Best Practice: IT Security Policies for Nonprofit Success

IT Security Policies for Nonprofit Success

Nonprofit organizations exist to provide a unique service to the public. Yet, to ensure that they carry out their missions effectively and remain in good standing with regulatory agencies and donors, these organizations must have a strong foundation of written policies. It is not enough to merely meet basic legal requirements. By embracing a broader view of “beyond compliance,” nonprofits can implement robust policies that build trust, align with their larger objectives, and encourage sustainable operations. In this article, I will explore the importance of having clear and concise IT security policies for your organization, emphasizing how going beyond the bare minimum can foster accountability, transparency, and organizational success. I will also discuss how Tanner’s IT security experts can help nonprofits develop, refine, and implement these IT security policies to fit their core values and strategic goals.

Why Nonprofit Policies Matter

The policies a nonprofit adopts reflect its ethos and approach to governance. From legal obligations to internal codes of conduct, well-drafted policies protect a nonprofit’s reputation and ability to fulfill its mission.

Legal and Regulatory Requirements are important. If your organization operates under a 501(c)(3) status, it must adhere to specific IRS rules regarding finances, operations, and IT governance. At the same time, other regulations, such as certain provisions of the Sarbanes-Oxley Act, also apply to nonprofits, highlighting the importance of whistleblower protection and document retention. Compliance struggles or lapses in proper procedures can undercut credibility and risk costly penalties or even loss of tax-exempt status.

Mission Alignment is equally as important. Regularly reviewing and updating your IT security policies helps ensure that your daily activities align with the mission you set out to serve. Without this alignment, even well-intentioned nonprofits can find themselves drifting away from their core purpose and inadvertently using precious resources on projects that do not advance the organization’s reason for existence.

Effective Governance and Trust are also core benefits of a solid policy framework. Donors and stakeholders often need reassurance that a nonprofit is being run responsibly. Well-planned policies help board members and staff navigate conflicts of interest, maintain fiscal integrity, and provide transparency—ultimately winning and keeping the confidence of all those who support or benefit from the nonprofit’s charitable work.

Foundational Policies: Meeting Core Compliance Standards

Before any organization begins detailing its day-to-day operations, it must build a strong infrastructure of essential compliance-oriented documents. These foundational policies protect the nonprofit’s tax-exempt status and clarify its basic governance processes.

Articles of Organization. When pursuing 501(c)(3) status, nonprofits typically file articles of organization (or incorporation), which formally set forth their nonprofit purpose, structure, and requirements for asset distribution upon dissolution. These articles must follow state law and meet IRS stipulations. If your organization is evolving—by adjusting its name, activities, or governance—ensure that the articles are updated accordingly.

Bylaws. Acting as the nonprofit’s internal operating rules, bylaws outline fundamental organization governing procedures. Although the IRS does not mandate specific wording, the bylaws commonly outline the board’s size, the officers’ responsibilities, how meetings are handled, and how modifications are made. It is important to strike a balance: be precise enough to give direction, but not overly detailed to the point where frequent amendments become cumbersome.

Conflict of Interest Policy. Conflicts can arise in nonprofits when decision-makers stand to benefit personally from their organizational actions. A thoughtfully crafted conflict of interest policy ensures that potential conflicts are disclosed and appropriately managed, protecting the nonprofit’s integrity and 501(c)(3) status.

Compensation Policy. The IRS expects executive compensation to be “reasonable,” meaning top leaders should not receive excessive or out-of-market pay. Nonprofits should adopt a documented compensation process involving comparability data to establish fair compensation, backed by the approval of an independent committee or board members with no conflict of interest.

Nondiscriminatory Policy (If Applicable). Certain nonprofits, especially schools, are required to uphold racially nondiscriminatory policies that ensure all eligible applicants and students are treated equally, regardless of race or ethnicity. This commitment extends beyond admissions to cultural sensitivity within overall program offerings.

Policies Highlighted in Form 990

The annual Form 990 serves as a key tax document and a snapshot of your nonprofit’s governance. While not all policies mentioned in the return are strictly required by law, the IRS specifically asks about them, making it crucial for organizations to have robust policies.

First, the IRS examines Documentation and Disclosure procedures, particularly for contributions. Nonprofits should establish policies for acknowledging donor gifts and clarifying the tax-deductible portion of those contributions. Similarly, Minutes of Board and Committee Meetings should be recorded consistently to maintain a transparent record of accountability. Proper review of Form 990 by the board or a designated committee is another important practice, ensuring that the information submitted reflects the reality of the organization’s financial and operational status.

Whistleblower protection is also highlighted. Staff, volunteers, and others should feel safe reporting wrongdoing without fear of retaliation. Similarly, Document Retention and Destruction have become cornerstones of accountability in the nonprofit world. Guidance on how long documents should be kept (either electronically or in paper form) and when they can be destroyed should be spelled out, with clear instructions to halt destruction if a legal issue arises.

Another set of policies addresses Joint Ventures and Gift Acceptance. Suppose your nonprofit partners with a for-profit entity or frequently receive non-cash donations. In that case, you need a written set of guidelines that outline how to maintain your organization’s standing and compliance. For example, a gift acceptance policy can clarify the types of donations your nonprofit will accept, any added responsibilities with certain in-kind gifts, and how you will handle legal complexities arising from property or restricted donations.

Policies Required by Accounting Standards

Remaining transparent and credible in the eyes of your donors, board, and regulatory bodies heavily depends on how you record and report your organization’s finances. Certain policies are essential to comply with generally accepted accounting principles (GAAP).

Allocation Policy. All nonprofits, whether on an accrual or cash basis, must categorize expenses by their natural classification (such as salaries, rent, or supplies) and by function (program, management, or fundraising). A clear allocation policy ensures that these expenses are assigned in a fair and consistent manner, often based on time, square footage, or headcount metrics. Proper allocation is key for both accurate IRS filings and financial statement presentations.

Capitalization Policy. An overarching principle is whether to expense or capitalize and then depreciate certain items. Organizations commonly choose a dollar threshold—sometimes set at $500 or $1,000—to determine whether to record the purchase of assets like furniture or IT equipment as an expense or as a capital asset. A carefully documented capitalization policy ensures that the organization consistently treats similar purchases.

Endowment Policy. For nonprofits with an endowment, or those considering creating one, an effective policy will cover guidelines for accepting gifts, investment strategies, and use of earnings. Nonprofits must comply with standards like the Uniform Prudent Management of Institutional Funds Act (UPMIFA), so a written policy shows donors and regulators that your organization follows best practices in managing endowed resources.

Single Audit Policies (If Applicable). Any nonprofit that expends $750,000 or more in federal funds in a fiscal year may be required to undergo a Single Audit. To prepare, nonprofits must ensure they have detailed policies that track how grants are received and spent, which align with government requirements. Tight internal controls and thorough documentation are critical for passing such audits without significant findings.

Best Practice Policies for Nonprofit Success

Beyond mandatory requirements, additional policies can help nonprofits operate strategically and maintain a symbiotic relationship with employees, board members, and community stakeholders.

Accounting Procedures Manual. This document goes deeper than the accounting standards described above, detailing the day-to-day processes to ensure proper approval, recording, and reconciliation of financial transactions. Segregating duties, even when the staff is small, can be a decisive step to reduce errors or fraud.

Board Roles and Responsibilities. While board members often volunteer their time, they shoulder considerable oversight responsibilities. A written description of core duties and term limits can clarify expectations and ensure that every board member understands their fiduciary duties, ethical obligations, and role in strategic planning.

Credit Card Policy. When an organization issues credit cards for employee use, procedures should govern who may use them, what charges are acceptable, how purchases should be documented, and how statements are monitored. By tightening processes around credit card usage, nonprofits can further reduce the risk of misuse.

Disaster Recovery Plan. From natural disasters to cyber-attacks, unexpected disruptions can jeopardize a nonprofit’s ability to serve its mission. A well-crafted plan provides solutions for system backups, securing key data, and communicating with staff or the public during a crisis. Preparing for the worst helps your organization get back on its feet quickly if an emergency occurs.

Investment Policy. Most nonprofits hold some level of reserves or endowment. A sound investment policy clarifies how those funds are managed, the risk tolerance, and who has oversight—such as a board investment committee or a professional fund manager. This transparency gives donors confidence that their contributions are being stewarded responsibly.

IT and Internet Security Policy. In an era of growing remote work and ever-present cyber threats, having a written IT policy is crucial. It should establish guidelines for handling electronic data, email usage, software updates, and other cybersecurity measures. By planning proactively, nonprofits can minimize technology-related vulnerabilities.

Job Descriptions. Clearly defining each role’s responsibilities, qualifications, and performance metrics helps staff members stay focused on the mission. Clarity in job duties also helps measure performance, address gaps in training, and set realistic expectations for new hires.

Personnel Policy Manual. A robust personnel manual covers everything from leave practices to performance reviews and disciplinary actions. Clarifying workplace expectations and employee benefits builds trust and consistency across the organization.

Petty Cash Fund Policy. If your organization uses petty cash, it should have clear parameters for permissible uses, reimbursement procedures, and reconciliation requirements. Cash is inherently subject to higher risk, so these guidelines help ensure that no funds go missing.

Strategic Plan. Setting out organizational priorities and measuring performance against them is one of the most powerful ways to sustain a nonprofit’s mission. Strategic plans should be specific, with defined milestones and timeframes, yet flexible to respond to the ever-changing landscape in which nonprofits operate.

Succession Plan. Finally, a documented leadership transition plan involving an executive director, key employees, or board members is vital for maintaining relationships with donors, program partners, and clients. Succession planning avoids service disruptions and allows for a steady hand in steering the organization’s future.

How Tanner Can Help

Developing, reviewing, and implementing these various policies can be complex, especially for growing nonprofits with limited resources. Tanner’s professionals have deep experience in combining regulatory compliance, best practices, and organizational culture so that your nonprofit can succeed today and in the future.

We assist with Policy Development and Review, ensuring your bylaws, conflict of interest, and other essential policies remain current. Our experts provide Form 990 Consulting, guiding leaders through the reporting process so that you can submit an accurate return aligned with IRS expectations. If you require Audits and Compliance Support—including Single Audits—our team is well-versed in performing thorough reviews to help identify internal controls that need attention. Finally, we offer Accounting and Advisory Services to assist with cost allocations, setting appropriate capitalization thresholds, and other financial matters essential for maintaining trust with donors, grantors, and the broader public.

Conclusion

In the ever-evolving world of nonprofits, it is not enough to file paperwork and hope for the best. A strong suite of policies and an ongoing commitment to review and revise these guidelines will form the backbone of your organization’s credibility, growth, and enduring success. As regulations shift and your mission adapts to changing community needs, you want to ensure your nonprofit stands out for its integrity and professionalism. By embracing a comprehensive policy framework, you set the stage for confident donors, satisfied regulators, and board members who can focus on strategic goals rather than administrative hurdles. For any concerns or assistance on how to build and maintain this robust infrastructure, the Tanner team is ready to help you move confidently beyond compliance.