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Among other features, the IRS form 990 asks in Part VI if the filing organization has adopted a series of five governance policies or procedures; the organization must answer “yes” or “no” for each. 

Although a “no” answer does not indicate any violation of law or inconsistency with federal income tax exemption requirements, it could trigger scrutiny by the IRS. It could also reflect adversely on an organization in the eyes of its members, donors, or others. 

Most organizations will want to be able to answer “yes” to all five of these governance questions. The method of adoption is not specified by the IRS; but it would be typical for such policies or procedures to be adopted by the organization’s principal governing body, such as its board of directors, or by a committee delegated to do so by the board. 

Presented in this document are sample governance policies or procedures for nonprofit tax-exempt organizations in basic versions that reflect the narrowly defined IRS definitions/instructions for Part VI of Form 990. 

Each would likely be sufficient to permit the organization to respond “yes” to the Form 990 question about that policy. Many organizations may prefer expanded or enhanced versions of the policies; if the essential elements are maintained, those should still suffice for Form 990 purposes. 

A more elaborate version for conflicts of interest is provided elsewhere in this Documents Supplement. Note that one of these policies/procedures, that on joint ventures, is contingent; the IRS only asks if the filing organization has the policy. If the organization indicates that it maintains joint ventures as the IRS describes them, then it must also indicate whether it had written procedures to evaluate the tax ramifications.

Conflict of Interest Policy

This Conflict of Interest Policy of [insert the name of the “Organization”]: (1) defines conflicts of interest; (2) identifies classes of individuals within the Organization covered by this policy; (3) facilitates disclosure of information that may help identify conflicts of interest; and (4) specifies procedures to be followed in managing conflicts of interest.

1. Definition of conflicts of interest. A conflict of interest arises when a person in a position of authority over the Organization may benefit financially from a decision he or she could make in that capacity, including indirect benefits such as to family members or businesses with which the person is closely associated. This policy is focused upon material financial interest of, or benefit to, such persons.
2. Individuals covered. Persons covered by this policy are the Organization’s officers, directors, chief employed executive, and chief employed finance executive.
3. Facilitation of disclosure. Persons covered by this policy will annually disclose or update to the Chairman of the Board of Directors on a form provided by the Organization their interests that could give rise to conflicts of interest, such as a list of family members, substantial business or investment holdings, and other transactions or affiliations with businesses and other organizations or those of family members.
4. Procedures to manage conflicts. For each interest disclosed to the Chairman of the Board of Directors, the Chairman will determine whether to: (a) take no action; (b) assure full disclosure to the Board of Directors and other individuals covered by this policy; (c) ask the person to recuse from participation in related discussions or decisions within the Organization; or (d) ask the person to resign from his or her position in the Organization or, if the person refuses to resign, become subject to possible removal in accordance with the Organization’s removal procedures. The Organization’s chief employed executive and chief employed finance executive will monitor proposed or ongoing transactions for conflicts of interest and disclose them to the Chairman of the Board of Directors in order to deal with potential or actual conflicts, whether discovered before or after the transaction has occurred.

Whistleblower Protection Policy

This Whistleblower Protection Policy of [insert the name of the “Organization”] (1) encourages staff and volunteers to come forward with credible information on illegal practices or serious violations of adopted policies of the Organization; (2) specifies that the Organization will protect the person from retaliation; and (3) identifies where such information can be reported.

1. Encouragement of reporting. The Organization encourages complaints, reports, or inquiries about illegal practices or serious violations of the Organization’s policies, including illegal or improper conduct by the Organization itself, by its leadership, or by others on its behalf. Appropriate subjects to raise under this policy would include financial improprieties, accounting or audit matters, ethical violations, or other similar illegal or improper practices or policies. Other subjects on which the Organization has existing complaint mechanisms should be addressed under those mechanisms, such as raising matters of alleged discrimination or harassment via the Organization’s human resources channels, unless those channels are themselves implicated in the wrongdoing. This policy is not intended to provide a means of appeal from outcomes in those other mechanisms.
2. Protection from retaliation. The Organization prohibits retaliation by or on behalf of the Organization against staff or volunteers for making good faith complaints, reports, or inquiries under this policy or for participating in a review or investigation under this policy. This protection extends to those whose allegations are made in good faith but prove to be mistaken. The Organization reserves the right to discipline persons, including termination of their employment, if they make bad faith, knowingly false, or vexatious complaints, reports or inquiries, or otherwise abuse this policy.
3. Where to report. Complaints, reports, or inquiries may be made under this policy on a confidential or anonymous basis. They should describe in detail the specific facts demonstrating the bases for the complaints, reports, or inquiries. They should be directed to the Organization’s chief employed executive or Chairman of the Board of Directors; if both of those persons are implicated in the complaint, report, or inquiry, it should be directed to [insert title of individual]. The Organization will conduct a prompt, discreet, and objective review or investigation. Staff or volunteers must recognize that the Organization may be unable to fully evaluate a vague or general complaint, report, or inquiry that is made anonymously, or report the result to the initiating volunteer or staff.

Document Retention and Destruction Policy

This Document Retention and Destruction Policy of [insert the name of the “Organization”] identifies the record retention responsibilities of staff, volunteers, members of the Board of Directors, and outsiders for maintaining and documenting the storage and destruction of the Organization’s documents and records.

1. Rules. The Organization’s staff, volunteers, members of the Board of Directors, and outsiders (i.e., independent contractors via agreements with them) are required to honor these rules: (a) paper or electronic documents indicated under the terms for retention below will be transferred and maintained by the Human Resources, Legal, or Administrative staffs/departments or their equivalents; (b) all other paper documents will be destroyed after three years; (c) all other electronic documents will be deleted from all individual computers, databases, networks, and backup storage after one year; and (d) no paper or electronic documents will be destroyed or deleted if pertinent to any ongoing or anticipated government investigation or proceeding or private litigation.
2. Terms for retention.
   • Retain permanently:
     • Governance records—Charter and amendments, bylaws, other organizational documents, governing board and board committee minutes.
     • Tax records—Filed state and federal tax returns/reports and supporting records, tax exemption determination letter and related correspondence, files related to tax audits.
     • Intellectual property records—Copyright and trademark registrations and samples of protected works.
     • Financial records—Audited financial statements, attorney contingent liability letters.
   • Retain for ten years:
     • Pension and benefit record—Pension (ERISA) plan participant/beneficiary records, actuarial reports, related correspondence with government agencies, and supporting records.
     • Government relations records—State and federal lobbying and political contribution reports and supporting records.
   • Retain for three years:
     • Employee/employment records—Employee names, addresses, social security numbers, dates of birth, INS Form I-9s, résumé/application materials, job descriptions, dates of hire and termination/ separation, evaluations, compensation information, promotions, transfers, disciplinary matters, time/payroll records, leave/comp time/FMLA, engagement and discharge correspondence, documentation of basis for independent contractor status (retain for all current employees and independent contractors and for three years after departure of each individual).
     • Lease, insurance, and contract/license records—Software license agreements; vendor, hotel, and service agreements; independent contractor agreements; employment agreements; consultant agreements; and all other agreements (retain during the term of the agreement and for three years after the termination, expiration or nonrenewal of each agreement).
   • Retain for one year:
     • All other electronic records, documents, and files—Correspondence files, past budgets, bank statements, publications, employee manuals/policies and procedures, survey information.
3. Exceptions. Exceptions to these rules and terms for retention may be granted only by the Organization’s chief staff executive or Chairman of the Board.

Procedure for Determining Compensation

This Procedure for Determining Compensation of [insert the name of the “Organization”] applies to the compensation of the following persons employed by the Organization:

____: The Organization’s chief employed executive ^[1] [check if applicable]
____: Other Officers^[2] or Key Employees^[3] of the Organization by title: [check if applicable; supply titles].

The procedure includes all of these elements: (1) review and approval by the Board of Directors or Compensation Committee of the Organization; (2) use of data as to comparable compensation; and (3) contemporaneous documentation and recordkeeping.

1. Review and approval. The compensation of the person is reviewed and approved by the Board of Directors or Compensation Committee of the Organization, provided that persons with conflicts of interest with respect to the compensation arrangement at issue are not involved in this review and approval.
2. Use of data as to comparable compensation. The compensation of the person is reviewed and approved using data as to comparable compensation for similarly qualified persons in functionally comparable positions at similarly situated organizations.
3. Contemporaneous documentation and recordkeeping. There is contemporaneous documentation and recordkeeping with respect to the deliberations and decisions regarding the compensation arrangement.

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[1]  Chief employed executive—The CEO (i.e., Chief Executive Officer), executive director, or top management official (i.e., a person who has ultimate responsibility for implementing the decisions of the Organization’s governing body or for supervising the management, administration, or operations of the Organization).

[2]  Officer—A person elected or appointed to manage the Organization’s daily operations, such as a president, vice president, secretary, or treasurer. The officers of the Organization are determined by reference to its organizing document, bylaws, or resolutions of its governing body, or as otherwise designated consistent with state law, but at a minimum include those officers required by applicable state law. Include as officers the Organization’s top management official and top financial official (the person who has ultimate responsibility for managing the Organization’s finances).

[3]  Key Employee—An employee of the Organization who meets all three of the following tests: (1) $150,000 Test: receives reportable compensation from the Organization and all related organizations in excess of $150,000 for the year; (2) Responsibility Test: the employee: (a) has responsibility, powers, or influence over the Organization as a whole that is similar to those of officers, directors, or trustees; (b) manages a discrete segment or activity of the Organization that represents 10% or more of the activities, assets, income, or expenses of the Organization, as compared to the Organization as a whole; or (c) has or shares authority to control or determine 10% or more of the Organization’s capital expenditures, operating budget, or compensation for employees; and (3) Top 20 Test: is one of the 20 employees (that satisfy the $150,000 Test and Responsibility Test) with the highest reportable compensation from the Organization and related organizations for the year.

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Contingent Joint Venture Policy

This Joint Venture Policy of [insert the name of the “Organization”] requires that the Organization evaluate under Federal tax law its participation in joint venture arrangements with taxable entities and take steps to safeguard the Organization’s exempt status with respect to such arrangements. It applies to any joint ownership or contractual arrangement through which there is an agreement to jointly undertake a specific business enterprise, investment, or exempt-purpose activity as further defined in this policy.

1. Joint ventures or similar arrangements with taxable entities. For purposes of this policy, a joint venture or similar arrangement (or a “venture or arrangement”) means any joint ownership or contractual arrangement through which there is an agreement to jointly undertake a specific business enterprise, investment, or exempt-purpose activity without regard to: (a) whether the Organization controls the venture or arrangement; (b) the legal structure of the venture or arrangement; or (c) whether the venture or arrangement is taxed as a partnership or as an association or corporation for federal income tax purposes. A venture or arrangement is disregarded if it meets both of the following conditions:
   • 95% or more of the venture’s or arrangement’s income for its tax year ending within the Organization’s tax year is excluded from unrelated business income taxation [including but not limited to: (a) dividends, interest, and annuities; (b) royalties; (c) rent from real property and incidental related personal property except to the extent of debt-financing; and (d) gains or losses from the sale of property]; and
   • the primary purpose of the Organization’s contribution to, or investment or participation in, the venture or arrangement is the production of income or appreciation of property.
2. Safeguards to ensure exempt status protection. The Organization will: (a) negotiate in its transactions and arrangements with other members of the venture or arrangement such terms and safeguards adequate to ensure that the Organization’s exempt status is protected; and (b) take steps to safeguard the Organization’s exempt status with respect to the venture or arrangement. Some examples of safeguards include:
   • control over the venture or arrangement sufficient to ensure that it furthers the exempt purpose of the organization;
   • requirements that the venture or arrangement gives priority to exempt purposes over maximizing profits for the other participants; 
   • requirements that the venture or arrangement not engage in activities that would jeopardize the Organization’s exemption; and 
   • requirements that all contracts entered into with the organization be on terms that are arm’s length or more favorable to the Organization.

There has been a growing trend in the law for state governments or courts to become involved in situations in which donors to charities, or their representatives or heirs, claim that the charities that received gifts from the donors have thwarted the donors’ intentions and purposes.

It was once relatively unlikely that a charity’s use, application, or allocation of donated assets would be questioned, much less overturned by law enforcement authorities. But a body of law is being established in which donors’ purposes are increasingly being mandated under the law.

To help avoid misunderstandings, let alone legal proceedings, which could be expensive and embarrassing for donors and charities alike, it is prudent for larger donations to be addressed in gift agreements between the charities and their donors.

For large gifts, such as multimillion-dollar bequests to universities, museums, or hospitals, elaborate and complex agreements have become common. For large but not-so-massive gifts to foundations and other charities, something simpler will suffice.

This sample agreement is a “bare bones” version that might be adapted for use in an actual donation situation.

The Form 990 annual tax return for exempt organizations asks whether there is a conflict policy in place. The new emphasis on these policies has suggested to many nonprofits that their policies should be updated and enhanced. This approach does three things succinctly: (a) explains the organization’s policy on conflicts, (b) sets out the procedure to be used in dealing with conflicts, and (c) provides a disclosure form for use by volunteer leaders.

AMCP follows a strict conflict of interest and disclosure policy.

2.41     Disclosure of Potential Conflicts of Interest and Bias

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Introduction
The Academy of Managed Care Pharmacy (“AMCP”) accords special importance to its conflict of interest policy for assuring the integrity and hence the confidence of its membership in the deliberations and decisions of its directors, officers, and members of committees (collectively, “Covered Officials”). Each Covered Official has an affirmative obligation to act at all times in the best interests of AMCP and owes a duty of loyalty to AMCP, which requires the Covered Official, when acting within his or her capacity as a Covered Official, to subordinate personal, business, third-party, and other interests to AMCP’s welfare and best interest.

This policy addresses the above issues by examining the question of potential sources of bias and conflict of interest in the activities of the Board and Academy committees.

Defining “Bias” and “Conflict of Interest”

• Bias – The question of potential sources of “bias” ordinarily relates to views or positions taken that are largely intellectually motivated or that arise from the close identification or association of an individual with a particular point of view or the positions or perspectives of a particular group. Such potential sources of bias are not necessarily disqualifying. Indeed, it often is necessary, in order to ensure that a committee or the Board is fully competent, to have the committees and the Board comprised in such a way as to represent a balance of potentially biasing backgrounds or professional or organizational perspectives.
• Conflict of Interest – It is essential, however, that the work of committees and the Board not be compromised by any significant conflict of interest, or in some circumstances the appearance of a significant conflict of interest, on the part of any Covered Official. A “conflict of interest” may arise when a Covered Official has an existing or potential financial or other material interest which impairs or might appear to impair the individual’s objectivity or independence in the discharge of responsibilities and duties to AMCP.

Disclosure
Each Covered Official shall disclose any and all facts that may be construed as a potential source of disqualifying bias or a conflict of interest whenever such actual or potential disqualifying bias or conflict arises.

In addition, on an annual basis, each Covered Official (other than an individual who is a Covered Official solely by reason of serving as a committee member) shall complete and sign a Statement of Disclosure form and submit it to the designated reviewing body or official as directed on the form. Any new

Covered Official (other than an individual who is a Covered Official solely by reason of serving as a committee member) shall also complete and sign a Statement of Disclosure form upon his or her election or appointment. Additionally, any director, officer or committee member candidate shall be notified of this policy in advance of their application to serve as a director, officer or committee member.  

Process and Remedy
The Board or its designated reviewing body or official will review submitted disclosures, determine whether or not a conflict of interest or a disqualifying bias exists, and determine whether or not such conflict materially and adversely affects AMCP’s interests. If the reviewing body or official determines that an actual or potential conflict of interest or disqualifying bias exists, the reviewing body or official shall also determine an appropriate remedy. Such remedy may include, for example:

i.      Waiver of the conflict of interest or bias as unlikely to affect the Covered Official’s ability to act in the best interest of AMCP;

ii.     Recusal of the conflicted Covered Official from participating in certain matters pending before AMCP, the Board, any of its committees, or other AMCP body; or

iii.    Resignation or separation of the conflicted Covered Official from his or her position with AMCP (subject to the terms of any pertinent employment agreement).

A Covered Official whose potential conflict or disqualifying bias is under review may not debate, vote, or otherwise participate in such determination except to disclose material facts and to respond to questions, and shall further abstain from participating in any AMCP matter affecting the interest under review pending a determination from the reviewing body or official.

All disclosures, determinations, and actions of the Board or its designated reviewing body or official made pursuant to this policy shall be properly documented in meeting minutes or other appropriate records of AMCP.  

Delegation
The Board may delegate its authority to review and remedy potential disqualifying biases or conflicts of interest to one or more committees of disinterested board members or to one or more disinterested AMCP employees. Such committee or individual shall have access to advice of AMCP legal counsel as necessary in carrying out the delegated responsibilities under this policy. Such committee or individual shall inform the Board of its determination and recommended action. The Board shall retain the right to modify or reverse such determination and action and shall retain the ultimate enforcement authority with respect to the interpretation and application of this policy.  

Guidelines

The following examples are provided as an aid to define and identify possible disqualifying biases or conflicts of interest but are not intended to be a comprehensive list of what may constitute a disqualifying bias or conflict of interest.  

Economic Impact of AMCP Actions –

• Example 1: A Covered Official, or others with whom the Covered Official is closely associated (e.g., an employer, or a close relative, including a spouse, child, or parent), stands to benefit financially from an AMCP transaction or other action (including a policy recommendation or similar action). Assuming the financial benefit is substantial and material, the Covered Official would generally be unable to act in the best interests of AMCP in connection with the transaction or other AMCP action; the Covered Official should be recused from any deliberation or voting regarding this action, but may be asked to disclose material facts and respond to questions.
• Example 2: As in Example 1, a Covered Official, or others with whom the Covered Official is closely associated (e.g., an employer, or a close relative, including a spouse, child, or parent), stands to benefit financially from an AMCP transaction or other action. However, assuming that the financial benefit is immaterial or indirect and similar to that which would be experienced by other similarly situated persons or enterprises in the industry at large, the Covered Official may be considered to have a bias rather than a conflict. If the bias is determined not to impact the Covered Official’s ability to act in the best interests of AMCP, it will not be disqualifying.  

Public Statements or Positions –

• Example 3: A Covered Official has declared a fixed position on an issue through public statements or publications; through a close identification with the positions or perspectives of a particular group; or through other personal or professional activities. This may constitute a potential source of bias rather than a conflict. If the bias is determined not to impact the Covered Official’s ability to act in the best interests of AMCP, it will not be disqualifying.
• Example 4: If the Covered Official described in Example 3 serves as an officer or employee of another organization that espouses a fixed position on the issue, and the issue is under consideration by AMCP or one of its committees, a conflict may arise given the Covered Official’s duties of loyalty to the other organization and to AMCP. If the conflict is determined to impact the Covered Official’s ability to act in the best interests of AMCP, it will be disqualifying.  

Procurement of Services or Goods –

• Example 5: AMCP seeks to procure goods or services. A Covered Official has a financial interest in or economic relationship with an organization that submits a proposal to provide such goods or services. The Covered Official will likely be unable to act in the best interests of AMCP; accordingly, the Covered Official should be recused from any deliberation or voting on the proposal but may be asked to disclose material facts and respond to questions.  

Reviewing One’s Own Work –

• Example 6: The Board or one of its committees is performing a critical review and evaluation of a publication or work product prepared by a Covered Official or a Covered Official’s employer. The Covered Official should recuse him/herself from any deliberation or voting but may be asked to disclose material facts and respond to questions.
• Example 7: The Board is reviewing a publication or work product of a Covered Official as part of the general activities of the Board or committee on which the Covered Official serves. This will likely not constitute a conflict of interest or a disqualifying bias.  

Employment by a Sponsoring Company –

• Example 8: A Covered Official is employed by an organization which is sponsoring a managed care program, study, or other activity which requires review and approval by the Board or one of its committees. The Covered Official should recuse him/herself from any deliberation or voting regarding this review but may be asked to disclose material facts and respond to questions.