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Essential Governance Policies for Effective Associations

Apr 9, 2024

Associations can be very powerful organizations that unite groups of individuals or companies within similar industries or professions around shared goals and common purposes. As a not-for-profit organization, they are typically governed by a volunteer board of directors made up of members of the Association. Volunteers often serve because they have a passion for the industry or the profession, they want to develop business relationships with other members, or both. They may not have “signed up” with concepts like fiduciary responsibility, compliance, or due diligence at the top of their minds. That is why it is crucial for Associations to have policies in place to guide the board of directors in exercising these duties. Here are a few important policies that support good governance.

Minutes of Meetings of the Board of Directors

Organizational documents typically dictate decisions that are to be decided by the board of directors. Internal policies may also require the board of directors to vote on additional items such as an annual operating budget or contracts. The Association must document the deliberations of the Board of Directors in written minutes that contain the following:

  • Deliberations should be committed to writing within 60 days of the meeting date or at least by the next board meeting.
  • Minutes should capture all information considered and votes.
  • Minutes should be reviewed, adopted by the board of directors, and signed.
  • Minutes should be kept in a secure location.

Conflict of Interest Policy

As mentioned above, members of the Association often get involved in hopes of developing business relationships with other members. When it comes to governance, those business relationships and potential conflicts must be transparent. An effective conflict of interest policy should have the following characteristics:

  • Defines a related party or interested party, for example:
    • A spouse, child, parent, sibling, grandchild, spouses of these individuals
  • Establishes a business transaction, for example:
    • A contract, lease. license, performance of services, joint ventures, business interest involving more than 10% ownership.
  • Board members are asked to complete and sign at least annually.
  • Potential conflicts should be evaluated by the Association’s finance committee, audit committee, or similar group.
  • Resolution of potential conflicts should be documented in writing.

Whistleblower Policy

An effective whistleblower policy can serve as an important part of good governance. Federal law prohibits all corporations, including not-for-profits, from retaliating against employees who “blow the whistle” on an employer’s financial management or accounting practices. An effective whistleblower policy does the following:

  • Encourages and enables individuals to raise serious concerns.
  • Prohibits retaliation against individuals who report potential violations.
  • Provides a pathway to report (for example, to a supervisor or by use of a confidential toll-free phone call).
  • Designates a compliance officer or similar member of management to investigate and resolve all reports.
  • Provides for immediate notification to the organization’s finance committee, audit committee, or a similar committee.

Association Executive Compensation Policy

As a not-for-profit, an Association should have a compensation policy that includes documentation of its due diligence process for reviewing and setting executive compensation. A strong policy consists of the following:

  • Specifies fringe benefits provided such as vehicles, health or social club dues, travel for companions, first class or charter travel.
  • Specifies substantiation requirements for expense reimbursement plans.
  • Indicates mechanisms used by the organization in evaluating and setting compensation, such as a compensation committee, Form 990 of similar organizations, compensation survey, or board approval.
  • Provides details on other arrangements like nonqualified retirement plans or incentive compensation arrangements.

Associations are required to file Form 990 with the Internal Revenue Service annually. This form includes a number of governance questions related to the policies discussed here. The IRS has indicated that responses to these questions are often a sign of how well a not-for-profit is managed and operated. CRI’s team of experts is ready to help you answer questions about governance and implement policies and procedures to protect your organization’s tax-exempt status. Reach out and connect with your CRI advisor today to ensure your organization remains compliant and well-managed.

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