Practice Ideas for Principle 02. Stewardship

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Understand: Our organizations are established for charitable purposes and operate with a privileged tax status. We recognize that, in addition to money, foundation assets include investments, relationships, human resources, connections and networks, knowledge and expertise, and stature.

We know the basics of the laws that apply to our tax-exempt organization:

  1. We have taken steps to ensure that our board members understand their fiduciary duties.  This resource from the Minnesota Attorney General’s office outlines those duties.
  2. Staff and board understand the fundamentals of our organization’s legal structure and tax status, including whether we are a nonprofit corporation, charitable trust, or other form, and our tax-exempt status and classification as a public charity or private foundation.  Further, our staff and board understand  what that structure implies for leadership, programs, operations and compliance responsibilities.
  3. We know our organization’s charitable purpose and we align our organization’s programs and activities with our mission. As stewards of our organization’s assets, we have a primary responsibility to the mission of the organization.
  4. Staff and board members understand the ways that the IRS and state attorney(s) general regulate their organization, they stay attentive to potential legal and compliance issues that may arise, and they seek legal and/or tax accounting counsel when appropriate.

We understand our community context:

  1. Staff, including those employed at corporate giving programs, understand the context of community expectations.
  2. Staff and board members understand best practices of running a nonprofit.
  3. We use tools such as asset maps and strategic planning to understand how we are using the organization’s assets.
  4. Staff and board understand philanthropy’s power and privilege.
  5. We understand the ways organizational values and workplace culture impact stewardship decisions.

Begin: We recognize our organizations’ roles as funders, employers, economic entities and community members. Through each of these roles, we use the wide range of assets held by philanthropy to create positive benefits and impact with our communities.

The board and senior leadership take seriously their role of fiduciary stewardship:

  1. Our board members and staff leadership invest and manage our organization’s assets, consistent with donor intent and restrictions.
  2. Private foundation board members and managers receive education on self-dealing, understand how to identify disqualified persons, and have processes to evaluate potential self-dealing transactions. All tax-exempt organizations understand the concepts of private benefit and private inurement and take care to avoid any actual or perceived instances of such conduct.
  3. Contributions to the foundation represent irrevocable gifts subject to the legal and fiduciary control of the foundation’s governing body.
  4. Our board members make prudent investment decisions and private foundations avoid jeopardizing investments.
  5. The board takes care to monitor the performance of its members and the board as a whole, ensuring adherence to fiduciary duties and promoting best practices.
  6. If we are a public charity or community foundation: Our governing body retains variance power over owned funds, by which it may modify a restriction or condition on the distribution of assets, if circumstances warrant. We maintain a written record of the terms and conditions of each component fund, and all records reference the variance power.
  7. If we are a private foundation: we understand that we are a private foundation, subject to statutory regulations specific to private foundations including a prohibition on self-dealing.  We take care to monitor all transactions between the foundation and, as applicable, its related corporation, family members, or businesses owned by family members to make sure no act of self-dealing occurs.
  8. If our foundation has an endowment, the board has approved a written investment policy to guide our investment activities. We consider the risks and rewards of changing our portfolio mix and payout rate, and we monitor our compliance with the Uniform Prudent Management of Invested Funds Act (UPMIFA).

The board and staff manage risk:

  1. As appropriate, our board manages risks, seeks legal counsel, solicits accounting advice and ensures that we have appropriate insurance coverage.
  2. If we have staff, we have developed and periodically review a leadership succession plan for the chief executive.
  3. We have financial management policies and recordkeeping that are adequate for our size and complexity, including an effective internal controls system of checks and balances.
  4. We maintain appropriate internal policies to govern our work, including but not limited to a whistleblower policy, a record retention policy, a gift acceptance policy, a conflict of interest policy, and more.  We regularly assess our compliance with internal policies and review them periodically to ensure they continue to reflect current law and best practices
  5. Board and staff ensure that all grantmaking complies with legal requirements based on the corporate and tax classification of the foundation and the type of grant.  Appropriate records are kept on all grants, and care is taken to ensure compliance particularly with any grants to non-tax exempt entities—such as scholarships, other grants to individuals or businesses, program-related investments, or international grants.

The board and staff avoid and/or disclose any conflicts of interest:

  1. Board members and staff set aside personal or conflicting interests and act solely in the best interest of the organization when making a decision or acting on behalf of the organization.
  2. We have a written conflict of interest policy that includes a conflict disclosure statement.  The conflict disclosure statement is completed annually by board and staff members.

We engage our assets through a mix of program activities to maximize our impact:

  1. Board and staff consider strategies beyond grantmaking to advance our mission, such as:
  1. In order to advance the mission of the organization, we dedicate sufficient financial resources, technological resources, and human resources, including a knowledgeable financial manager.
  2. We periodically review the original intent of our founding donor(s) to ensure that, in today’s society, our spending policy, grantmaking and administration reasonably reflect donor intent.
  3. We regularly determine the right mix of grants and impact investments, to meet our mission.

Compensation is determined based on legal requirements and community expectations:

  1. We understand and adhere to the organization’s compensation philosophy, as it pertains to the CEO/executive director, staff, board members and external consultants.
  2. We follow the IRS rebuttable presumption process when establishing compensation for our board members, executives, and other “disqualified persons” within the meaning of the Internal Revenue Code Section 4958, including but not limited to having the board or another independent body establish compensation based on a review of comparable compensation data.
  3. In general, we expect board and committee members to serve the foundation without compensation, recognizing however the following:
  • Reimbursement of reasonable expenses directly related to board service does not constitute compensation.
  • Board members who perform traditional staff functions may be compensated as staff. Like all staff, these individuals should be reasonably compensated, document time spent, and have a job description, performance objectives and evaluations.
  • In some contexts, board/committee compensation allows for greater diversity of perspective in organizational leadership, especially from under-represented communities.
  • We understand that compensating board members for their service in such capacity may remove certain state and federal immunity protections of volunteer directors.
  1. If we have a policy to compensate board (or committee) members for their service, we have taken steps to ensure that the compensation is reasonable and not excessive, as defined by law.
  2. We ensure that our administrative expenses (including travel expenses) are reasonable, as defined by law.

We comply with annual reporting and audit requirements:

  1. We annually file a tax return (IRS Form 990 or 990-PF) and adhere to other government requirements in compliance with the law.
  2. We file any additional taxes required by law for our type of philanthropic organization, such as, but not limited to, payroll taxes, excise taxes on investment earnings, excise taxes on excessive remuneration of executives or unrelated business taxes.
  3. We comply with state laws and regulations for conducting and reporting an independent annual audit. (Minnesota organizations with total revenue of $750,000 for the 12-month period covered by the statement are required to perform an annual audit by an independent certified public accountant.)  If we are not required by law to conduct an independent audit, we may consider an independent audit or internal financial review of our financial statements as appropriate to the size, nature and complexity of our organization.
  4. If we conduct a regular independent audit:
  • We have an audit committee that is not compensated. Note: Although many foundations do not have separate finance and audit committees, there is growing federal/state interest in requiring audit committees for boards of charitable organizations of a certain size. For example, the California Nonprofit Integrity Act, which passed in 2004, requires charitable corporations (but not charitable trusts) with gross revenues over $2 million to have an audit committee.
  • The audit committee includes at least one person who has financial expertise, and is chaired by a trustee/ director who is not an officer of the governing body.
  • We have ensured that the auditor has the requisite skills and experience to carry out the auditing function for our philanthropic organization and has carefully reviewed the firm’s performance.
  • Our audited financial statements are available and accessible to the public, preferably on our website (if we have a website), within a reasonable amount of time after the close of our fiscal year.
  • We request the partner-in-charge be rotated every five years (if we retain the same audit firm).

We follow legal requirements for resource development and fundraising (applicable to community foundations and public charities):

  1. We comply with state charitable registration requirements.
  2. We develop broad support in the form of contributions from many separate, unrelated donors with diverse charitable interests in the community served by our organization.
  3. We have a long-term goal of securing resources to address the changing needs of the communities our organization serves.
  4. If we are a community foundation, we accept and administer a diversity of gift and fund types to meet the varied philanthropic objectives of donors.
  5. We have gift and fund acceptance policies.
  6. During the gift planning process, we fully disclose to the donor the role and relationships of all parties involved.
  7. Gift planners are aware of and uphold the highest ethical standards and practices as outlined in the work of the National Committee on Planned Giving.
  8. We educate ourselves, set policy and monitor fund development practices to ensure the promotion of the best interests of the donors, the public and/or the beneficiaries of the foundation.
  9. If we manage donor advised funds: We disallow the funding of hate groups and anti-democracy groups.

Aspire: We use all of our assets to build equity and strengthen communities, as defined by the communities, themselves. We use all available tools such as values-based investing, impact investing and giving beyond minimum requirements, to generate community benefits.

In our grantmaking and community engagement:

  1. We use an equity lens to advance our mission through grantmaking.
  2. We go beyond grantmaking to also support nonprofit capacity building.
  3. We decrease the burden on our grantee partners. For example, funders may offer:
    1. general operating grants and funding the true costs of programs,
    2. simplified application processes and forms,
    3. collaborative approaches to applications, funds and/or evaluation tools,
    4. multi-year funding relationships, and
    5. large grants that provide more return on a nonprofit’s investment.
  4. We ask the community what they need. We adequately compensate the community for their time and ideas.

In our investments and financial transactions:

  1. We use an equity lens to advance our mission through our use of suppliers/contractors.
  2. Whenever possible, we consider socially responsible investments in line with our legal and fiduciary commitments. Note: Often, corporate foundations and corporate grantmakers handle investments through their corporate finance departments or corporate treasury.
  3. We leverage the strength of our endowment to promote community benefits through program related investing (PRI) or impact investing.
  4. We periodically assess the values alignment between our organization and the financial institutions that we entrust with our assets.
  5. We consider the balance between grantmaking payout and operational overhead. We weigh these expenses through a values-based decision making lens.
  6. We discuss and consider the value of keeping an endowment which exists in perpetuity versus spending down the endowment over a limited period, if such a spend-down is allowed with respect to donor intent.

In our human resources:

  1. We seek to employ diverse staff or paid advisors who are representative of the communities in which we work in a manner consistent with legal limitations on non-discrimination, or individuals who demonstrate the capacity to understand issues and communicate skillfully across cultural, class and other boundaries.
  2. We leverage the cultural and social capital of the organization, on behalf of community.
  3. Staff and board discuss the organization’s founding documents and we understand the process required to legally change these documents. We discuss the relation between the organization’s founding documents and our current ability to make positive impacts in our community.