What Are the Components of a Strong Nonprofit Compliance Program?

When it comes to developing a responsible compliance program, your board can start by asking, “What makes a good compliance program for nonprofits?”

First, your board needs to consider the 3 purposes of your compliance program:

1. Prevention
2. Detection
3. Corrective action

With these purposes in mind, you can start putting the components of a strong compliance program together so your board can rest assured that your nonprofit is operating according to all applicable laws and regulations. A strong compliance program will help to reduce liability, prevent legal problems, and enhance your nonprofit’s reputation.

Exploring the 3 Purposes of a Nonprofit Compliance Program

Your board members will have a better appreciation for your compliance program when they fully understand the purposes behind it. Let’s get dig a little deeper into the 3 purposes of a nonprofit compliance program.

1. Prevention ­– Alleviate many of the problems that are inherent with board work by creating written policies, extending board oversight, and enhancing board member education.
2. Detection ­– Handle problems when your board learns about them early on. You’ll be able to detect red flags before they turn into big problems by setting up a reporting process, monitoring it, and being on the lookout for signs of intimidation, harassment, and other unethical behavior.
3. Corrective action ­– Create processes for investigating problems and remediating them. Everyone needs to play by the same rules. If an issue gets reported, everyone should be treated fairly. Disciplinary policies should be clear and consistently enforced.

By having an understanding of the purpose of a strong compliance program, it provides the springboard for developing the individual components of your program. Your board can then enhance and expand on the program as new laws get passed and governance trends inspire changes.

What Makes a Good Compliance Program for Nonprofits?

A good compliance program for nonprofits covers all the bases for prevention, detection, and correction. The following 10 components will give you some good principles to start setting up a solid foundation for your compliance program:

1. Set up your standards, policies, and procedures. Create and retain written policies for Code of Conduct, Code of Ethics, and Whistleblower. It’s also prudent to set up an executive compensation setting policy, document retention policy, gift acceptance policy, and investment policy, as well as any other pertinent policies.
2. Designate responsibility for compliance program administration. Determine whether an individual or a committee will be responsible for ensuring that policies and procedures for compliance are in place and everyone is following them. The designated person or group should also stay current with compliance trends. Note ­– this doesn’t absolve the board from its responsibilities for ensuring compliance.
3. Set up programs for board and staff for education and training on compliance Board members and staff come to your organization with varying degrees of knowledge and experience. Evaluate their knowledge and fill in the gaps with appropriate training.
4. Communicate your standards, policies, and procedures to all board members, staff, and volunteers. Create a systematic way to inform all new people of your current policies and procedures and keep everyone updated with any changes.
5. Monitor and audit your compliance measures. Perform a risk assessment every year. Interview key staff to identify new or potential risks, review compliance challenges, and investigate whether current policies are sufficient to address risks.
6. Set up a reporting hotline and make it visible for all employees and volunteers. Some ways to do this are by using an email list, setting up a toll-free number, or designating a mailbox address. You could also add the information to your website or post it on-site at your facilities. It may help to publicize the kinds of issues that pertain to compliance matters. This will ensure that anyone can report issues or incidents anonymously and without retaliation.
7. Create a policy for how to discipline individuals that don’t adhere to compliance policies. Be sure to administer the policy in a manner that’s fair, consistent, and non-discriminatory. The policy should apply across all levels and positions including board members, staff, and volunteers. Board members who violate compliance policies should be removed from the board. Employees who don’t comply with policies should be terminated, and volunteer violators should be asked to stop volunteering.
8. Create investigation and remediation protocols. At the first sign of a non-compliance matter, ensue an investigation. Enlist the help of qualified individuals to understand the facts of the allegations. Investigators should report to the board at the earliest opportunity and make recommendations for corrective action. The board also has a responsibility to ensure that corrective actions are effective.
9. Create a culture of honesty and integrity. Start from the top down. The board and executive director should lead by example and that should have a trickle-down effect on everyone else within the organization. Build compliance into operations wherever possible, and actively monitor compliance measures. Document allegations and incidents of non-compliance and how they were addressed or remediated. Evaluate the success of your efforts.
10. Put fraud and abuse prevention measures into place. Put checks and balances into place so that there is always accountability. Officers should approve all large purchases. Train volunteers and employees on how to handle waste and fraud. Keep track of your nonprofit’s assets and inventory them periodically. It can be easy to overlook things like missing computer equipment or important files. Make sure that you store documents securely, and only allow access to those that need them.

That’s a comprehensive look at what makes a good compliance program for nonprofit organizations. Your BoardEffect board management system offers unlimited cloud storage which is perfect for storing your compliance policies and procedures. It also provides a secure platform where your board or compliance committee can collaborate and discuss important issues about compliance.

By ensuring that your board members understand the purpose of a strong compliance program and incorporating all the right elements into it, you’re positioning your nonprofit to reduce or prevent compliance problems.