Iowa Principles and Practices for Charitable Nonprofit Excellence

Iowa Principles and

Practices for Charitable

Nonprot Excellence

Larned A. Waterman Iowa Nonprot Resource Center

Revised 2016

Iowa Governor’s Nonprot Task Force

In 2004, Governor Thomas Vilsack and Lt. Governor Sally Pederson appointed a Gover-

nor’s Task Force to examine and enhance the role of Iowa’s nonprot organizations in the

building of Iowa communities. The Task Force consisted of Willard Boyd, Chair; Regan

Banks; Lu Barron; Senator Nancy Boettger; Philip Borleske; Mary Ann Burke; Senator

Mike Connolly; B.J. Do; Sally Falb; Representative Wayne Ford; Ken Gibson; Stanley

Howe; Jon Hrabe; Andria Macias-Castillo; Joan McCulloch; Kori Nielsen; Shelia Perry;

Representative Scott Raecker; Shannon Ramsey; Kathy Toborg; and Thomas Wilson.

Secretary of State Chet Culver and Attorney General Tom Miller were ex ofcio mem-

bers. These two ofces represented the public in providing oversight on nonprot organi-

zations. Mollie Clause represented the Secretary of State’s Ofce, and Assistant Attorney

General Shauna Shields represented the Ofce of the Attorney General. The Governor’s

Ofce was represented by Adam Lounsberry and Joseph Mowers.

The Iowa Principles & Practices for Charitable Nonprot Excellence were originally de-

veloped by the Iowa Governor’s Nonprot Task Force.

For more information contact:

The Larned A. Waterman

Iowa Nonprot Resource Center

130 Grand Avenue Court

Iowa City, IA 52242

Phone: 319.335.9765

Toll free: 866.500.8980

Web: http://inrc.law.uiowa.edu

E-mail: law-nonpro[email protected]

iii.

ii.

Phone 515-281-6230 Fax 515-242-5952 www.sos.iowa.gov [email protected]

OFFICE OF THE IOWA SECRETARY OF STATE

Dear Iowa Nonprofit:

As Secretary of State, I recognize the integral role charitable nonprofit organizations play in our

communities. I commend the thousands of Iowans who lead these organizations as board members,

employees, and volunteers. Your dedicated service is one reason why our state continues to thrive

with more opportunity and a better future for all Iowans.

The first edition of the Iowa Principles and Practices for Charitable

Nonprofit Excellence was published in 2005 as a result of the work of

the Governor’s Nonprofit Task Force. This fourth edition includes

important updates as the nonprofit sector continues to develop and grow

as a source of strength in all 99 of our counties.

Self-governance by well-informed and well-trained members of the

nonprofit community remains the foundation for building and maintaining

public trust. These principles and practices promote good management

practices, ethical conduct, and public accountability. It is a valuable

resource for new and established organizations to use as a guide for

improving efficiency, effectiveness, and responsibility.

The diverse and dynamic missions of our charitable nonprofit organizations promote the vitality of our

communities. While some principles herein identify legal requirements, most reflect standards for you

to adopt and adapt based on your particular organization’s purpose.

If there is further information or assistance my office may provide, please let us know. You may also

link to information on our website at sos.iowa.gov.

Sincerely,

Paul D. Pate

Secretary of State

PAUL D. PATE

SECRETARY OF STATE

STATE CAPITOL

DES MOINES, IOWA 50319

iv.

Table of Contents

Iowa Register of Accountability: The Principles and Practices ......................... 1

Preamble ............................................................................................................ 5

I. Role of Charitable Nonprot Organizations. .......................................... 6

II. Starting the Charitable Nonprot ........................................................... 7

III. Mission Statement ..................................................................................11

IV. Strategic Planning ...................................................................................13

V. Board of Directors ..................................................................................15

VI. Executive Director ................................................................................. 23

VII. Human Resources ...................................................................................24

VIII. Financing and Funding ...........................................................................27

IX. Communication ......................................................................................33

X. Information Technology .........................................................................36

XI. Advocacy ................................................................................................38

XII. Collaboration ..........................................................................................39

XIII. Accountability and Compliance .............................................................42

vi.

The Iowa Register of Accountability:

The Principles and Practices

The Iowa Register of Accountability on the Larned A. Waterman Iowa Nonprot Re-

source Center website is a voluntary listing of charitable nonprots that have committed

themselves to continuous improvement by implementing the Principles and Practices as

general guidelines. The purpose of the Register is to show Iowa and the nation that Iowa

nonprots make a concerted effort to operate efciently, effectively, and ethically. The

prot Organizations in Iowa.

There are three ways to be listed on the Principles and Practices Register:

1. Adoption of Principles and Practices by board resolution

2. Completion of Principles and Practices training

3. Licensure by a state agency or accreditation by a national organization

A nonprot organization need only to complete one of the three forms of adoption to be

listed on the Register of Accountability. If an organization implements more than one of

the forms of adoption, all will be included in that organization’s listing on the Register.

For example, a nonprot that sends a board member to the Principles and Practices train-

ing and which also adopts the Principles and Practices by resolution will have both forms

of adoption included in its Register listing.

1. Board adoption of Principles and Practices by resolution

An Iowa charitable nonprot can be added to the Iowa Register of Accountability after

an organizational review of the Iowa Principles and Practices for Charitable Nonprot

Excellence and a board of directors resolution, adopting them to pursue as part of its

institutional operations. The resolution must state the date on which the board adopted

the Principles and Practices and be signed by a board ofcer. (See example below.) Once

a copy of the resolution has been received by the Larned A. Waterman Iowa Nonprot

Resource Center, the nonprot will then be added to the Register of Accountability.

Example:

The Board of Directors of (name of nonprot organization), in a regular meeting at which

a quorum was present, reviewed the Iowa Principles & Practices for Charitable Nonprof-

it Excellence. We, the Board of Directors, hereby afrm that our organization already

is committed to being guided by the Principles and Practices and is actively engaged in

good faith efforts to meet each of them.

This resolution was passed by a (majority/unanimous) vote of the Board of Directors at

its regular meeting on (date), and this Resolution has been recorded in the permanent

minutes.

Signed by_______________________________________________

On ____________________________________________________

For the Board of Directors _________________________________

2. Training in Principles and Practices

An organizational representative can complete a Principles and Practices training pro-

gram which will result in issuance of a certicate of completion for a stated period. In

order for training to be adequate for the Register, it must be at least six hours long. Short-

er training sessions can be combined for a total of six hours. Completion of the Nonprot

Organizational Effectiveness I and/or II courses at the University of Iowa will allow an

organization to be listed on the Register. Any other form of nonprot training can be

submitted to the Larned A. Waterman Iowa Nonprot Resource Center for review of

sufcient coverage of nonprot issues. To be listed on the Register of Accountability, the

organizational representatives must be board members or executive-level paid staff.

3. Licensure or accreditation

An Iowa charitable nonprot which is accredited by a national organization or licensed

by a state agency will be presumed to have signicantly complied with the Iowa Nonprof-

it Principles and Practices for Charitable Nonprot Excellence. There are extensive ac-

creditation systems for educational institutions, health organizations, and libraries. Exam-

ples of accrediting entities that will allow a nonprot to be listed on the Register are:

United Way

Girls Scouts and Boy Scouts of America

Goodwill

Salvation Army

American Red Cross

The National Council for Private School Accreditation

Commission on Accreditation of Rehabilitation Facilities

Continuing Care Accreditation System

American Association of Museums

State Library of Iowa

Joint Commission on Accreditation of Health Care Organizations

Examples of state agency licenses that will lead to listing on the Register of

Accountability are:

Adult day care services programs (Iowa Code 231D)

Animal shelter (Iowa Code 162.4)

Assisted living programs, certied under Iowa Code 231C

(see also 27 Iowa Administrative Code 321 - 27)

Child care center, licensed under Iowa Care 237A

Child foster care licensed under Iowa Code 237

Child placing agency, licensed under Iowa Code 238

Elder group homes, certied under Iowa Code 231B

Nursing facility, licensed under Iowa Code 135C.1

Substance abuse programs, licensed under Iowa Code 125.13

A nonprot will be listed on the Register of Accountability after receipt of a copy of the

ofcial notice of the state agency license or of the document awarding accreditation to the

nonprot.

All information should be mailed to:

Larned A. Waterman Iowa Nonprot Resource Center

130 Grand Avenue Court

Iowa City, Iowa 52242

ATTN: Register of Accountability

The submitted documents should also list the organization’s name, current business ad-

dress, contact person, charitable purpose, and year of creation. If this information is not

included, it should be submitted along with the documentation, such as in a cover letter.

When nonprots have adopted the Principles and Practices, they may use the “P&P” logo

as shown below on their publications, websites, and letterhead. The logo can be down-

loaded from the Larned A. Waterman Iowa Nonprot Resource Center website.

Preamble

The purpose of the Iowa Principles and Practices for Charitable Nonprot Excellence

is to promote good management practices, ethical conduct, and public accountability

for Iowa charitable nonprot organizations as they perform their crucial community

services. The Principles and Practices recognize that good organizational practices

are primarily implemented through education and self-regulation. The Principles and

Practices are not regulatory. While many of them will be helpful to all nonprots, they

are specically written for 501(c)(3) organizations. The Iowa Principles and Practices

for Charitable Nonprot Excellence are intended to be primarily an educational process

designed to improve efciency and accountability. Iowa is enriched by its great diversity

of nonprots, and it is recognized that the implementation of these Principles and

Practices will take different forms and occur at different levels, given the resources of the

nonprots.

A Principle is a broad statement of ethical or managerial directions for a charitable non-

prot.

A Practice is a description of a method to achieve the principles. Practices follow the

related Principles.

Principle

Iowa charitable nonprot organizations are the essence of community. Iowa’s citizens,

volunteering in the thousands, build our communities. On their own initiative, Iowans ad-

dress local needs, formulate values, and take action through these voluntary associations.

Community organizations range across the broad spectrum of daily life and include reli-

gion, health, social services, education, culture, community development, housing, and

human rights. Many are small and nancially fragile, yet they are vital factors in making

Iowa a great place to work and live. It is only with these crucial community nonprot

associations that Iowa advances economically and socially. The people of Iowa should

recognize and support the contribution of the charitable nonprots to their community

through volunteer effort and donations.

Practices

A. Charitable nonprots must be publicly open and accountable, must be well man-

aged, and must continually build trust with the public by appropriate nancial

reporting, communications with the public about signicant contributions to the

community with the charity’s funds and programs, and strongly evident commit-

ment to ethical behavior.

B. Chartered by the State of Iowa, charitable nonprots should work to have a re-

sponsible relationship with appropriate state agencies, including the Iowa Attorney

General, the Secretary of State, and the Department of Revenue and Finance. Iowa

charitable nonprots shall respect and comply with the regulations and oversight of

the United States Internal Revenue Service which accords tax exempt status.

I. The Role of Charitable Nonprot

Organizations

II. Starting the Charitable Nonprot

A. Principle – Statutory Guidelines

Iowa charitable nonprot organizations, whether nonprot corporations, trusts,

or unincorporated associations, must ensure that they comply with statutory

guidelines and common law in creation of their legal form.

Practices

A charitable nonprot organization can be organized in Iowa as a corporation, a

trust, a limited liability company, or an unincorporated association. While part-

nerships and sole proprietorships are legal entities in Iowa, the Iowa Internal

Revenue Service will not give 501(c)(3) status to such entities.

1. Nonprot corporation status under Iowa Code chapter 504 is often a pref-

erable form for charitable nonprots due to the limitation on liability of all

those working for the charitable nonprot corporation. Contrast this to unin-

corporated associations in which there is a higher degree of liability exposure

for all association members. Under Iowa’s Revised Uniform Unincorporated

Nonprot Association Act there is some limited liability for unincorporated

associations. (Iowa Code 501B.8) Nonprot corporations are formed by ling

articles of incorporation with the Iowa Secretary of State. The Revised Iowa

Nonprot Corporation Act differentiates among mutual benet, religious, and

public benet corporations. Religious and public benet organizations are tra-

ditionally treated as charitable tax exempt organizations.

2. Charitable trusts can be formed with a declaration of trust or trust indenture.

Iowa Code Chapter 634 is applicable to private foundations that are trusts.

Creation of trusts is more common in the private foundation setting in Iowa

than in the public charity setting. The Iowa Attorney General may exercise

oversight of charitable trusts (Iowa Code section 633A.303).

3. Limited liability companies (LLC’s) are formed under Iowa Code Chapter

490A with articles of organization. LLC’s can be charitable and receive ex-

emption under 501(c)(3) in limited circumstances, but only when all of its

members are 501(c)(3) organizations.

B. Principle – Instrument Creating Nonprot

The instrument creating the charitable nonprot should adequately describe the

organization by giving its name, charitable purposes, and contact information.

Practices

1. Iowa Code section 504.202 stipulates the contents of the articles of incorpora-

tion that must be led with the Ofce of Secretary of State.

a. The corporate name must be distinguishable from other corporate names.

b. The organization must have a lawful purpose, though it is optional to state

the purpose in the articles.

c. The corporation must have a registered ofce and agent.

d. The corporation’s incorporators and their addresses must be listed.

e. The articles of incorporation must set forth whether the corporation has

members with governance level voting rights, such as the right to vote for

directors. If the articles of incorporation do not specify those rights, the stat-

utory default membership requirements apply. If the articles stipulate that

there shall be no members with legal rights, support groups can be called

“members” without legal rights.

f. The articles must also include provisions essential for federal tax exemption

eligibility. These include restrictions on legislative advocacy and prohibition

of private nancial distributions to individuals except as reasonable com-

pensation for services rendered.

g. The articles also may include provisions addressing the directors’ immunity

from liability to the corporation and its members as well as impose require-

ments on the corporation regarding indemnication of directors and ofcers

of the corporation.

2. Trusts in Iowa shall be consistent with Iowa Code section 633.1101 et seq.

Charitable trusts shall include provisions required by Iowa Code Chapter 634

and section 633A.5101 et seq. If created in a testamentary context, the provi-

sions of Iowa Code 633A.699 et seq. must also be considered.

3. Unincorporated associations are governed by Iowa statutory requirements, and

adequate articles of organization should include comparable provisions. Iowa

Code 501

C. Principle – Bylaws/Governance Document

For charitable nonprot corporations and unincorporated associations an orga-

nizational meeting should be held soon after the formation of the entity by the

initial directors to elect directors and ofcers, to adopt bylaws, and to commence

the activities of the organization. For charitable trusts the trustees designated by

the founder (settlor) should have their initial meeting.

Practices

Bylaws should be composed and adopted by the board which provide for

regulating and managing the affairs of the charitable nonprot entity. Bylaws

are not led with the secretary of state but are an internal document. Bylaws

should address

1. the board of directors size, meeting times and notice requirements, nomination

and election provisions;

2. if there are members with governance level voting rights, the meeting times

and notice requirements for membership meetings;

3. the committees of the organization;

4. list and describe the responsibilities of the ofcers of the organization;

5. the scal year of the organization;

6. the process of amendment of the bylaws.

D. Principle–501(c)(3) Status for the Charitable Nonprot

After completion of incorporation, creation of the trust with an indenture, or

adoption of the articles of organization of an unincorporated association, the

board should seek tax treatment consistent with its charitable purposes under In-

ternal Revenue Code 501(c)(3) from the United States Internal Revenue Service,

and then faithfully and successfully conduct the affairs of the nonprot entity

within that Code section’s provisions.

Practices

1. Application should be made to the United States Internal Revenue Service

for federal income exempt status on IRS Form 1023 available on the IRS web

site at http://www.irs.gov/pub/irs-pdf/f1023.pdf or on the interactive Form

1023 at http://www.stayexempt.irs.gov/Starting-Out/Interactive-Form-1023-

Prerequisite-Questions Smaller charities for which the annual gross receipts

will be $50,000 or less for the rst three years have the option of doing the

Form 1023-EZ, available at http://www.irs.gov/uac/About-Form-1023EZ

2. The nonprot should also apply for an employer identication number (EIN)

with form SS-4 available on the IRS web site at http://www.irs.gov/pub/irs-

pdf/fss4.pdf or with an interactive approach for the EIN at http://www.irs.

gov/Businesses/Small-Businesses-&-Self-Employed/Apply-for-an-Employer-

Identication-Number-(EIN)-Online This EIN number is required even if the

charitable nonprot is not an employer.

3. Subsequent to receiving federal recognition as a 501(c)(3) organization, there

is no required ling for exemption from Iowa income tax.

4. The charitable nonprot entity should make application for other state

and local tax exempt status, such as property and sales tax (see Iowa Code

427.1(8), Iowa Code 422.45).

5. An Iowa nonprot corporation that expands its activities into other states

should submit the required foreign corporation lings in those states.

E. Principle – Government Filings

Once charitable nonprot organizations are chartered and granted tax exempt

status by the government, they must le reports with government agencies and

comply with the applicable law.

Practices

1. Nonprots shall le the reports required by Iowa state law.

a. For Iowa nonprot corporations, biennial report and informational updates

to the Iowa Secretary of State. The secretary of state has the discretion to

commence an administrative proceeding to dissolve a corporation if any of

the following occurs:

i. the corporation does not deliver its biennial report to the secretary of

state within 60 days after it is due

ii. the corporation is without a registered agent or registered ofce in Iowa

for 60 days or more

10.

iii. the corporation does not notify the secretary of state within 60 days that

its registered agent or ofce has been changed

iv. The corporation’s period of duration, if stated in years in the articles of

incorporation, has expired

b. For charitable trusts, there is no annual ling requirement with the state of

Iowa, except if the trust were created in a testamentary context.

c. For nonprot unincorporated associations there is no annual ling requirement

with the state of Iowa.

2. Nonprots must le the reports required by taxing authorities.

a. Annual informational report to US Internal Revenue Service. A 501(c)(3) or-

ganization with public charity status must annually le a Form 990 report if its

annual gross revenue is $50,000 or more. Churches are not required to le the

Form 990 even if the church’s revenue is above that amount. 501(c)(3) entities

that are private foundations le Form 990PF. Nonprots with less than $50,000

gross receipts must le Form 990-N. There is no required Iowa tax ling,

though some agencies other than the Iowa Department of Revenue require the

Form 990 as part of the overall reporting.

b. If there is unrelated income for the 501(c)(3) entity, it must le both a federal

990T form and a form 1120 with the Iowa Department of Revenue and Fi-

nance.

III. Mission Statement

Principle – Developing the Mission Statement

The mission statement sets forth the organization’s basic service. Unlike the pur-

pose clauses of the articles and bylaws, which are commonly constructed in legal

language to assure government regulators that the organization will comply with

the governing law, the mission statement should be set forth simply and clearly in

language which can be understood by the general public.

Practices

A. The mission statement needs to be a rallying point for the organization’s constit-

uencies: board, staff, volunteers, clients, donors, and the general public.

11.

B. The mission statement should serve as the basis for evaluating the success of the

organization.

C. Nonprot mission statements should contain the following elements:

1. Name of the Organization. The name of the organization should clearly de-

scribe the core organizational service. Avoid clever names understood only by

insiders.

2. Tag Line. A short tag line following the name of the organization can further

clarify to the general public the essence of the organization.

3. Mission Statement. The mission statement should describe what the organiza-

tion does.

4. Vision Statement. The vision statement should describe what the organization

ultimately desires to achieve by carrying out the mission. What is the outcome

sought by the organization?

5. Values Statement. The values statement should set forth the principles that

will guide the organization in carrying out its mission, e.g., diversity, em-

powerment, compassion, sharing, inclusiveness, openness, integrity, respect,

partnership. It outlines the ethical means to achieving the mission.

D. The responsibility for creating the mission statement is that of the board of di-

rectors. The board must adopt the mission statement. The staff leadership needs

to be actively involved. It is also desirable to consult with the paid and volun-

tary staff, representatives of the donors, clients, and the public the organization

serves. The mission statement should be periodically reviewed in conjunction

with the strategic planning of the organization.

E. While it is desirable to be succinct in a mission statement, it is necessary to be

sufciently specic so that all constituencies can clearly understand the rationale

of the organization. Among the issues to be considered when drafting a mission

statement are:

1. Why does the organization exist?

2. What service does the organization provide?

3. What are the geographical boundaries in which the organization will function?

4. Who are the clients to be served? Why should the clients utilize the services

of the organization?

12.

5. What differentiates the organization from those working in the same or allied

elds? What is the organization’s niche? How do you position the organiza-

tion in the community?

6. Who are the key constituents both internal and external? Why should they

associate themselves with the charitable nonprot? In short, ask who are we?

Why are we here?

IV. Strategic Planning

A. Principle - Drafting the Plan

To achieve its mission and vision, a charitable nonprot organization needs

a comprehensive plan which sets forth the organizational goals with specic

action steps to be taken by specic individuals. Organizational success depends

upon execution of the plan.

Practices

1. The board has the responsibility for adopting the strategic plan. The execu-

tive director and staff need to be actively involved in the planning process

with counsel from other organizational constituencies.

2. Board and staff often resist planning because of the time and group thought

required. However, if there is no consensus on organizational direction and

no implementation of action, the organization will not function effectively.

An outside facilitator can help bring issues before the group in a non-threat-

ening way.

3. A comprehensive strategic plan sets forth general goals for all aspects of the

organization’s operations. This includes programmatic services, administra-

tive support services, funding, budgeting, personnel needs, marketing, and

public relations. The plan should identify the desired outcomes for the orga-

nization’s constituencies and the method for assessing the achievement of

those outcomes.

4. Each goal should be broken down into the specic actions (i.e., objectives,

strategies, directions) required to achieve the goals such as the creation of

timelines and the assignment of personnel to carry out each task.

13.

5. A SMART strategic plan has goals and objectives which are:

Specic

Measurable

Attainable

Results oriented

Time bound

6. The strategic plan should identify specic management risks and provide

for their reduction, elimination, or insurance. Such risks include loss of tax

exempt status, fraud, embezzlement, re, theft, service delivery malpractice,

facilities, and automobiles.

7. Strategic planning should be undertaken every three to ve years. The plan

should be reviewed at least quarterly by the board to determine progress

toward goals and to make adjustments on the plan based on experience and

new pertinent information. New board member orientation must include the

current strategic plan.

8. Strategic plans should provide for a method of evaluation/assessment of the

outcomes/impact of its programs on the constituencies served.

9. The strategic planning process should include a SWOT (strengths, weak-

nesses, opportunities, and threats) assessment of the organization’s strengths

and weaknesses. There should also be an assessment of the external environ-

ment in which the organization functions which presents opportunities and

threats such as new and improved methods of service and service providers,

new laws and regulations, economic, demographic, and other social trends.

A SWOT evaluation could result in the organization dropping or adding

service or collaborating with other organizations for increased efciency and

cost reductions. To be effective a SWOT analysis needs to incorporate the

views of clients served, funders, and other publics.

10. Boards should consider making a nal version of the strategic plan which

can be shared with the public.

14.

B. Principle – Funding for the Plan

Adequate funding is essential to executing a strategic plan.

Practices

1. The strategic planning process requires a multi-year (3 years) overall balanced

budget which consists of realistic estimates of income and expenses projected

over a timeline. A conservative approach to budgeting protects staff jobs and

assures client service.

2. At least quarterly, the board must review the budget and reduce expenditures

where income falls short. Balanced budgets are crucial.

3. Most funders want their money to be spent on future projects, not retiring the

organization’s debt.

4. A budget plan requires additional detailed action plans to identify funding

sources and to acquire funds. Fundraising from private individuals requires a

specic plan.

V. Board of Directors

A. Principle – Board Responsibilities

Each charitable nonprot must have a board, and the board must be active. Ex-

cept as otherwise provided (by law and the governing document), all corporate

powers shall be exercised by or under the authority of the board. The affairs of

the charitable nonprot shall also be managed under the direction of the board.

(See Iowa Code section 504.801 for nonprot corporations, Iowa Code section

633A.4101 et seq. for trusts)

Practices

1. The board of directors’ primary responsibilities are to determine the organi-

zation’s mission and its policies; to set the organization’s overall program for

the year; to engage in long-term planning; to establish scal policy; to pro-

vide adequate resources for the activities of the organization; to select, evalu-

ate, and if necessary, terminate the appointment of the chief executive; and to

develop and maintain communication links to its constituencies and the com-

munity.

15.

2. The board should avoid involvement in day-to-day operations of the chari-

table nonprot, although it is recognized that for smaller nonprots with no

paid staff, this is not possible.

3. The board sets organizational policies and monitors compliance with them. In

making policies for a charitable nonprot, a board is setting objectives against

which to measure the organization. Setting and monitoring policy protects

directors from liability where they act in good faith and with due care.

4. Board members must follow through on their assignments, attend regular and

specially called meetings, and come to meetings prepared.

5. The board is responsible for securing funding resources to ensure the nan-

cial viability of the organization and its programs. Asking for and giving

money are necessary. Every board member can do something useful to sup-

port fundraising efforts.

6. For charitable nonprots there should be a strong commitment to boards

serving in a volunteer capacity; if a charitable nonprot wishes to compensate

board members, it must have signicant justication for the expenditure.

B. Principle – Board Membership

The board is not an abstraction. The board consists of volunteer citizens who

come together in public service that requires their time and competency.

Practices

1. Independence – The board should consist primarily of independent persons

who are not employees of the organization. The paid executive director(s)

can serve as an ex ofcio board member, either voting or non-voting, with the

provision that executive sessions of the board can be held periodically without

the ex ofcio member present. If the executive director is to be ex ofcio, the

bylaws must clearly state that. Where independent directors may have episod-

ic business relations with the organization, such relations should be pursuant

to conict of interest rules. (See F. 2. below)

2. Election – Directors are elected by the voting members of the organization,

by the board of directors, or as otherwise specied in the articles and/or by-

law provisions. In charitable trusts the trust document (or, if testamentary, the

16.

court docket) must be consulted to determine if any or all of the trustees are

designated by the settlor (or appointed by the court) who must continue until

their death or resignation.

3. Size – Board size depends upon the particular mission of the organization. At

a minimum, the board size should be ve members to assure the capacity to

carry out the board duties. Among the factors which determine size are: geo-

graphical coverage, diversity, needed board skills, access to funding, and rep-

resentation of constituencies served. It is essential that the talents of all board

members be used to good advantage.

4. Skills and Talents

a. Operational area – These include management, nance, investment, law,

accounting, public relations, fundraising. Together board members should

have a range of operational competencies needed to carry out the duties of

the board.

b. Program understanding – Knowledge of and informed insight on the or-

ganization’s programs.

c. Connection to constituencies – Widespread support requires a diverse

board, including representation from groups the organization directly

serves.

d. Advocacy leadership – Access to resources, inuence with constituencies

important to the charitable nonprot organization.

e. Inclusiveness – Age, sex, ethnicity, religion, sexual orientation, socio-eco-

nomic background, and geographic location of prospective board members.

f. Commitment – Give time and funds and participate in fundraising.

g. Supportive – Of mission, vision, and values.

5. Attitudes – Board members must be able and willing to work and contribute

the strengths they have. Board members need to have a positive attitude to-

ward the organization! Board members should be:

a. Knowledgeable e. Committed

b. Interested f. Team players

c. Enthusiastic

d. Accountable

17.

6. Board Orientation – Either individually or collectively, new board members

should receive oral and written orientation to their responsibilities as well as

those of the executive director and staff. The board members should receive

an overview of the board manual. The board manual should contain a histo-

ry of the organization, its mission statement, its articles of incorporation and

bylaws, its major policies, the long-range plan, the list of current board mem-

bers, the committee names and functions, and the minutes of last year’s meet-

ings.

7. Board Evaluation & Development – A regular process of evaluating

board members individually and collectively will help identify performance

strengths and weaknesses. Board development is an ongoing process that

requires opportunities for members to receive feedback, learn, practice, and

improve.

C. Principle – Team Effort

The board is a team. It functions as a body rather than as individuals. The board

leader is the chair who works closely with the executive director to provide the

team with information and involvement.

Practices

1. Ofcers – Unless otherwise provided in the articles of incorporation or by-

laws, the ofcers of the board of directors are the President (Chair), Treasur-

er, and Secretary, Iowa Code 504.841. They are elected by the board, or, for

some organizations, by a voting membership.

2. Meetings – Board meetings should be regular and engaging. Board meetings

are more efciently run when an agenda is followed, when there are time

limits on each agenda item, and when participation is facilitated. Every board

meeting should include a nancial report. It is essential that the board have

current knowledge and understanding of the organization’s nancial situa-

tion so that it can take appropriate action to keep the budget balanced. Board

meetings should also monitor policy application and program activity.

3. Information after board members are on the board – The nonprot staff

should continue to provide members with opportunities for development by

18.

offering special training on legal and other pertinent organizational issues as

well as economic, social, and environmental trends; by moving them from

one committee to another; by offering tours of the organization’s facilities

and opportunities to participate in services offered by the organizations; by

distributing relevant charitable nonprot monographs; by organizing plan-

ning retreats for board and staff at which long-range trends and goals are

discussed; and by periodically giving 20-minute training sessions at regular

board meetings on issues of vital importance to the organization.

4. Board Committees – For Iowa nonprot corporations there shall be at least

two board members on the board’s committees. Typical board committees

include the following:

a. Program

b. Budget and Finance

c. Audit

d. Investment

e. Personnel (Human Resources)

f. Fundraising

g. Marketing/Public Relations

h. Facilities

i. Governance (Nominating)

In the case of a larger board, an executive committee handles matters be-

tween full board meetings and is required to report to the board on its interim

actions. See Iowa Code 504.826 for nonprot corporation’s committee pro-

visions. Iowa Code section 504.826(6) states, “The creation of, delegation of

authority to, or action by a committee does not alone constitute compliance by

a director with the standards of conduct described in section 504.831.”

5. Advisory boards and support groups - The board of directors is the sole

governing body of the organization. It may establish advisory boards, such

as friends groups and those identied as “membership” groups, who have no

voting/governance authority.

D. Principle – Board Chair Leadership

The board chair is key in organizational dynamics. Organizational transition

always ows through the board chair.

19.

Practices

1. The board chair must have the skills, disposition and enthusiasm needed for

board leadership.

2. The board chair and the executive director together must chart the course of

the board’s work along with an executive committee where it exists. This

includes developing board meeting agendas, appointing and stafng board

committees, and recommending policies.

3. The board chair must create a collegial atmosphere for the conduct of board

and committee meetings. The board chair needs to be a team builder.

4. There should be a position description for the board chair.

5. The executive director must be evaluated annually. If the executive director

is not performing satisfactorily, the board chair and the board should specify

areas for improvement based on the executive director’s evaluation, coach the

executive director, and then, if there is insufcient improvement in perfor-

mance, replace the executive director rather than cross the line from policy-

making into policy administration.

6. Concentrating authority for organization and management in one person re-

moves valuable checks and balances. Ideally, the positions of board chair,

board treasurer, and executive director should be held by different individuals.

7. Increasingly, charitable nonprot boards engage in annual evaluation of their

own performance as a board. These evaluations should focus on the effective-

ness and dynamics of the board as a whole as well as board committees and

their leaders.

E. Principle - Board/Staff Relationship

Nonprot organizational success depends on the clear delineation of responsibil-

ities and mutual respect between the board and the staff.

20.

Practices

1. The board chair must provide leadership and oversight; the executive director

must administer the organization.

2. The executive director is appointed by and terminated by the board.

3. Board stewardship is a major responsibility of the executive director and

requires serious time commitment. It is essential for the executive director to

respond promptly and openly to the board. Executive directors are most effec-

tive when they understand, respect, and foster the role of the board.

4. The board chair and the executive director should be where communication

between the board and staff intersect. There must be a trusting and open rela-

tionship and mutual respect between the board chair and the executive direc-

tor.

5. The board must function as a board and speak through the board chair to the

staff. The staff must function as a staff and speak to the board through the

executive director. While individual members of the board and staff will work

together, converse, and learn together through board committees and other or-

ganizational activities, it must always be recognized that “the buck stops” with

the board chair and the executive director.

6. Board and staff interact through a formal communication process. Therefore,

it is imperative for the board chair and the executive director to be open with

their colleagues. Communication, including both dissent and bad news, must

ow freely through these two communication conduits. Information breeds

understanding.

7. The executive director and staff need to be open, forthright, patient and time-

ly in their responses to the board. Staff must recognize that board members

have limited time to offer the organization but they desire to be as effective as

possible. The board should feel their expertise and skills are being effectively

used and that the executive director and staff will not be defensive when chal-

lenged.

8. Where the executive director(s) is an ex ofcio member of the board, it is im-

portant that the board be given the opportunity to meet regularly without the

executive director being present. Open communication within the board about

the work of the executive director is the best way to assure good relationships.

21.

F. Principle – Board’s Fiduciary Duty

Charitable nonprot board members and ofcers must be aware of and comply

with the three legal duciary duties related to their work: the Duty of Care, the

Duty of Loyalty, and the Duty of Obedience.

Practices

1. Duty of Care – Board members and ofcers meet the duty of care by exercis-

ing their responsibilities in good faith and with diligence, attention, care, and

skill. (For nonprot corporations, see Iowa Code 504.831; for charitable trusts,

see Iowa Code 633A.4203.) This includes both decision-making and oversight

responsibilities and is fullled by such things as attending board meetings reg-

ularly, entering discussions, reading minutes, learning about the organization’s

programs, maintaining careful oversight of nances, and questioning unclear or

troubling activity.

2. Duty of Loyalty - Charitable nonprot board members and ofcers meet the

duty of loyalty by placing the interests of the organization before his or her

private interests, including scrutinizing transactions in which the director has a

personal nancial interest, refraining from providing loans from the nonprot

to directors and/or directors’ family members, and avoiding the use of organi-

zational opportunities for personal gain. (For nonprot corporations see Iowa

Code 504.833; for charitable trusts, see Iowa Code 633A.4202.) Conicts of

interest are managed rather than entirely avoided. For proper management, it is

essential to have a written conict of interest policy which includes:

a. an annual written conict disclosure by all board members and ofcers;

b. another disclosure process as particular conict-of-interest situations arise for

particular board members and ofcers;

c. provisions outlined by which the individual board member will not be in-

volved in board actions on matters presenting a conict of interest for the

board member or ofcer.

3. Duty of Obedience - Directors meet the duty of obedience by carrying out the

purposes and mission of the charitable nonprot, complying with federal and

state law applicable to nonprots, doing required lings, and complying with

the organization’s governing documents, articles of incorporation, and bylaws.

22.

VI. Executive Director

Principle – Executive Director Responsibilities

The executive director has the day-to-day administrative responsibility for achiev-

ing the organizational mission and assuring the efcient and effective operation of

the organization.

Practices

1. The executive director has the responsibility to carry out the policies, proce-

dures, and strategic plan adopted by the board.

2. The executive director must be effective in the use of the organization’s assets,

human resources and program delivery, and set sufciently high goals for the

organization to achieve.

3. A major responsibility of the executive director is to work closely with the board

through the board chair.

23.

G. Principle – Board Risk Management

Nonprots should engage in regular risk management regarding board liabilities.

Practices

To help minimize the potential liabilities of board members, nonprots in Iowa

should consider:

1. Entity status (i.e., incorporation, by which the entity is liable, but not those

working for the corporation)

2. Specic statutory immunity (in which acts neither intentional nor criminal

are protected from liability) see Iowa Code 504.901

3. Indemnication (nonprot corporation law in Iowa requires in some circum-

stances that the nonprot corporation indemnify its board of directors) see

Iowa Code sections 504.852 through .857

4. Purchase of Director’s and Ofcer’s insurance (which covers costs associ-

ated with directors and ofcers being sued in connection with their work for

the nonprot) see Iowa Code 504.858

VII. Human Resources

A. Principle – Motivation of Staff

Paid staff and volunteers operate and deliver the services of the charitable

nonprot organization. The quality of their work and their commitment to the

organization’s mission determine the success of the organization.

Practices

1. Staff and volunteers should receive clear direction from and regular super-

vision and evaluation by their supervisors.

2. Organizational policies and practices should address human resource issues

and be made available to staff and volunteers.

3. A motivational environment and recognition of work well done are power-

ful stimuli for staff and volunteers.

24.

4. The executive director must have the intellectual vision to develop the organiza-

tion and push the mission of the organization in seminal directions.

5. The executive director must be able to implement the vision through well-con-

ceived programs that serve the public and develop supportive constituencies.

6. The executive director must be a communicator who can articulate the nonprof-

it’s niche to attract and retain public constituencies.

7. The executive director enlarges the nancial base by expanding private contribu-

tors, increasing inter-institutional collaboration, and developing new approaches

to all levels of government.

8. The executive director must like people and be open to suggestions and the per-

spectives of others.

9. The executive director is responsible for assuring compliance with legal, nan-

cial, accounting, and ethical requirements.

10. The executive director must perform his or her responsibilities subject to du-

ciary duties.

11. The board should annually evaluate the performance of the executive director.

B. Principle – Development of Staff

As the services and operations of charitable nonprots become more com-

plex, there is an increasing need for specially trained paid staff with a dedi-

cated time commitment.

Since many of Iowa’s charitable nonprot organizations are small with frag-

ile nances, paid staff members are often few and may only be employed part

time. Regardless of numbers of paid staff, there should be documented poli-

cies and practices dening their status and guiding their work.

Practices

1. Human relations policies should cover:

a. position descriptions

b. interview standards

c. terms and conditions of employment

d. compensation and benets

e. training and development

f. performance review

g. promotion policies

h. disciplinary grounds

i. termination grounds and procedures

j. conict resolution procedures

k. grievance procedure

l. employee protection from discrimination, harassment, and as a whistle blower

2. A charitable nonprot should carefully interview and plan the rst few days

of an employee’s work with adequate orientation and mentoring.

3. A charitable nonprot should provide a stimulating, exible, and enjoyable

working environment which encourages staff initiative, participation, and

maximum utilization of staff skills.

4. A charitable nonprot should invest in staff. In dealing with limited budgets

give priority to paying staff adequate compensation and fringe benets. Pro-

vide a budgeted amount for staff training that will improve skills and morale.

5. A charitable nonprot should express appreciation and show respect for staff

work well done in spontaneous as well as through formalized recognition

awards.

25.

C. Principle – Volunteer Role

Volunteerism is the hallmark of charitable nonprot organizations. Volunteers

create, govern, fund and staff charitable organizations.

Practices

1. A charitable nonprot should regularly supervise and communicate with volunteers.

2. A charitable nonprot should have liability insurance coverage to protect volunteers.

3. Regular collection of information on volunteer numbers and hours should be main-

tained by a charitable nonprot.

4. A charitable nonprot should practice recruiting methods that connect with diverse

populations.

5. A charitable nonprot should have screening procedures to identify suitable volun-

teers.

6. A charitable nonprot should have written policies and job descriptions for volunteer

involvement.

7. A charitable nonprot should take annual measurement of the impact of volunteers.

8. A charitable nonprot should have training and professional development

opportunities for volunteers.

9. Training should be conducted for a charitable nonprot’s paid staff working with

volunteers.

10. A charitable nonprot should have an employee or volunteer responsible for

recruitment of dedicated and committed volunteers.

11. Volunteer policies should cover:

a. Volunteer position description

b. Recruitment and placement procedures, including background checks where

appropriate

c. Orientation

d. Training requirements

e. Time commitment

f. Evaluation procedure

g. Separation grounds and procedures

26.

VIII. Financing and Funding

A. Principle – Funding Essentials

No funding, no program. Funding is central to achieving the mission.

Practices

1. The board and staff are responsible for securing the funding needed to

carry out the organization’s programs.

2. A strategic plan must include a specic nancial plan regarding sources of

funding, individuals designated to secure funding, a timetable for funding,

and review of funding status at every regular meeting of the board.

3. There should be proper training and supervision of people raising funds

on behalf of the organization.

4. Diversity in funding sources increases organizational nancial stability.

Most charitable organizations derive their funding from a combination of

sources including private contributions, earned income, and government.

5. Prudence requires an organization to generate income beyond daily opera-

tional needs in order to build cash reserves for both capital and operation-

al long-term needs.

27.

12. A charitable nonprot should articulate the role of non-board volunteers in

the operations of the organization. Charitable organizations should recognize

the vital, albeit special, role of able and committed volunteers in carrying out

the mission of the organization by affording them an opportunity to partici-

pate as partners rather than as adjuncts in charting and conducting the course

of the organization.

13. A charitable nonprot should provide individual praise for work well done by

volunteers and hold group recognition events, including participation in the

Governor’s Award for outstanding volunteers.

28.

6. A gift-acceptance policy is helpful for the organization and potential do-

nors by outlining the process for how a variety of gifts may be accepted or

rejected.

a. A gift should be accepted only if it can be used or expended consistent-

ly with the purpose and mission of the organization.

b. Prospective donors should seek the assistance of personal legal and

nancial advisors in matters relating to their gifts, including tax and

estate issues.

c. Some types of donations may be accepted subject to review by a com-

mittee or the board (e.g., bequests, life insurance, personal property,

real estate, etc.).

7. All funding must be expended in pursuit of the organization’s charitable

mission, which includes improved service and access to service.

B. Principle – Financial Accountability

A charitable organization is accountable to its funders, its constituencies, and the

public, both as to the sources and uses of funding. Current, complete, and accurate

nancial records are critical to meeting the legal obligations of the organization.

Practices

1. Financial Audits

a. The board has a responsibility to have an annual audit. It is desirable to

have a board audit committee which is separate from the board nance/bud-

get committee(s).

b. Where the organization has total annual gross revenues in excess of

$1,000,000 or more, its nancial statements should be independently audit-

ed. Where the annual gross revenue is between $250,000 and $1,000,000

the nancial statements should be reviewed by an independent public ac-

countant. Smaller nonprots in Iowa with annual gross revenue below

$250,000 are encouraged to get outside assistance with and outside review

of their accounting activities regularly. Nonprots should remain aware that

some funders may require audits regardless of gross revenue amounts.

c. The audit or nancial statement should be available to all funders, govern-

ment regulators, and the public.

2. Fraud/Embezzlement

All charitable organizations regardless of size are vulnerable to fraud and em-

bez zlement. The handling of funds needs to be rigorously scrutinized by the

board and the staff. There should be internal controls so that no single person is

responsible for receiving, depositing, and expending funds. There should be a

condential procedure for reporting fraud and embezzlement.

3. Investments

Unless the gift instrument says otherwise, consider the following when deter-

mining accumulation and spending of growth in endowments of nonprots. The

nonprot must act in good faith with the care that an ordinarily prudent person

in a like position would exercise under similar circumstances, and consider such

issues as the duration and preservation of the endowment fund; the purposes of

the institution and the endowment fund; general economic conditions; the pos-

sible effects of ination or deation; the expected total return from income and

the appreciation of investments; other resources of the institution; and the invest-

ment policy of the institution.

4. Regulatory, Donor, and Public Reports

a. The organization needs to le the required government reports in a timely and

complete manner. In particular this means the Internal Revenue Service Form

990.

b. Regular reports should be provided to government and private funders con-

cerning expenditure of funds in compliance with the terms of a grant or gift.

Charitable nonprot organizations must be aware of the requirements of sepa-

rate fund accounting for restricted grants, funds, and endowments.

c. Every organization should make available to its constituents and the public an

annual report of its nances, program, current board members, and ofcers in

printed and/or website form. Disclosure of the last three years of IRS Form

990 to anyone requesting it is required by law.

d. Charitable nonprots raising funds in Iowa must be prepared to disclose the

costs of the fundraising in comparison to the amount of funds raised to any

potential donor who requests it. Iowa Code 13C.

29.

5. Reimbursement

The organization should establish written policies regarding payment of reim-

bursement expenses, including the types of expenses covered and the documen-

tation required for reimbursement.

6. Loans

The organization should not provide loans to board members or trustees. Loans

or paid advances to employees should be in writing and approved by the board.

Depending on the nature of the loan or advance, additional state and federal

reporting may apply.

C. Principle – Charitable Focus

Although many types of charitable organizations are funded in part by fees for

service, e.g. hospitals and educational institutions, they must remain primarily

charitable in their overall administration.

Practices

1. To be considered charitable rather than commercial, organizations charging

fees must demonstrate that they serve a public purpose, such as providing

services to people who cannot afford to pay.

2. Charitable organizations should be entrepreneurial but must be mindful that

they are subject to the duciary duties of care and loyalty which require a

prudent and detailed action plan which the organization has the capacity to

achieve.

3. Where the Internal Revenue Service considers an activity unrelated to the

core mission of the organization it applies the Unrelated Business Income Tax

(UBIT) to the revenue generated from that specic activity. The organization

needs to be aware that unrelated activities do not take precedence over the ba-

sic organizational mission, and the organization must report taxable unrelated

revenues on IRS form 990-T and Iowa form 1120.

D. Principle – Financial Accountability

Charitable nonprots must recognize that, while the government provides vital

support by granting tax-exempt status to charitable organizations, and also often

provides direct funding to charitable nonprot organizations to deliver public

30.

services, these are accompanied by restrictions and reporting requirements with

which the charitable nonprot must become familiar and with which it must

comply.

Practices

1. Government funding carries with it conditions, restrictions, and regulations

as to the use of and accounting for the funds by the charitable organization.

For federal money, see the OMB Omni Circular, Uniform Guidance: Admin-

istrative Requirements, Cost Principles, and Audit Requirements for Federal

Rewards (2 CFR 200 et seq.) For Iowa state funds, there is some guidance in

Iowa Code 8F.

2. Solicitation and deployment of government funds must be consistent with the

charitable nonprot’s mission, policies, and practices as well as the applicable

laws.

E. Principle – Tax Deductibility for Donors

Charitable nonprots must recognize and make effective the American charitable

tradition which has at its core contributions by private individuals and organiza-

tions. Public policy encourages private giving by making donations tax deduct-

ible to the donor, a policy that charitable nonprots must ensure will continue

through prevention of abuse.

Practices

1. A charitable organization needs an integrated private fundraising process

based on a written plan that sets goals, objectives, and timelines and spells out

the solicitation methods, programmatic needs, types of gifts, and the recruit-

ing and training of volunteers and staff to implement the plan.

2. Charitable nonprots shall be aware of and comply with Internal Revenue

Code provisions (see, e.g., IRC section 170). They must also refrain from

aiding donors who violate the Code.

3. The charitable organization shall provide donors with a written acknowledge-

ment of donations pursuant to IRC section 170(f)(8) and estimations of quid

pro quo values in return for gifts pursuant to IRC section 6115.

4. The charitable nonprot should acknowledge non-cash gifts with IRS Form

8283, and the donor, not the charitable organization, is responsible for secur-

ing appraisals of the value of non-cash contributions.

31.

32.

5. Charitable organizations raising funds in Iowa shall comply with the Iowa

Charitable Solicitation Act (Iowa Code 13C) administered by the Consumer

Protection Division of the Ofce of the Iowa Attorney General. Iowa chari-

table nonprots raising funds in other states should ensure their compliance

with the fundraising regulation of each state in which they raise funds.

6. Fundraising communications should include clear, accurate, and honest infor-

mation about the organization, its activities, and the intended use of the funds

raised.

7. While signicant costs of fundraising are real, fundraising costs should be

reasonable in relationship to the total operational costs of the organization.

8. A charitable organization should adopt donation policies consistent with the

law and public policy as well as its mission and its ethics. These policies

should list any unacceptable fund sources and gift conditions which would

preclude acceptance of a gift.

9. In the case of a restricted gift, a “charity is considered to comply with a gift

restriction if the charity acts in good faith, reasonably construes the terms of

the restriction, and adheres to all material requirements of the restriction”. See

ALI Principles of the Law of Nonprot Organizations. Charities need to be

made aware of the gift restriction. Donor language expressing a wish rather

than a restriction is not binding on the charity.

10. Where a donor requests anonymity, the organization should respect the re-

quest as to the name of the donor but make available information concerning

the size and purpose of the gift. Form 990, Schedule B, with its list of larger

donors, may be withheld from the otherwise required disclosure of the form.

11. The organization should not sell or otherwise make available the addresses of

its donors without permission of the donors. Where required by law to do so,

the organization shall provide full information to the designated governmental

authorities.

12. The organization has the stewardship responsibility to keep donors apprised

of the impact of their gifts and to respond promptly and fully to donor inqui-

ries. General organizational information should be available through a printed

or website annual organizational report.

13. The organization should designate the person(s) responsible for donor solici-

tation and stewardship.

IX. Communication

A. Principle – Importance of Communication

Charitable organizations are not abstractions. They are people (constituencies)

interacting with each other in a variety of ways. Communication is key to ef-

fective interaction.

Practices

1. Communication is a form of accountability to the organization’s constituen-

cies. It should be oriented to the constituencies and thus requires an outreach

mindset.

2. A goal of a charitable nonprot’s communication should be transparency

which includes:

a. Continually building trust with the public by appropriate nancial reporting

b. Communication with the public about signicant contributions to the

community with the charity’s funds and programs

c. Strongly evident commitment to ethical behavior

3. Communication should be strategic, integrated, and central to the organiza-

tion’s functions.

4. Messages must be timely, informative, clear, and forthright with openness

and candor about bad news as well as good news.

5. Effective communication identies:

a. The constituencies who are to receive the message

b. The content of the message to be delivered

c. The method of delivering the message

6. Constituencies are both internal, including the board, staff, and volunteers,

and external including the people who receive the organizations’ services, the

funders, the regulators, and the general public.

7. Evaluate the effectiveness of your communication effort by gathering feed-

back from your internal and external constituencies. Understanding how

those inside and outside your organization learn and respond to your methods

of communication will help you achieve your organization’s goals.

33.

B. Principle – Internal Communication

Internal communication is essential to motivate, inform, and counsel people to

achieve organizational excellence.

Practices

1. Effective internal communication welcomes alternative perspectives, invites

and encourages participation at all levels, minimizes defensiveness, and

builds and maintains camaraderie.

2. To be effective, internal communication needs to ow freely up as well as

down, horizontally as well as vertically. Management needs to solicit actively,

to listen carefully, and to respond respectfully to the views of internal constit-

uents.

3. Internal constituency communication methods include a policies and practices

manual, open meetings, newsletters, e-mail reports, a suggestion box, friendly

one-on-one suggestion sessions, reports on meetings of the board and its com-

mittees, recognition awards, and receptions for board, staff and volunteers.

C. Principle – Communication to External Constituency

External communication is essential to attract and retain users of the organiza-

tion’s services and to raise public consciousness, understanding, commitment

to, and funding of the organization. Your communication should clearly identify

your organization, as well as be accurate and truthful.

Practices

1. Marketing entails a plan to identify and keep in touch with the organization’s

external constituencies about their needs and desires and explains and pro-

motes how the organization’s programs meet those consumer needs.

2. Public relations focuses on relationships between the organization and the

public. These relationships include news information, crisis management, and

government relations.

34.

3. There are several external communication objectives:

a. Visibility - Do your publics know who you are?

b. Reputation - Are you trusted?

c. Accessibility - Can your publics get information quickly from you through a

live and knowledgeable staff member?

4. Some of the more important external communication methods are: website,

annual report, advertising, public service announcements, promotion brochures

and yers, news releases, press conferences, feature stories, special events, and

promotions.

D. Principle – Public Relations

Board members, staff, volunteers and friends are encouraged on their personal

time to be public advocates for their charitable organizations and the entire char-

itable nonprot sector at the local, state, and national levels.

Practices

1. Organization communications should identify the organization as charitable in

purpose and in action.

2. Organizations should cooperate with other charitable nonprots to inform how

they collectively serve the public as charitable organizations.

3. Organization communication should enhance public awareness and under-

standing about the charitable nonprot sector as a whole.

4. Organizations should identify specic public spokespersons.

5. Organizations should have a procedure for developing public statements

which reect the full range of the views of the organization’s constituencies

and not just the opinion of a few people.

35.

X. Information Technology

A. Principle – Using Technology Effectively

Proper information management is essential to a successful nonprot organiza-

tion and the fulllment of its mission.

Practices

1. A charitable nonprot should incorporate the following concepts into its infor-

mation management plan:

a. Condentiality of information

b. Accuracy of information

c. Integrity of information

d. Recovery of stored/backup data

2. A charitable nonprot should have information systems implemented that

provide timely distribution of information with a high degree of accuracy and

reliability.

3. A charitable nonprot should have policies and procedures clearly documented

and distributed to its personnel regarding how the organization’s information is

to be stored and maintained, how the accuracy of the information will be deter-

mined, how the information is to be backed up, and to whom the information is

to be distributed.

4. A charitable nonprot should designate at least one person within the organi-

zation to be responsible for the successful implementation of the information

management plan and the annual review of the plan to ensure its efciency and

efcacy.

B. Principle – The Goal of Technology

Information technology and computing assists the mission of charitable nonprots

by improving productivity and facilitating improved communication. Other ben-

ets are: the speedy creation of letters, reports, minutes, news releases, speeches,

etc.; communication by email, instant messaging, and video conferencing; mail-

ing list management, record keeping; discussion forums and Internet meetings;

and nancial recordkeeping and analysis.

36.

Practices

1. A charitable nonprot should invest in:

a. an effective application suite to assist its staff in the creation and mainte-

nance of documents. At a minimum, the charitable nonprot should pur-

chase a word processing program;

b. a spreadsheet program to prepare budgets and regular nancial reports;

c. an accounting program to track and manage nances;

d. a database program to maintain member records and other records;

e. voice mail, email, and Internet access for its staff and regular personnel.

2. A charitable nonprot should have donation databases which can generate

donation reports, enable staff to sort donor data in a variety of ways, record

multiple donation/donor details, create and sort lists of potential and current

donors, and print letters, labels, and a variety of reports.

3. A charitable nonprot should consider implementing local area networks

(LAN), which allow staff members to access each others’ les via their desk-

top computers.

4. In addition, staff can share Internet access across all the computers on the

LAN, share one central database, and enable an automated backup system for

all computers on the network.

5. A charitable nonprot should allocate sufcient resources to train its board,

employees, and volunteers in the use of the procured software and hardware.

6. A charitable nonprot should establish goals for the information system’s

physical growth and future expenditures.

C. Principle – Website Design

A well-designed website provides several advantages for a charitable nonprot

such as income generated from an e-commerce section, web advertisement, pub-

lication of the organization’s ideas and writings, providing a positive multimedia

experience for website users, advertising its business with an online brochure,

and most important, providing information to its customers and other visitors.

37.

Practices

1. Before it begins the design process, a charitable nonprot should do a require-

ments analysis for a proposed website. A requirements analysis includes:

a. Determining host disk space and monthly trafc allowance

b. Selecting a suitable web-hosting package

c. Determining whether to create the pages in-house or to hire a consultant

d. Determining server side requirements (software, etc.)

2. A charitable nonprot should come up with a design of the website, obtain a

domain name, resolve web-hosting concerns, develop the website, promote the

website, and nally dene monthly maintenance tasks.

3. A charitable nonprot should focus a considerable amount of time and energy

developing a Frequently Asked Questions (FAQ) section of the website, which

reduces the costs of serving constituents, makes the organization’s information

available 24-hours a day, and frees staff to better achieve the goal of fullling

the organizational mission.

4. A charitable nonprot should help ensure the success of its website through

search engine optimization (the use of appropriate keywords and phrases in the

page content), by determining what the major search engines are, by monitor-

ing the website’s rankings, and by listing the web address (url) on all relevant

publications and business-related materials such as letterhead, business cards,

advertisements, and the like.

XI. Advocacy

Principle – Communicating to the Government

Nonprot organizations should individually and collectively communicate their

views to government about matters which affect the delivery of their services.

Practices

1. IRC 501(c)(3) organizations are free to contact and seek to inuence actions of

executive and administrative governmental bodies.

38.

39.

XII. Collaboration

A. Principle – Value of Collaboration

In its strategic planning, a charitable nonprot organization should consider

means by which it can collaborate with other organizations in order to in-

crease the effectiveness and efciency of its services.

Practices

Collaboration takes two forms:

1. Merger – a statutory (Iowa Code Section 504.1101, et seq.) procedure by

which two or more nonprot corporations join together with one of the

organizations as the surviving organization.

2. Joint Ventures – a contractual method, either oral or in writing, where two

or more organizations come together as peers to undertake joint activities

which will enable each organization to serve the public more efciently

and effectively. Each organization maintains its corporate identity even

2. Under the Internal Revenue Code, organizations are limited to insubstantial ac-

tivities to inuence legislative bodies, but it is acceptable to engage in advocacy

within those limits.

3. The measure of whether lobbying is insubstantial or not is complex unless non-

prots make the 501(h) election by ling form 5768 with the IRS to make calcu-

lation of insubstantial lobbying easier.

4. Charitable nonprots can provide educational information to the public about

pending legislation not advocating one side or the other, but urging the public to

contact their legislators is restricted.

5. Nonprots exempt under IRC 501(c)(3) are prohibited from participating in po-

litical campaigns by distributing information about or endorsing specic candi-

dates. They may provide educational information in a nonpartisan manner about

all candidates running for a particular position. Private foundations are subject to

excise taxes under IRC 4945 for funding political activity.

though the joint venture may have an overarching name to identify the joint

venture. A joint venture might also be described as an alliance, network, or

coalition.

B. Principle – Joint Venture Alternative

The purpose and details of the joint venture must be carefully thought out and

enumerated.

Practices

1. The goals of the joint venture must be clearly identied.

2. The objectives and strategies for achieving the goals must be specic.

3. It is essential to spell out the desired outcomes of the joint venture and how to

measure them.

4. It is essential that the organizational structure be clear as to how the joint ven-

ture will operate and to whom it is responsible, including who makes policy,

who executes, who evaluates, and how the joint venture is accountable to the

participating organizations.

5. It is essential to identify what resources will be required, who will supply

them, and how the benets will be shared.

C. Principle – Cost/Benet of Collaboration

The needs for joint ventures are as varied as the types of collaborators. These

include other nonprot organizations, businesses, and governments.

Practices

1. Charitable nonprot collaborations with other nonprots reduce costs and

improve operations in the following ways:

a. By sharing management, nancial, information technology, and other ad-

ministrative staff

b. By joint marketing, public relations and promotion such as cultural alliances

40.

41.

c. By sharing facilities

d. By delivering comprehensive service

e. By reaching new clientele

f. By joint program planning and service delivery in common elds such as

children and elders

g. By joint purchasing of supplies, insurance and other products and services

where quantity buying reduces costs and affords access

h. By joint fundraising

i. By reducing costs associated with competition

j. By increasing access to capital funds

k. By enhancing public advocacy for participants and the nonprot sector as a

whole

2. Nonprot collaborations with the business sector improve operations:

a. By working actively with the local chamber of commerce and economic

development organization to advance the local economic and civic environ-

ment

b. By working with the chamber of commerce and business organizations to

create a charitable nonprot “board bank” which identies and trains poten-

tial board members for nonprot boards of directors

c. By businesses providing loaned employees and encouraging employees to

volunteer for charitable nonprot service

d. By businesses providing nancial and computer service assistance to small

charitable nonprots

e. By opening business management training programs to charitable nonprot

executives for no or low cost

3. Charitable nonprot collaboration with government afford benets:

a. By increasing joint community needs assessment and planning for govern-

ment funded services and programs

XIII. Accountability and Compliance

A. Principle – Compliance Responsibility

Charitable nonprot organizations are chartered and granted tax exempt sta-

tus to serve the public. With this public privilege comes the obligation of ac-

countability. This accountability takes a variety of forms: good management

practices, legal mandates, and ethical conduct. The obligations of charitable

nonprot organizations are dened by government laws and regulations and

by self-regulation through policies adopted by organizational peers and by

the organization itself.

Practice

1. Government Regulation – Federal, state, local:

a. Tort and Contractual Liability - The concept of charitable immunity

from lawsuits has been eliminated. Therefore, directors and ofcers are

liable for organizational torts and breaches of contract where they are

negligent and third parties have been injured.

b. Statutory - A charitable nonprot organization and its agents shall

comply with statutes and administrative rules which are enforceable by

government and third parties.

c. Sarbanes-Oxley Federal Legislation - Sets record retention and whis-

tleblower protection requirements for nonprot organizations. In gen-

eral, a nonprot organization should have a written, mandatory docu-

ment retention and periodic destruction policy for maintaining various

categories of documents (e.g. nancial, fundraising, personnel, etc.), as

well as requirements for electronic materials such as e-mail. Otherwise,

42.

b. By designating staff members in government agencies to work regularly with

the nonprot sector in identifying opportunities to collaborate

c. By expanding grant opportunities and contract eligibility for Iowa’s many

charitable organizations

d. By providing adequate training to assure accountability and compliance

43.

this legislation applies only to for-prot corporation conduct. However,

the legislation suggests good practices for charitable nonprot organi-

zations such as the requirement of an audit committee.

d. Licensure - Many of the services delivered by charitable nonprot

organizations require licensure of the organization and/or the personnel

delivering the service e.g. hospitals, health providers, day care, nursing

homes.

e. Operational Regulations - Charitable solicitation, consumer fraud,

Occupational Safety and Health Act (OSHA), Americans with Disabil-

ities Act (ADA), wages and hours law (overtime), working conditions,

ERISA and pension management and reporting requirements, anti-dis-

crimination requirements such as civil rights legislation.

f. Grant Restrictions - (other than interference with free speech) account-

ability including reports and audits.

2. Peer regulation:

a. Three forms of Peer Regulation - Peer organizations create peer regula-

tion, and charitable nonprots should review the three forms this peer

regulation takes: best practices, codes of ethics, and accreditation.

b. Principles and Practices – Best practices are being identied by the var-

ious charitable nonprot disciplinary elds and across the entire non-

prot sector at the state and national level.

c. Ethics Codes – Increasingly charitable nonprot groups are promul-

gating ethical conduct codes pertaining both to individual professional

conduct (e.g. nurses, curators, lawyers) and to the conduct of the orga-

nization as a whole.

d. Accreditation by Peers – Accreditation is a formal process of examining

all aspects of an organization by outsiders. The examination is pursuant

to specic standards relating to all dimensions of organizational perfor-

mance. It is designed to create uniformity of operations. Accreditation

may be a condition for government grants and entry into a profession.

Accrediting agencies are sometimes accredited by a government agency

either in the executive or judicial branch. Moreover, accreditation deci-

sions take on a quasi-legal status and can be subject to judicial review

because of their economic impact.

3. Individual charitable nonprot organizations should adopt their own prin-

ciples, practices, and ethics codes.

a. Principles and practices – Boards of directors should adopt the princi-

ples and practices that guide the organization. Their application should

be monitored by the board. They should be published in a manual avail-

able to all constituencies. They should be distributed to all staff and

volunteers. There should be regular staff training based on the manual.

Among the issues covered in principles and practices might be equal

opportunity, sexual harassment, terms of employment conditions, staff

evaluation, staff promotion, and internal grievance procedures.

b. Ethics codes – Ethics require subordinating self interest in favor of the

public interest. Ethics codes set a higher standard of conduct than the

law. Ethics go to the essence of our beliefs and how we feel and care for

others. A code of ethics demands a sense of responsibility and courte-

sy to others. Others come ahead of our own interests. Nonprot ethics

codes cover such issues as obeying the law, respect for the worth and

dignity of individuals, diversity, fairness, openness, honesty, prudent

application of organizational resources, and professional conduct in ser-

vice to others. The board, staff, and volunteers should develop and im-

plement a code of ethics that reects the values of the organization. New

organization members should receive a full orientation to the code; all

policies and procedures should reect the code in practice; and a process

for addressing misconduct should be adopted.

B. Principle – Individual Responsibility

The most effective means of assuring public accountability is to foster a culture

of compliance at the organizational level, a culture of compliance in which it

is not enough merely to adopt self-regulations, but in which self-regulation is

embraced and applied in all that the organization does. People are organizations.

Organizational actions are taken by people. The people of the organization are

accountable for its actions.

44.

45.

Practices

1. Responsible individuals – those who carry out the work of the organization, i.e.

board members, ofcers, staff, volunteers, and hence are responsible for the actions

of the organization.

2. Protection against individual liability.

a. Standard of care [see above at V.G]

b. Limited corporate liability

c. Exculpatory statutes – volunteer protection statutes

d. Indemnication statutes and articles and by-law clauses

e. Directors’ and ofcers’ insurance

3. Charitable nonprots should engage in a process of compliance assurance by doing

training, seeking advice, and carrying out a compliance audit.

a. Training – Board, staff, and volunteers should receive regular training in govern-

ment laws and regulations and in the peer and organizational policies, practices,

and ethical principles.

b. Advice – A board member or staff member should be designated as the compli-

ance ofcer and should be available for advice and interpretation concerning the

organization’s obligations.

c. Audit – The board should require an annual compliance audit with a report to the

board.

For more information contact:

The Larned A. Waterman Iowa Nonprot Resource Center

130 Grand Avenue Court

Iowa City, IA 52242

Telephone: 319-335-9765 or 866-500-8980 (toll free)

Web: http://inrc.law.uiowa.edu

Email: law-nonpro[email protected]