibits all corporations and nonprofits from retaliating against employees who report illegal or dishonest activity . Adopting a whistleblower policy to protect employees signals to stakeholders and the public that the nonprofit values transparency and accountability .
• Document retention and destruction — This policy addresses maintaining and discarding documents and
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