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Safeguarding Your Nonprofit’s Finances: 4 Policies to Know

Your nonprofit’s team works hard to cultivate donations to fund your mission. But how do you ensure you’re properly managing those funds to help your organization thrive and protect it from financial risks?

The answer lies in enacting financial policies at your nonprofit. According to Jitasa, these guidelines lay the foundation for effective financial management by standardizing how your entire team handles funding day to day.

In this guide, we’ll review four of the most important financial policies your nonprofit should implement. Let’s get started!

Gift Acceptance Policy

Imagine you work for an organization that provides relief to communities impacted by natural disasters. Your main job is to solicit in-kind donations of nonperishable food, bottled water, and personal care products to give to individuals in these affected areas.

Most of the time, your supporters donate useful items to your cause. But occasionally, a well-meaning donor contributes an expired food item or a personal care product with a broken safety seal, which could be dangerous to give away. How do you tell that donor you can’t accept their gift without seeming ungrateful?

This is where a gift acceptance policy comes in. It outlines the types of donations (both monetary and in-kind) that your organization can and can’t accept, as well as the conditions under which you can receive each contribution.

With the backing of an official policy, you can more easily tell that donor, “Thanks, but no thanks.” Plus, communicating your gift acceptance policy can encourage supporters to provide more useful gifts for your organization!

Conflict of Interest Policy

A conflict of interest policy ensures that your nonprofit’s leaders and board members don’t make decisions that are influenced by personal or business interests rather than their duty to your organization. It includes:

What constitutes a conflict of interest at your nonprofit.
The procedure for disclosing conflicts.
The next steps to take after a conflict is disclosed or discovered.

For example, if your nonprofit is choosing a new project management system and a board member owns a company that makes this type of software, that would be a conflict of interest because they’d likely want to pick their system rather than the best one for the organization. Once the board member discloses the conflict, they might have to abstain from voting, or your nonprofit may be required to choose a different system, depending on your policy.

Expense Reimbursement Policy

Although all of your nonprofit’s expenses should be covered in your annual budget, there may be times when your employees or volunteers spend their own money on behalf of your cause. For instance, if your fundraising director presents at a conference in another state, they might book their flight and hotel room with their own credit card and ask your organization to reimburse them.

Whether your nonprofit can reimburse them depends on your expense reimbursement policy, which outlines:

The types of expenses that can be reimbursed.
The procedure for submitting reimbursement requests.
Deadlines for requesting and paying out reimbursements.

This policy helps your organization keep its records straight in its accounting system and ensure all reimbursed funds were actually used on behalf of your mission.

Staff Compensation Policy

Staff compensation is an important part of both financial management and human resources. It’s important to pay your employees a liveable, competitive wage while not overcompensating your leaders, which can damage your nonprofit’s reputation. A well-crafted staff compensation policy can help you strike the right balance.

When creating this policy, make sure to consider both direct compensation like salaries and indirect compensation such as health insurance and paid time off. This allows for a holistic assessment of how your employees are compensated for their hard work on behalf of your mission.

Once you establish these guidelines for your nonprofit, compile them into a fiscal policies and procedures handbook. This way, your whole team will have a reference for how to properly manage your organization’s finances within their roles.