January 12, 2026
10 Policies Every Nonprofit Should Have in Place
I. IRS FORM 990
Every nonprofit, every year, must complete and file a version of Form 990, which the IRS calls its “Return of Organization Exempt From Income Tax.” The long version of IRS Form 990 asks about many financial matters, including but not limited to donations, money on hand, non-cash assets, and breakdowns of expenses.
IRS Form 990 goes even further and asks nonprofits if they have in place certain policies. In fact, the IRS asks about ten (10) specific policies on Form 990. The IRS does not mandate adopting these ten (10) policies. The IRS is at the very least signaling what policies nonprofits should have in place. This helps show nonprofits what the IRS considers to be best practices.
II. REASONS AND BENEFITS TO ADOPT THESE TEN (10) POLICIES
One might ask, if these policies are not absolutely required, why should a nonprofit invest the time and effort to adopt them? Without clear and properly enforced governance policies, an Iowa nonprofit may face regulatory scrutiny, potential penalties, and reputational harm that can negatively impact donor confidence and fundraising efforts. Beyond risk management, these ten (10) policies provide substantial and practical benefits for nonprofits, including but not limited to the following:
- Enhanced confidence among donors and other stakeholders.
- A consistent framework for sound decision making.
- Improved compliance with federal and state laws.
- Reduced risk to the nonprofit and its management and governing board.
The existence of a policy does not, by itself, guarantee compliance. However, having written policies in place establishes expectations and provides guidance for board members, employees, donors, volunteers, and other stakeholders. When issues arise, these policies serve as a clear reference point for addressing concerns in a consistent and responsible manner. Another important reason to adopt these policies is that the IRS audits tax exempt nonprofits. Having appropriate governance policies in place can benefit a nonprofit during an audit by demonstrating a commitment to transparency, accountability, and compliance. In addition, well drafted policies provide a solid foundation for soliciting, accepting, and managing charitable donations.
Finally, Form 990 is publicly available and often reviewed by major donors, foundations, and other stakeholders. When completed thoughtfully, it can serve as a valuable public relations tool that reflects a nonprofit’s commitment to good governance, financial responsibility, and alignment with its mission.
III. WHAT POLICIES ARE WE TALKING ABOUT?
The IRS revised Form 990 in 2008. The old version focused largely on financial data. Now Form 990 reports extensive information on operations such as board governance, fundraising, non-cash assets, and more. Below are the ten (10) policies in alphabetical order.
- COMPENSATION
Competitive and fair compensation is just as important for nonprofit employees as it is for employees in the for profit sector. A well written compensation policy establishes objective salary ranges for positions, incorporates updated job descriptions, and outlines performance management and evaluation standards.
A strong compensation policy should also include a statement of compensation philosophy and strategy, explaining how compensation practices support the nonprofit’s mission and values. By setting clear and consistent guidelines, this policy promotes fairness, transparency, and accountability in how employees and executives are compensated.
Panoramic image, Man hand holding piggy bank on wood table. Save money and financial investment
- CONFLICT OF INTEREST
A conflict of interest policy serves two essential purposes. First, it requires board members, officers, and key employees to disclose any actual or potential conflicts. Second, it ensures that individuals with a conflict are excluded from voting on matters in which they have a personal or financial interest.
Form 990 defines a conflict of interest as a situation in which a person in a position of authority can benefit financially from a decision, including indirect benefits to family members or closely associated businesses. A clear and well enforced conflict of interest policy helps protect the nonprofit’s integrity, promotes ethical decision making, and reduces the risk of regulatory and legal sanctions by ensuring that conflicts are properly disclosed, evaluated, and managed in a transparent and ethical manner.
- DOCUMENT RETENTION AND DESTRUCTION
A document retention and destruction policy explains what types of records should be retained, how they should be stored, and how long they must be kept. It also outlines appropriate methods for the secure destruction of documents that are no longer required. This policy helps ensure that important financial, employment, contract, and governance records are preserved for legal, tax, and regulatory purposes. In addition to supporting compliance, a clear document retention policy helps nonprofits manage storage efficiently, reduce unnecessary record keeping, and respond appropriately if litigation, audits, or government investigations arise.
- FINANCIAL POLICIES AND PROCEDURES
Financial policies and procedures guide how a nonprofit manages its finances on a day to day basis. These policies address budgeting, financial reporting, internal controls, account management, and audit practices. They also establish expectations for transparency, accuracy, and responsible stewardship of nonprofit funds. By providing a consistent framework for financial decision making, these policies help protect the organization’s assets, support regulatory compliance, and promote confidence among donors, board members, and other stakeholders.
- FORM 990 REVIEW
Form 990 asks whether a complete copy of the return is provided to all members of the governing body before it is filed. A Form 990 review policy outlines how and when the return is distributed to board members and describes the process used to review the information for accuracy and completeness.
This policy encourages accountability and informed oversight by the board of directors. It also helps ensure that leadership understands the information being reported to the IRS and the public, reducing the risk of errors and misunderstandings.
Form 990 Return of Organization Exempt From Income Tax inscription on the sheet.
- FUNDRAISING
Almost every nonprofit engages in some form of charitable fundraising. A fundraising policy addresses compliance with local, state, and federal laws, as well as the ethical standards the nonprofit chooses to follow in its fundraising efforts.
This policy should also clarify appropriate practices for both soliciting and receiving donations. By establishing clear guidelines, a fundraising policy promotes transparency, accountability, and donor confidence while helping the nonprofit conduct its fundraising activities responsibly.
- GIFT ACCEPTANCE
While related to the fundraising policy, the gift acceptance policy focuses on how a nonprofit evaluates and manages certain types of donated assets. This policy provides clear guidance for board members and staff when considering proposed non-cash donations, including real estate, equipment, or other complex assets.
A well drafted gift acceptance policy also helps a nonprofit identify and decline gifts that may carry unwanted liabilities, restrictions, or ongoing obligations that the organization is not prepared to manage. This protects the nonprofit from financial, legal, and operational risks associated with unsuitable donations.
- INVESTMENT
An investment policy defines who is responsible for making investment decisions and how the nonprofit’s assets will be managed, protected, and grown. It also establishes guidelines for risk management, diversification, and maintaining appropriate access to cash when needed.
By outlining both management authority and board oversight, an investment policy helps ensure that financial resources are used prudently and in furtherance of the nonprofit’s mission. It also promotes long term financial stability and responsible stewardship of charitable assets.
- PUBLIC DISCLOSURE
A public disclosure policy explains which nonprofit documents must be made available to the public and which may remain internal. Certain records, such as governing documents, financial statements, and Form 990, are often subject to public inspection.
This policy helps ensure compliance with disclosure requirements while allowing the nonprofit to maintain appropriate confidentiality for sensitive internal information. It also supports transparency and public trust.
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WHISTLEBLOWER
A whistleblower policy establishes a process for reporting suspected illegal conduct, financial mismanagement, or violations of nonprofit policies. It also protects individuals who report concerns from retaliation.
By encouraging staff and volunteers to raise issues in good faith, this policy helps nonprofits identify and address problems early, promote ethical behavior, and reduce the risk of legal or regulatory violations.
IV. CONCLUSION
With passion leading the way and strong policies guiding your efforts, your nonprofit can operate more effectively, ethically, and confidently. These ten (10) policies help protect, strengthen, and support your organization’s long term success.
Clear and well drafted governance policies provide a framework for responsible decision making, promote transparency and accountability, and help ensure compliance with federal and state law. They also build trust with donors, volunteers, and the communities your nonprofit serves.
If your organization does not yet have these ten (10) policies in place, or if your current policies need to be updated, I can help. I offer customized drafting of all ten (10) policies for Iowa nonprofits.
To learn more, please contact me at gordon@gordonfischerlawfirm.com.
