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Policies and the Impact on Financial Management

Dan Busby, CPA | posted 8/01/2008
This article provided by the Engstrom Institute

Churches and other nonprofit organizations are very familiar with policies. They provide sound guidance for our day-to-day operations. And, the larger the organization, the more policies there seems to be.

Collections of policies grow up to be policy manuals. Boards adopt policies (Good Governance for Nonprofits Bob Andringa and Fredric Laughlin, published by BoardSource is the premier book on this topic); policies are often adopted at the operational level; and sometimes CEO's issue policies.

Policies come in many flavors—human resource, accounting, facilities and many more. The greater the number of policies, the more likely one or more persons will be assigned the responsibilities of enforcing and interpreting the policies, e.g. a Director of Institutional Policies.

Policies notoriously collect dust. It is likely some of them are out-of-date and/or not being observed. This highlights the importance of an annual review of policies of all types (board and staff) to determine relevancy.

Organizational policies are a fundamental basis for well-run churches or parachurch organizations. My organization, ECFA, has issued best practices—many of these best practices related to policies. We even provide sample policies. We believe in policies.

But should a church or parachurch organization be required to adopt a particular policy or a certain set of policies? I am convinced that policies (board and organizational policies) do not come in a "one-size-fits-all" box!

Ministries should have the flexibility to decide whether they need a particular policy or set of policies. As an organization grows and its needs become more complex, polices should be adjusted to fit the specific circumstances.

For example, organizations should avoid conflicts of interest—on this there is common agreement. But is a policy required to avoid conflicts of interest? No, but a policy is an excellent way to heighten awareness of this topic. Is a certain conflict of interest policy necessary? No, there are various sound policies on this topic—some more or less complex.

Another example—one board self-evaluation policy might stipulate an annual review using an outside group. Another policy might involve very basic evaluation techniques a board could complete on its own. Some boards use informal techniques to evaluate their work without a formal policy.

Policies should fit the charity. This is true of board policies, human resource policies, and financial management policies. Policies should reflect the culture of a particular organization. Policies should work within the confines of the entity.