Proper financial management starts with a solid foundation. To keep your finances organized, stay accountable to stakeholders, and maintain GAAP compliance, you need strong financial policies.

Whether you’re developing nonprofit finance policies for the first time or want to strengthen your existing framework, this article will help guide your strategy by reviewing core finance policies, what to include in each, and who to share them with.

Gift Acceptance Policy

Purpose

Your donors’ generosity makes your mission possible. While it’s important to show your nonprofit’s appreciation for any and all contributions, sometimes gifts might be unusable or even introduce risks for your organization.

That’s why all nonprofits need a gift acceptance policy, especially for in-kind donations. This policy provides parameters for what donors can contribute, ensuring you don’t receive any gifts that are potentially harmful, such as expired, broken, damaged, or hazardous goods.

What to Include

• Types of gifts your organization can and can’t accept. Be specific about exactly which items you’re willing to accept to prevent donors from contributing useless or unneeded items. For instance, an educational organization serving elementary school children may not accept graphing calculators and standardized test-preparation books geared toward older students.
• Circumstances or conditions under which you’ll accept different types of gifts. For example, an animal shelter may note that they can accept new or gently used leashes, collars, and toys, but they cannot accept any opened or expired food items.
• Process of recording each gift. Detail for your staff how to process and track different types of gifts. Typically, this process starts by determining the item’s fair market value (FMV), which is the price you would pay if you were to purchase that item.

Who to Share it With

• Development team. Your gift acceptance policy will help development team members guide donors in the right direction and clear up any confusion before gifts are made.
• Board. The board should make sure the terms of your gift acceptance policy align with your organization’s risk tolerance.
• Donors. As YPTC’s in-kind donation guide explains, “These types of policies not only help donors determine whether their gift will be accepted, but they also allow nonprofits to politely decline gifts by referencing the policy…Additionally, promoting your gift acceptance policy can inspire donors who have eligible items on hand to contribute.”

Conflict of Interest Policy

Purpose

Working at a nonprofit requires you to act in the best interest of a central mission. A conflict of interest policy ensures that any major decisions or actions team members make ultimately serve the nonprofit, rather than their personal interests.

What to Include

• Definition of a conflict of interest. Clearly define what constitutes a conflict of interest, and give an example in the context of your organization. For example, if a board member donated an auction item and pressured the development director to price it above its true FMV, that would be a conflict of interest since the board member would be using their influence to overstate the value of their contribution.
• How and when to report potential conflict. Ideally, staff members will make disclosures proactively. That way, you can take action to prevent potential conflicts. You should also designate a specific authority to receive these reports, such as your board chair or compliance officer.
• Voting and recusal rules. Develop a standardized process for handling conflicts of interest. Typically, board members must meet without the interested person present to discuss the conflict and reach a final decision on how to move forward.

Who to Share it With

• Board. The board typically handles the conflict-of-interest process.
• Staff members. Every staff member should know how and when to report their own potential conflicts.
• Auditors. During your annual nonprofit audit, your auditors may review your policy and signed disclosures.
• Tax preparers. Form 990 Part VI asks about your organization’s governance practices and includes a question about your conflict of interest policy.

Expense Reimbursement Policy

Purpose

Sometimes, staff members or volunteers will need to purchase something on behalf of your organization. By implementing an expense reimbursement policy, you can eliminate ambiguity about the process, ensuring everyone receives proper funding and that reimbursements aren’t classified as taxable income.

What to Include

• List of allowable and unallowable expenses. For instance, you may reimburse staff members for travel expenses incurred while traveling for work, but your policy might not cover first-class upgrades.
• Strict receipt and substantiation thresholds. You may require receipts for purchases above a certain dollar amount, along with the business purpose, to substantiate requests.
• Submission process. Explain how and when staff members must submit reimbursement requests. Additionally, to avoid fraud or mishandled funds, you should divide duties so that employees never approve their own expenses.

Who to Share it With

• All staff and volunteers. All staff members and volunteers should know how and when they can submit reimbursement requests.
• Finance team. Your finance team will likely preside over the expense reimbursement process, so they should be familiar with the corresponding policy.

Fiscal Policies and Procedures

Purpose

Your fiscal policies and procedures institutionalize your approach to your daily financial operations. They help ensure your financial records and reports follow Generally Accepted Accounting Principles (GAAP). They also support data accuracy, efficiency, responsible stewardship, and risk reduction.

What to Include

• Internal controls
• Tax compliance and audits
• Budgeting and financial planning
• Financial reporting
• Cash management
• Expense management
• Revenue management
• Grant management
• Asset management
• Investment management
• Reserve fund management
• Risk management

Who to Share it With

• Finance and accounting team. These are the rules your finance and accounting team will abide by.
• Auditors. Your auditors will request these documents to assess your internal controls.

While nonprofit financial management can be complicated, having robust nonprofit finance policies simplifies many internal processes by keeping everything organized and aligned. If you need help developing or updating your financial policies, consider working with a fractional CFO for nonprofits who can lend their expertise.