1.         Follow Policies.  The nonprofit organization should follow its own policies, procedures, and audit recommendations and the Board of Directors should monitor management’s compliance with such policies, procedures and recommendations.  In particular, the nonprofit organization should establish a document management policy to guide employees in handling and disposing of documents, specifically focused on documents that may relate to “matters within the jurisdiction of an agency” of the federal government, whether it is tax matters within the jurisdiction of the Internal Revenue Service or employment matters within the jurisdiction of the Equal Employment Opportunity Commission. The nonprofit organization should consider having an independent consultant/attorney perform an internal assessment of its compliance with its own policies procedures and recommendations on an annual or biannual basis.

2.         Establish a Rebuttable Presumption of Reasonableness.  Nonprofit organizations may protect themselves against assertions by the Internal Revenue Service that compensation is unreasonable by establishing a rebuttable presumption of reasonableness for all transactions with directors, officers, senior management and other “disqualified persons.”  To establish a rebuttable presumption that compensation is reasonable, the compensation must be approved by the Board of Directors or a board committee composed entirely of individuals who do not have a conflict of interest, the Board of Directors needs to rely upon appropriate data as to the reasonableness of the compensation prior to making its determination, and the Board of Directors must adequately document the basis for its determination at the time that it makes the determination (not “after the fact”).  

3.         Establish an Audit Committee.  The nonprofit organization should establish an audit committee consisting of directors who are “independent” to review audit plans and findings of the nonprofit organization’s internal auditors, review financial statements, accounting policies, and financial reporting processes, review internal compliance program and tax, legal, and regulatory matters and engage independent auditors.  A director is “independent” if the director (a) is not on the management team; (b) is not receiving any compensation (either directly or indirectly) from the nonprofit organization as a consultant for the professional services, though board service may be compensated; and (c) does not have a financial interest in or any other conflict of interest with any entity doing business with the nonprofit organization.  Members of the audit committee should meet minimum financial literacy standards and at least one of the committee members should have accounting or financial management expertise.

4.         Adopt and Abide by a Substantive Conflict of Interest Policy.  The nonprofit organization should have a conflict of interest policy and should require that its Board members complete annual disclosures regarding their conflicts in a timely manner.  At the very least, directors should disclose the existence of a conflict and should abstain from voting on the transaction that is the subject to the conflict.  In addition, if the Board of Directors decides to enter into a transaction with a party that has a conflict, the directors should document the reasons the transaction with the related party furthers the nonprofit organization’s mission to a greater extent than entering into the same transaction with an unrelated party.

5.         Establish a Means for Employees to Anonymously Report Compliance Concerns.  The Board of Directors and/or its audit committee should assure that there is an appropriate and effective means for employees to report compliance concerns and raise possible ethical issues about the nonprofit organization’s practices (e.g., suggestion box or compliance hotline that is available 24 hours a day), and that the organization has a method for reviewing and addressing such concerns.  The Board of Directors should prohibit retaliatory action against any individual for raising concerns or questions regarding ethical matters, or for reporting suspected violations.  The nonprofit organization should adopt and regularly update a code of conduct to ensure that it reflects the nonprofit organization’s core value of integrity, including compliance with the laws, rules and regulations that govern the nonprofit organization’s operations.  The code of conduct should apply to and be signed by all employees of the nonprofit organization, as well as to directors, temporary workers, and other independent contractors and consultants when engaged by or otherwise representing the nonprofit organization.  

6.         Conduct Board and Committee Self-Evaluations.  Meaningful evaluation requires an assessment of the effectiveness of the Board of Directors, the operations of Board committees and the contributions of individual directors.  Accordingly, the nonprofit organization should establish and implement an effective annual self-evaluation mechanism for the Board of Directors to review its performance and the performance of its committees and an effective annual self-evaluation mechanism for committees of the Board of Directors (including the opportunity for anonymous input from Board members and committee members).  The nonprofit organization should consider creating a new Board committee specifically charged with reviewing corporate governance issues on an ongoing basis.

7.         Ask the Hard Questions.  Directors have a fiduciary duty to be fully informed and to make necessary inquiry.  Thus, the nonprofit organization should empower directors to ask the “hard questions” and should be sure directors have an opportunity to review and consider relevant information before making a decision.  Conversations among directors regarding the “hard questions” should take place in a forum through which all directors can simultaneously participate in the conversation (i.e., not through e-mail).  The nonprofit organization should offer new directors an orientation program and offer regularly scheduled briefings on various issues, including the nonprofit organization’s strategic plans, its significant financial, accounting and risk management issues, its compliance programs, its code of conduct, its management structure and executive officers and its internal and independent auditors.  Directors must maintain the confidentiality of information entrusted to them by the nonprofit and any other confidential information about the nonprofit that comes to them, from whatever source, in their capacity as a director, except when disclosure is authorized or legally mandated.  While the Board of Directors is permitted to rely on information, opinions and reports prepared by others, including, but not limited to, senior management, the ability to appropriate rely on others is not an invitation to shirk individual responsibilities.  Board members need to actively question management and outside advisors when they see a red flag.  Further, Boards must be careful to retain necessary oversight over committees and not rubber stamp committee or senior management recommendations.  The nonprofit organization should consider requiring executive sessions routinely every Board meeting so that the Board of Directors has an opportunity to meet without senior management present to strengthen the Board members’ ability to review the nonprofit organization’s performance and determine whether changes, improvements or other actions are needed to ensure that the nonprofit organization’s strategies and practices are aligned with its mission.

8.         Implement a System of Internal Controls.  Boards should establish a system of internal controls and procedures for financial reporting and annually assess the effectiveness of the internal control structure.  Internal controls should also require senior management to inform the Board of Directors of significant transactions so that the Board of Directors is aware of and can proactively monitor the nonprofit organization’s activities.  Nonprofit organizations should consider adopting a policy to ensure that funds are properly handled and that any certifications or reports made to funds, especially those administering federal funds, are correct and fairly represent the finances and operation of the nonprofit organization.  Boards should consider requiring that the Chief Executive Officer and Chief Financial Officer certify the financial statements of the organization and the Form 990 or 990-PF.  At the very least, the Chief Executive Officer and Chief Financial Officer should review the Form 990 or 990-PF before it is submitted to ensure that it is accurate, complete and filed on time. 

9.         Define Roles and Responsibilities.  It is critical that the Board of Directors clearly delineate and communicate the respective roles and responsibilities of the Board of Directors, committees and senior management.  In the changing and demanding environment of corporate governance, it has become clear that board committees can improve the board’s effectiveness, particularly if the board is large. However, since committees are subject at all times to the control and direction of the Board of Directors, the Board of Directors must clearly delineate the scope of responsibility of each committee (e.g., whether the committee has board delegated authority or has the authority only to make a recommendation to the Board of Directors) and must be careful to retain necessary oversight over committees and not rubber stamp committee recommendations. Committee members should be thoughtful about the appropriate level of confidentiality under which they should conduct their discussions which will vary based on the nature of the discussions.  Although directors will have varying opinions about different issues, Board members must operate "as a team" at the Board level, and must be able to "speak with one voice" once a full discussion has been undertaken and a decision has been made by the Board.  The nonprofit organization should consider creating a nomination and governance committee responsible for shaping corporate governance policies and practices, monitoring nonprofit organization compliance with those policies and guidelines, reviewing and reporting on Board performance and overseeing Board membership, including director’s qualifications and consideration of any changes in a director’s responsibilities.

10.       Assemble an Appropriate Board.  Directors bring to the Board of Directors a range of experience, knowledge and judgment.  The Board of Directors should monitor whether the Board of Director’s members have the array of experience and skills necessary to perform its oversight functions effectively.  Although nonprofit organizations need directors who are passionate about the organization’s mission, nonprofit organizations also need directors who have a financial background.  In addition, because the nonprofit organization’s need for particular backgrounds and experience may change, the Board of Directors should monitor whether the Board of Director’s members have the array of experience and skills necessary to perform its oversight functions effectively.  The Board of Directors should proactively recruit board members to meet the Board of Directors’ identified needs.