Legal Pitfalls: 10 Ways to Protect Your Non-profit

by Johanna Garton

There have been many changes to the IRS 990 forms in recent years and the U.S. Congress is beginning to look carefully at the policies and procedures non-profits have in place. So, it’s important to have a well-established governance policy for your non-profit so you don’t find yourself in legal hot water with the government.

I had a chance to talk with Johanna Garton, a fellow Regis University faculty member and lawyer who specializes in non-profit law, about some of the legal pitfalls non-profits might face.

This week, I’d like to share some items Garton suggested non-profits look at as part of a good governance policy. Some of these items are required by law but some are just important for the solid functioning of a non-profit organization.

1. Code of ethics. Developing a general statement of principles for your organization can be a worthwhile and enlightening exercise. Laying out in writing the values that are important to you, your donors, and your supporters will help you better understand your organization and the commitment you make to the community.
2. Conflict of interest policy. Does your non-profit make every effort to avoid not only conflicts of interest, but also the appearance of conflicts? If not, take the time to discuss this issue with staff and board members, and design an appropriate statement about such potential conflicts.
3. Document retention and destruction. How you handle critical and confidential documents is just as important as what is contained within those documents. Staff, board, and volunteers should be trained on a regular basis on how to handle and destroy both paper and electronic files.
4. Insurance issues. Your organization should regularly review your insurance for directors and officers (commonly called D and O insurance), as well as general liability coverage and, if needed, look at special event coverage or protection for any inventory you may have.
5. Whistleblower policy. To ensure that those reporting any wrongdoing by your organization not face retaliation, the implementation of a whistleblower policy is critical. In creating such a document, your organization also provides clarity on the steps to be taken should someone within your organization seek to report suspected bad acts.
6. Gift acceptance. With so many ways for individuals and organizations to give funds to your agency, it is useful and often fortuitous to have a gift acceptance policy in place. Work with your development staff and a financial advisor to adopt a policy that will allow for a wide variety of gifts to be evaluated before they are accepted or turned down.
7. General steps toward transparency. We have all heard the buzzword “transparency” in the past several years. But how can you really achieve this goal? A few simple steps, such as ensuring that visitors to your website have access to your most recent 990 and your annual report, are valuable first steps.
8. Nondiscrimination policies. Employment-related claims are by far the most common reason non-profits end up in court. This is an area in which extensive work needs to be done by most organizations. A good way to begin is by reviewing and updating your organization’s nondiscrimination policy. Also, many private foundations and funding sources are requiring a nondiscrimination policy.
9. Lobbying regulations. Non-profits have not only the opportunity, but also the responsibility to educate the public about their work through advocacy efforts. Don’t shy away from meaningful work in this area because you are unsure about lobbying regulations. Here’s another area where board, staff, and volunteers should be briefed annually.
10. Financial oversight and fundraising procedures. It should go without saying that non-profits should strive to maintain diligent accounting practices and maintain clarity around current fundraising procedures. Doing so will put your organization and your donors at ease.

Johanna Garton is a trained attorney who has spent her career in the field of non-profit management. Her email address is: Johanna at missionworksconsulting dot com.