Nonprofit Accounting Basics

Simple Governance Steps for Nonprofits

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.


Most nonprofit organizations focus their energy and resources on dedicated causes. This dedication and commitment can sometimes create a situation where less priority is placed on basic policies related to governance. Board-governance policies, in particular, can help strengthen the organization without significant costs.

It is both helpful and important for nonprofit boards to consider their roles in establishing policies and overseeing management’s implementation, where appropriate. To do so, board discussions should include the following:

Reviewing the size and structure of the board. Is the board the right size to accomplish its objectives? Does it have members from diverse backgrounds? Are the majority of board members independent of the entity’s management?

Maintaining a conflict of interest policy. Is the policy in writing? Does it require regular disclosure? Is the policy applied to both management and the board?

Documenting policies for fund raising and acceptance of gifts. How are gift restrictions documented? What is the minimum level for a restricted gift? What types of fund-raising activities are considered appropriate? How is the donor listing utilized? Are grant applications and reporting functions properly established and monitored?

Developing a policy for upper level management and board compensation. Do board members receive stipends or expense reimbursements? Who approves these transactions? Who approves the executive director’s compensation? What are the procedures used in determining the compensation level? • Monitoring financial matters. Is there an independent audit committee or similar group? Does this group oversee the work of the independent auditor? Is the 990 return reviewed by board representatives and management before it is filed?

Establishing a document-retention policy. Are there legal requirements related to document retention? Is the policy understood by those who work with the documents?

Documenting board activities. Are minutes maintained for all meetings? Are meetings open to the public? What matters are considered in closed meetings? Is there enough detail in the minutes to support decisions and policies?

To accomplish the organization’s mission, there must be thoughtful consideration and establishment of governance policies by board members. They must help focus scarce resources in the areas where they count the most. It is important for board members to understand their organization’s policies and goals. In doing so, they will be able to focus on the organization’s key purposes with a strong underlying base of documented policies and processes.