Nonprofit Financial Policy Guidelines And Example

Summary

Nonprofit Financial Policy
Guidelines and Example
Developing and adopting a written financial policy is a valuable practice
for any nonprofit organization, no matter how small or large. Financial policies clarify the roles, authority,
and responsibilities for essential financial management activities and decisions. In the absence of an
adopted policy, staff and board members are likely to operate under a set of assumptions that may or may
not be accurate or productive. If the idea of creating a financial policy seems daunting, these guidelines for
policy development and this basic example may be helpful. Even though there may be occasional deficits,
or periods of tight cash flow, the following characteristics are good signs that your organization will be
financially healthy over the long-term

5 Essentials for Financial Policies more detail. The most important action is to create
and adopt a policy that meets your organization’s
The purpose of the financial policy is to describe
needs

and document how the board wants financial
management activities to be carried out. In order
There are some helpful steps you can take to make
to accomplish this, every financial policy needs to
the policy as helpful as possible:
address five areas:
• Discuss policy needs with your treasurer and
1. Assignment of authority for necessary and
finance committee or executive committee
regular financial actions and decisions, which
may include delegation of some authority to staff • Conduct an informal risk assessment
leaders
• Draft the financial policy, followed by review and
2. Policy statement on conflicts of interest or insider discussion by staff and board leadership
transactions
• Present to board for adoption
3. Clear authority to spend funds, including approv-
al, check signing, and payroll • Train staff on policy
4. Clear assignment of authority to enter into con- • Review at least bi-annually
tracts
5. Clear responsibility for maintaining accurate Considerations When You Start with
financial records a Policy Template
We offer an example of a very simple financial
Developing and Approving a policy to get you started, but keep in mind that no
Financial Policy example will be an exact fit for your organization

Never adopt a policy without a thorough review and
This example financial policy is intended to be
consideration of the risks, operations, and structure
short and simple to address some of the basic
of your organization

elements of a good policy. Some nonprofits devel-
op more comprehensive and detailed policies that
incorporate more specific responsibilities and add
Copyright © Propel Nonprofits | 1 SE Main St, Suite 600, Minneapolis, MN 55414 | 612.249.6700 | propelnonprofits.org
Nonprofit Financial Policy
Example
Family Advocacy Network (FAN) • The Executive Director is authorized to manage
expenses within the parameters of the over-
Financial and Control Policies
all approved budget, reporting to the Finance
Committee on variances and the reason for
Philosophy these variances

The purpose of financial management in the opera-
• The Board of Directors must approve any use
tion of all FAN activities is to fulfill the organization’s
of the board designated cash reserve fund

mission in the most effective and efficient manner
and to remain accountable to stakeholders, includ-
ing clients, partners, funders, employees, and the Responsibilities
community. In order to accomplish this, FAN com- The Executive Director shall:
mits to providing accurate and complete financial
• Account for donor restricted and board desig-
data for internal and external use by the Executive nated funds separately from general operating
Director and the Board of Directors. funds, and clearly define the restrictions appli-
cable to these funds

Authority • Report the financial results of FAN operations
The Board of Directors is ultimately responsible according to the schedule established by the
Finance Committee, but at least quarterly

for the financial management of all activities. The
Treasurer is authorized to act on the Board’s behalf • Pay all obligations and file required reports in a
on financial matters when action is required in ad- timely manner

vance of a meeting of the Board of Directors

• Make no contractual commitment for bank
• The Executive Director is responsible for the loans, corporate credit cards, or for real estate
day-today financial management of the orga- leases or purchases without specific approval of
nization. The Board authorizes the Executive the Board

Director to hire and supervise staff and inde- • Record fixed assets with purchase prices great-
pendent consultants, pay bills, receive funds, er than $500 as capital assets in accounting
and maintain bank accounts. records

• The Executive Director is authorized to sign • Depreciation of capital assets will not exceed
checks up to $2,500. Checks for amounts great- five years for furniture and equipment or three
er than $2,500 shall require the signature of the years for computer and other technology equip-
Treasurer or Board Chair. ment

• The Executive Director is authorized to en- • Limit vendor credit accounts to prudent and
ter into contracts for activities that have been necessary levels

approved by the Board as a part of budgets or
plans. The Board of Directors must authorize • Obtain competitive bids for items or services
any contracts outside of these parameters and costing in excess of $5,000 per unit. Selection
all contracts with a financial value greater than will be based on cost, service, and other ele-
$15,000. ments of the contract

Copyright © Propel Nonprofits | 1 SE Main St, Suite 600, Minneapolis, MN 55414 | 612.249.6700 | propelnonprofits.org
FAN may award the bid to any provider and is not Gift Acceptance
required to accept the lowest cost proposal

FAN will accept stock or other negotiable instru-
ments as a vehicle for donors to transfer assets to
The Board of Directors shall:
the organization. Transfer and recording the value
• Review financial reports at each board meeting. of the asset shall be done in a consistent manner
• Provide adequate training to members to en- and in compliance with accounting standards. The
able each member to fulfill his or her financial Executive Director shall sell any stock given to the
oversight role. organization immediately upon receipt by the orga-
nization

Financial Transactions with Insiders FAN shall accept contributions of goods or services
No advances of funds to employees, officers, or other than cash that are related to the programs
directors are authorized. Direct and necessary and operations of FAN. Any other contributions of
expenses including travel for meetings and other non-cash items must be reviewed and approved by
activities related to carrying out responsibilities the Board of Directors before acceptance

shall be reimbursed

In no case shall FAN borrow funds from any em- Asset Protection
ployee, officer, or director of the organization In order to ensure that the assets of FAN are ad-
without specific authorization from the Board of equately protected and maintained, the Executive
Directors. Director shall:
• Insure against theft and casualty losses to
Budget the organization and against liability losses to
Board members, staff, or the organization itself
In order to ensure that planned activities minimize to levels indicated in consultation with suitable
the risk of financial jeopardy and are consistent with professional resources

board-approved priorities, long-range organization
goals, and specific five-year objectives, the Execu- • Plan and carry out suitable protection and main-
tive Director shall: tenance of property, building, and equipment

• Submit operating and capital budgets to the • Avoid actions that would expose the organiza-
Finance Committee in time for reasonable ap- tion, its board, or its staff to claims of liability

proval by the Board prior to each fiscal year. • Protect intellectual property, information, and
• Use responsible assumptions and projections files from unauthorized access, tampering, loss,
as background, with the general goal of an un- or significant damage

restricted surplus. • Receive, process, and disburse funds under
controls that are sufficient to maintain basic
segregation of duties to protect bank accounts,
income receipts, and payments

Our mission is to strengthen community by investing capital
and expertise in nonprofits. Find out more about Propel
Nonprofits’s loans, services, training, and resources. propelnonprofits.org
Copyright © Propel Nonprofits | 1 SE Main St, Suite 600, Minneapolis, MN 55414 | 612.249.6700 | propelnonprofits.org 3

Nonprofit Financial Policy Guidelines and Example Developing and adopting a written financial policy is a valuable practice for any nonprofit organization, no matter how small or large. …

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Frequently Asked Questions

What are the best practices for nonprofits?

Top reviews from the United States

1. Advocate and Serve. The best organizations integrate grassroots programs with policy advocacy. ...
2. Make Markets Work. Nonprofits can invite business to "do well while doing good" through better business practice, corporate partnerships and earned income. ...
3. Inspire Evangelists. ...
4. Nurture Nonprofit Networks. ...
5. Master the Art of Adaptation. ...
6. Share Leadership. ...

Should nonprofits pay taxes?

While nonprofits typically will not have to pay taxes, they still have to submit annual tax returns with the IRS. Being tax exempt means an organization doesn’t pay federal taxes, but they still have to provide the IRS with the information they need. This is true for any nonprofit, no matter their status.

Does your nonprofit properly report donations?

Does your nonprofit properly report donations? Your not-for-profit probably already ensures that donors receive a receipt with information about claiming a charitable contribution deduction on their tax return. But your obligations may go further than that. For noncash donations, you might have responsibilities related to certain tax forms.

Can nonprofit require donations?

Thank you in advance. Nonprofits are not taxing bodies; no one can be required to donate to one. A person can be “compelled to” join a nonprofit if it’s a membership group which controls a benefit the person wants to receive.