Financial Policies and Procedures Manuals For Nonprofit Organizat PDF

University of Southern Maine
Digital Commons@USM
Muskie School Capstones Student Scholarship
5-2011
Financial Policies and Procedures Manuals for

Nonprofit Organizations: Applying Best Practices
to the Environmental Health Strategy center
Jennifer Rottmann
Follow this and additional works at: http://digitalcommons.usm.maine.edu/muskie_capstones

Part of the Finance and Financial Management Commons, and the Nonprofit Administration and
Management Commons
Recommended Citation
Rottmann, Jennifer, "Financial Policies and Procedures Manuals for Nonprofit Organizations: Applying Best Practices to the
Environmental Health Strategy center" (2011). Muskie School Capstones. Paper 50.
This Capstone is brought to you for free and open access by the Student Scholarship at Digital Commons@USM. It has been accepted for inclusion in
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Financial Policies and Procedures Manuals for Nonprofit Organizations:
Applying Best Practices to the Environmental Health Strategy Center
May, 2011
Jennifer Rottmann
Capstone Project
Submitted in Partial Fulfillment of the Requirement for
Masters Degree in Public Policy and Management
Edmund S. Muskie School of Public Service
Capstone Advisor: Josephine M. LaPlante, Ph.D.
Jennifer Rottmann, 2011. This policies and procedures manual is copyrighted. The
document was developed as a capstone project to meet requirements of the master's in public
policy and management program in the Muskie School. The report is a draft of policies and
procedures that will be refined at a later time. Some of the draft language is adapted from
copyrighted material. This report may not be distributed in print or electronic format in whole
or in part or adapted for use without the written consent of the author.
Why Do Nonprofit Organizations Need a Financial Policies and Procedures Manual?
Nonprofit organizations are exempt from taxation specifically because they do not
distribute profits to shareholders or owners. It is expected that their purpose is to benefit the
public good. Nonprofit organizations rely on public trust to raise the funds needed to carryout
their work and to recruit and retain board members and volunteers who can amplify their efforts.
This level of public trust means that perhaps even more than their for-profit counterparts
nonprofit organizations are held to a high standard of integrity, transparency, and accountability.
They must be particularly vigilant in guarding against any appearance of impropriety,
misappropriation of funds, waste, or fraud. On top of this, nonprofit organizations often operate
on very narrow financial margins, with a mandate to invest as much of their resource as possible
in delivering mission-related services. This makes efficiency in their operations and the ability to
make good and quick management decisions a top goal. Finally, because of their special status,
nonprofit also organizations must comply with various rules and regulations governing their
operations, many of which also deal with transparency and accountability to the public.
For each of these reasons the need to safeguard assets from fraud to preserve public
trust, the need to operate efficiently, and the need to ensure external compliance it is essential
that nonprofit organizations have sound financial policies and procedures that are recorded in a
written document. Policies are simply the rules that a nonprofit uses to govern its activities.
Hankin, Seidner, and Zietlow (1998) define policy as a set of guidelines or principles defining
an organizations philosophy toward how business shall be conducted (p.559). They can serve
an internal purpose, such as clarifying common understandings (e.g. the role of the board) or
articulating internal principles (e.g. organizational ethics), and they can also ensure compliance
with external rules and standards (e.g. tax reporting requirements). Procedures, Hankin, Seidner,
Rottmann, Jennifer 2
and Zietlow continue, then form the Steps and/or actions to be taken to comply with a specific
policy (p. 559). Foley (2008) suggests thinking of policies as intent and procedures as the
mechanics to carry out the intent. Together, policies and procedures should tell every staff and
board member involved with the organization how financial transactions are handled and the
roles and authorities of different parties in carrying them out.
Safeguarding Organizational Assets from Fraud
Strong policies can create public trust and convey integrity by ensuring the sound
stewardship of organizational assets, accountability, transparency, and ethical practices. Internal
controls should be incorporated into financial policies and procedures as a tool for achieving
these goals.
The Nonprofit Risk Management Center defines internal controls as the system of
practices, procedures and policies intended to safeguard the assets of the organization from fraud
or error and ensure accurate recordkeeping. 1 Internal controls also address risks by specifying
security procedures and plans to protect against damages and loss. The Center breaks internal
controls into four main categories: authorization and approval, documentation and accurate
recording, physical security, and early detection. 2 Authorization and approval includes having a
budgeting and financial planning process and plan that is followed, as well as having a system to
determine and approve proper expenditures. Documentation and recording involves having
proper backup for every expenditure or purchase to ensure legitimate purposes. Security involves
1
Herman, M.L. (2008). Financial Risk Management: A Guide for Nonprofit Executives. Nonprofit Risk
Management Center. Retrieved from http://www.nonprofitrisk.org/store/pub_detail.asp, p. 118.
2
Nonprofit Risk Management Center. Protecting Assets with Sound Internal Controls. Retrieved from
http://www.minnesotanonprofits.org/nonprofit-resources/financial-management/budgeting/protecting-assets-with-
sound-internal-controls.
both physical and electronic measures like locking up blank checks and protecting financial data
with passwords, as well as having specific procedures related to bank transactions to limit fraud.
Early detection involves creating checks and balances to ensure that more than one person is
engaged in any financial transaction, as well as engaging independent review such as an annual
audit.
There is no single standard for internal controls, and individual organizations can have
different control structures that are equally valid depending on their structure. As Levin notes in
a document prepared for the Maine Association of Nonprofits, Every nonprofit organization
does not have to adopt every single practice rather, enough of them must be adopted so that
youve formed a solid and credible system. 3 However, some common internal controls include
measures such as having more than one person handle receipt of gifts or cash, ensuring that
checks are endorsed For deposit only immediately upon receipt, retaining records of all
expenditures with backup documentation, segregating duties such as bookkeeping from check
signing so that funds cannot be misappropriated and records manipulated, ensuring that more
than one person examines bank statements, tracking inventory consistently, instituting computer
and office security, and engaging in external audits.
A key element of internal controls is segregation of duties. Segregation of duties creates a
system where no one person carries out a single transaction from start to finish for example,
receiving money and depositing it in the bank, or approving payment on an invoice and signing a
check. This creates checks and balances intended to decrease opportunities for fraud or catch
fraud early.
3
Levin, R.H. INTERNAL CONTROLS FOR NONPROFITS. Maine Association of Nonprofits. Retrieved from
http://www.nonprofitmaine.org/blob_view.asp?blob=73.
Hayes (1995) writes that fraud often starts as an accident, when an employee makes a
mistake and then finds there are no consequences. The discovery of loose internal controls then
creates an opportunity for further abuse. This suggests that the world is not simply broken down
into good and bad people who will and will not steal, but that fraud may actually be
situational, based on opportunity. In fact, Hayes argues that there are three kinds of people: those
who would never steal anything (a relatively small group, he says), those who will steal given the
right circumstances (opportunists), and those who will steal no mater what. Hayes writes that
the largest group is those who will steal under the right circumstances, and that fraud happens
because almost anyone can move to the opportunist level with the right combination of personal
circumstances and situational opportunity. Internal controls and segregation of duties can
discourage fraud by reducing opportunistic attacks. They may not prevent theft by those who
would steal under any circumstance, but they can reduce fraud that happens opportunistically.
The Association of Certified Fraud Examiners 2010 Report to the Nations on
Occupational Fraud and Abuse reports that the typical organization loses 5 percent of its annual
revenue to fraud, and that the median fraud lasts 18 months before being detected. Despite the
fact that their work is altruistic in nature, nonprofit organizations are not immune from fraud. In
fact, because so many nonprofits have very small staffs where each employee may wear many
hats, they may be even more vulnerable.
Despite the challenges in creating and maintaining them, sound internal controls are key
to maintaining public support. Petrovits, Shakespeare, and Shih (2011) found that the disclosure
of internal control weaknesses is associated with a decline in public support and government
contributions. Internal control information, they write, appears to affect, either directly or
indirectly, funders giving decisions (p.354). In fact, the authors estimate that organizations
with internal control problems receive 3.8 percent less public support and 2.1 percent less
government support.
While engaging an external auditing firm for annual review is a key way to provide
accountability and transparency to the public, Hayes cautions that management cannot rely on
external auditors alone to find fraud. In fact, the Association of Certified Fraud Examiners 2010
Report to the Nations on Occupational Fraud and Abuse reinforces this argument. The study
found that an external audit was responsible for uncovering only 4.6 percent of all cases of fraud,
whereas internal tips, management review, and internal audits were much more likely to uncover
instances of abuse. Hayes also cautions that an internal control structure cannot prevent loose
management, and that there is a danger in a culture of frequent management override for
efficiency or other reasons. Therefore, it is very important that management institute and enforce
a culture of compliance with internal control practices, even when they seem cumbersome, to
ensure that they are followed throughout the organization. Spelling them out in written policies
and procedures documents is the first step.
Providing Efficiency and Accuracy for Sound Management
A policies and procedures manual should specify how financial planning will be
conducted, what kinds of financial reports will routinely be produced and distributed, and how
other routine tasks will be carried out. The ability to make sound financial plans in the form of
budgets and then generate timely and accurate financial reports to measure performance is a key
element of creating organizational efficiency. As Herman (2008) writes, the failure to produce
accurate reports hinders the ability of board and staff members to make good decisions, and can
reduce credibility with board members or donors when it happens repeatedly. Accurate reports
facilitate tracking of income and expense so that board members and managers understand how
their activities are being carried out and can make adjustments in response to trends and to
ensure mission alignment. Accurate reports also facilitate timely external reporting to comply
with grantor or government guidelines, a key element of maintaining continued support and
credibility.
In addition, procedures ensure efficiency at a basic level simply by stating how routine
tasks will be completed. If there were no written procedures, employees could possibly have to
make a new plan or system every time they needed to complete a task such as recording income
or paying a check, wasting considerable time. In addition, without any standard systems for
completing and tracking tasks, certain reports to on past activities would be difficult to generate
consistently because information could have been generated and entered in various different
ways.
Ensuring Compliance with External Regulations and Standards
Finally, financial policies and procedures can incorporate the key practices needed to
ensure compliance with minimum legal and regulatory requirements and accepted accounting
standards. The primary external regulations affecting nonprofit organizations are the IRS Form
990, the Sarbanes-Oxley Act, and the accounting standards set forth by the Financial Accounting
Standards Board (FASB), the American Institute of Certified Public Accountants (AICPA), and
the U.S. Federal Office of Management and Budget (OMB).
IRS Form 990
The IRS Form 990 is the annual return that most federally tax-exempt nonprofit
organizations must file annually with the IRS. It is intended to provide transparency and
accountability to the public and ensure that nonprofit organizations are fulfilling their tax-
exempt purposes. In addition to capturing basic financial information, the form was
recently updated to include a series of questions related to governance and organizational
policy. Starting with returns filed in 2009 for the 2008 tax year, the form was
substantially redesigned and the IRS began requesting additional disclosures relating to
items such as accountability, governance, and fraud prevention. The form now includes
questions in policies related to conflict of interest, executive compensation, decision-
making, and whistleblower protections, among others. 4
According to the IRS (2011), the purpose for these additional governance and
accountability questions is to help ensure that the organizations assets will be used
consistently with its exempt purposes. 5 In addition, the IRS writes, well-governed and
well-managed organizations are more likely to be transparent with regard to their
operations, finances, fundraising practices, and use of assets for exempt and unrelated
purposes. 6 Thus, while many of the governance policies asked about on the Form 990
are not actually required, the request for disclosure makes it clear that the IRS and many
members of the public believe that organizations who have such policies in place will be
more transparent, accountable, and well-run. For this reason, it is advisable for most
nonprofits to consider adopting the policies discussed on the form.
4
See part VI of the 2010 Form 990 for a complete listing: http://www.irs.gov/pub/irs-pdf/f990.pdf.
5
Internal Revenue Service (2011), retrieved from http://www.irs.gov/charities/article/0,,id=176674,00.html.
6
Internal Revenue Service (2011), retrieved from http://www.irs.gov/charities/article/0,,id=176674,00.html.
Sarbanes-Oxley Act
The Sarbanes-Oxley Act was passed in 2002 to rebuild public trust in the wake of
corporate accounting scandals. It created new standards for governance, financial
transactions, and audit procedures in publicly traded companies. Although most of the
laws provisions apply only to publicly traded companies, many organizations in the
nonprofit sector have adopted the recommended standards in anticipation of future
legislation. BoardSource and Independent Sector have made recommendations on how
charities and foundations can voluntarily incorporate certain provisions of the Act into
their operations in their publication, The Sarbanes-Oxley Act and Implications for
Nonprofits. 7 They include recommendations related to managing conflicts of interest,
external audits, certification of financial statements such as the IRS Form 990, disclosure,
whistleblower protection, and document destruction. Importantly, two provisions of the
Sarbanes-Oxley Act apply to all entities, including nonprofit organizations, because they
are amendments to the federal criminal code: the whistleblower policy and the document
destruction policy. Therefore, among other recommendations, these two policies should
be included in any financial policies and procedures manual.
Professional Standards FASB, AICPA, and OMB
7
Available at: http://www.nonprofitmaine.org/blob_view.asp?blob=49 and
http://www.boardsource.org/clientfiles/sarbanes-oxley.pdf.
There are three entities that issue standards for nonprofit financial accounting: the
Financial Accounting Standards Board (FASB), the American Institute of Certified
Public Accountants (AICPA), and the U.S. Federal Office of Management and Budget
(OMB) (for organizations that receive federal grants). These standards are what auditors
and other regulators use when assessing the appropriateness of a nonprofit organizations
financial accounting. FASB and AICPA standards together form what are called
generally accepted accounting principles (GAAP), principles and standards that govern
the preparation of financial reports.
FASB has issued only a small number of standards specific to nonprofit
organizations, but they are important. FASB No. 116, Accounting for Contributions
Received and Contributions Made, requires nonprofits to record contributions according
to whether they increase permanently restricted net assets, temporarily restricted net
assets, or unrestricted net assets. FASB No. 117, Financial Statements of Not-for-Profit
Organizations, sets standards for external financial statements, including that all
nonprofit organizations provide a statement of financial position, a statement of activities,
and a statement of cash flows. It also requires nonprofit organizations to classify
expenses by functional expense categories (program services, management and
general, and fundraising, at minimum).
The AICPAs Statement of Auditing Standards 112 (known as SAS 112) was
instituted in 2007 and emphasizes that management staff are responsible for establishing
and maintaining internal controls. It further requires external auditors to convey in
writing any control deficiencies or material weaknesses that they observe to be present in
the course of their audit. This increased level of transparency about deficiencies in
internal controls should create an impetus for nonprofit organizations to improve their
internal controls in the interest of having a clean management letter attached to their
audit.
Nonprofit organizations must ensure that they are following accepted generally
accepted accounting principles as laid out by these entities to ensure public trust.
Financial policies and procedures should indicate an organizations compliance with
GAAP and should create systems to ensure that GAAP recommendations are followed.
Challenges for Small Organizations
Small organizations face particular challenges developing financial policies and
procedures that can effectively prevent fraud and ensure efficiency. The Association of Certified
Fraud Examiners 2010 Report to the Nations on Occupational Fraud and Abuse found that 31
percent of all frauds were committed against small organizations, the highest rate in any
category. The study also found in almost half of the instances of fraud at small organizations (47
percent), lack of internal controls was indicated as the factor that contributed most to the abuse.
Petrovits, Shakespeare, and Shih (2011), too, found that internal control deficiencies are more
common in small nonprofit organizations.
A small organization cannot institute the kinds of internal controls that a large
organization can. For example, a larger organization might have entirely separate departments to
handle different aspects of cash receipts (opening mail, recording cash, entering into financial
software, depositing in the bank), whereas a small organization may have only one
administrative staff person who is responsible for opening the mail, keeping records, performing
bookkeeping duties, and overseeing the bank account. Despite these limitations, it is important
and possible even for small organizations to institute segregation of duties at a meaningful level.
For example, Giganti (1998) suggests basic measures such as having someone other than the
person making bank deposits see a copy of the monthly bank statement (even if they are not the
person doing the bank reconciliation), and having a person other than the one who makes bank
deposits open the mail and record receipts (even if their primary function is not administrative).
Procedures such as these may seem meaningless to those who are not familiar with fraud
prevention, but they are vitally important steps to ensure financial integrity.
Key Elements of a Financial Policies and Procedures Manual
Depending on the specific characteristics and activities of an organization, the financial policies
and procedures manual may include the following elements:
Business Conduct Principles, Policies, and Procedures
Ethics Statement States the basic ethics and values of the organization related to
financial management and conduct. BoardSource recommends that all nonprofits develop
and publicize organizational ethical standards because these and other steps that
heighten transparency demonstrate a commitment to community and to operating in a
manner worthy of the public trust. 8
Overall Compliance and Government Returns Clarify commitment to meeting all

external regulations such as those reflected in the IRS Form 990 and Accounting
Standards articulated by FASB. The document should also incorporate and spell out
procedures that will ensure compliance and proper review.
Conflict of Interest Policy Ensures that the personal interests of board or senior staff
members does not interfered with their acting in the best interest of the organizations
charitable purpose. The policy should outline which conflicts of interests must be
disclosed, and procedures for annually disclosing and addressing conflicts should be
outlined.
Whistleblower Policy Explains how complaints from employees about perceived

misuse of organizational financial resources would be addressed and protected.
Document Retention and Destruction Policy Sets rules for storage and destruction of
electronic and hard files, including back-up procedures.
Mandatory Vacation for Financial Staff Specifies required amount of vacation

annually for financial management personnel. This prevents fraud by ensuring that staff
members are occasionally seeing financial records and practices of their peers.
Gift Acceptance Policy Provides a framework for deciding whether a donation to the
organization meets the organizations needs or conflicts with any restrictions. This could
prevent an organization from accepting a gift that would cause an undue burden (for
example, a car if the maintenance costs would be to high), or from accepting money from
an entity that conflicted with their mission (for example, a contribution from the tobacco
industry to a smoking cessation organization). The policy should outline procedures for
review of unusual gifts.
8
BoardSource. Organizational Core Values and Statement of Ethics. Retrieved from
http://www.boardsource.org/AboutUs.asp?ID=17.276.
Unrelated Business Activity States whether income from activities not related to the
organizations charitable purpose are allowed, and if so, how they will be handled to
ensure compliance with tax law. Any resulting tax liability should be considered when
planning and budgeting for such activities.
Roles and Responsibilities of Board and Staff
Board Roles - Defines the role and levels of authority for the full governing board, the
executive committee, the board treasurer, and any board committees involved in financial
management (e.g., Audit Committee, Finance Committee)
Staff Roles Defines the roles and levels of authority for the Executive Director, senior
financial managers such as a CFO, Finance Director, or Managing or Operations
Director, other senior managers or department heads, and other staff involved in finance
and administration, such as bookkeeping, accounting, payroll, and other administrative
staff.
Budgeting and Reserves
Budgeting Procedures States who will prepare budgets for review and through what
process they will be formally adopted. May clarify how budget performance will be
monitored and how deviations from budget plans should be handled, including a process
for making formal budget revisions or approving specific expenditures that exceed
budgeted amounts.
Reserve Policies Specify if there is a target for unrestricted funds that can stabilize
revenue in the case of unforeseen events or fund large expenditures. This policy can set a
target for how much should be set aside and how it can be used.
Financial Reporting
Financial Statements States which reports will be produced (such as an income and
expense statement and a statement of cash flows), the frequency of preparation (monthly,
quarterly, annually), and which members of the board and staff will regularly receive and
review the various statements.
Financial Ratio Analysis Articulates financial ratios that will be used to analyze
financial performance and any desired standards.
Basic Information Regarding Financial Accounting System
Fiscal year The fiscal year cycle of the organization (e.g., calendar year, July-June,
etc.).
Accounting Method Whether the organization will use a cash- or accrual-based

accounting system. The cash basis of accounting records income when it is received and
expenses when they are paid. An accrual-based accounting system recognizes income
when it is earned or promised and expenses when they are incurred or obligated,
regardless of when the cash transaction occurs.
Accounts Receivable and Cash Receipts
Receiving Cash Outlines procedures for processing checks and cash received in the
mail or in person. The procedures should specify the staff members who will be involved
and authorized to make decisions or record information at each stage of the transaction
and how backup documentation will be retained. This policy should incorporate
segregation of duties to prevent fraud.
Bank Deposits Outlines the process and timeline for depositing cash in the bank
account once it has been properly recorded in the accounting system. This policy should
incorporate segregation of duties to prevent fraud.
Processing of Credit Card Contributions Outlines procedures for processing credit

card contributions received online, by phone, or in person. The procedures should
specify the staff members who will be involved and authorized to make decisions or
record information at each stage of the transaction and how backup documentation will
be retained. This policy should incorporate segregation of duties to prevent fraud.
Accounts Receivable Outlines procedures to ensure that money owed to the

organization is received in a timely and efficient manner. Should state how outstanding
obligations will be reviewed and handled. Should clarify roles and responsibilities of
those involved in billing and invoicing. Should clarify any accepted level of receivables
that will not come in.
Accounts Payable and Cash Disbursements
Accounts Payable States the schedule on which money that is owed by the organization
will be paid, procedures for authorization of expenditures, and requirements related to
supporting documentation such as invoices and receipts (e.g., is there an amount below
which receipts are not required, must all receipts be original, etc.). The procedures should
Cash Disbursement Clarifies who has check writing authority, who has check signing
authority, and who may void checks. Should state the timeline for check writing and any
policies related to deviating from the regular check-writing schedule. Should clarify if
checks over a certain threshold will require more than one signature. The procedures
should specify the staff members who will be involved and authorized to make decisions
or record information at each stage of the transaction and how backup documentation will
Employee Expense Reimbursement Policy Clarifies which business-related expenses
will be reimbursed for employees, such as mileage, meals, and so on, and outlines the
timeline and process for employees to request reimbursement for those expenses.
Petty Cash Outlines special procedures related to petty cash to ensure security and
appropriate use of the funds.
Payroll
Payroll Administration and Process Clarifies whether payroll will be handled

internally or by an outside firm. Outlines backup documentation required (e.g.
timesheets), timeline for transmission and payment of payroll, and approval authority and
procedures. May clarify procedures for recording leave time. The procedures should
Salary Policy Clarifies how salaries will be determined for all employees, ensuring
fairness, market competitiveness, and shared understanding across the organization.
Executive Compensation Policy States how compensation will be determined for the
chief executive and other senior employees. In order to avoid IRS sanctions from a
determination that executive compensation is not reasonable, instructions for the IRS
Form 990 indicate that the review process must include (1) review by an independent
body (e.g. personnel committee); (2) use of comparability data, such as market
research; and (3) documentation of the board's consideration and approval (e.g. in
meeting minutes).
Purchasing
General Purchasing or Procurement Policy Outlines procedures for purchasing

supplies and equipment to ensure maximum value, proper authorization, and
appropriateness for all purchases. May specify procedures for soliciting quotes,
evaluating bids or proposals, comparing prices, and so on.
Credit Card Policies Clarifies which staff may be issued organizational credit cards,
which expenditures may be charged to organizational cards, and cardholder
responsibilities, such as monthly review and reconciliation, provision of backup
documentation, and appropriateness of purchases.
Contractor and Vendor Policies
Vendor Verification Outlines procedure for ensuring that all new vendors are
legitimate and authentic, preventing illegitimate vendors from receiving payment
fraudulently (e.g., an employees spouse).
Authority Clarifies who on staff has the authority to approve and sign contracts with
vendors or individuals.
Asset / Property and Equipment Policies and Procedures
Capitalization Policy Outlines criteria that will be used to determine which assets
should be reported as capital, so that they can be accounted for on financial statements
and depreciated appropriately. Should state criteria such as a cost threshold and timeline
of useful life, and the deprecation schedule.
Fixed Asset Inventory States how an inventory of all fixed assets (even those below the
capitalization threshold, if appropriate) will be created and maintained, including what
information will be maintained and how it will be reviewed.
Security Measures
Storage of Files States which files and records will be kept where, and what procedures
will be undertaken to ensure their security and confidentiality, such as locking file
cabinets.
Office Security States security procedures that will be undertaken to ensure the safety
of files and records as well as equipment and supplies.
Computer Security Specifies procedures to protect and secure electronic records, for
example with passwords. This ensures that confidential records are not accessed and that
records cannot be tampered with by unauthorized personnel. May also specify procedures
for backup to ensure that records are not lost.
Auditing
Engaging and Selecting an External Auditor States how often the organization will
engage the services of a professional CPA firm for a review or audit. Outlines the process
for selecting an auditor, including how often the organization will rotate auditing firms.
Audit Review Outlines how the audit will be reviewed by the staff and board, including
whether the board will establish a separate audit committee.
Risk Management
Insurance Guidelines States any minimum insurances that will be retained, such as
Directors and Officers Liability Insurance or Commercial Property Insurance.
Liabilities
Assumption and Authorization of Debt States whether the organization will establish
debt and how it will be managed and repaid.
Investment Policies
Investment Policy Outlines goals for the rate of return, desired liquidity (availability) of
funds, types of investment vehicles, prohibitions on any investments, and how a portfolio
manager will be selected and supervised. This is particularly important for an
organization with an endowment.
References
2010 IRS Form 990. Retrieved from http://www.irs.gov/pub/irs-pdf/f990.pdf.
Association of Certified Fraud Examiners (2010). 2010 Report to the Nations on Occupational
Fraud and Abuse. Retrieved from http://www.acfe.com/rttn/rttn-2010.pdf.
American Institute of CPAs (2007). Statement on Auditing Standards (SAS) No. 112:
Communication of Internal Control Related Matters Identified in an Audit, Frequently Asked
Questions. Retrieved from
http://www.aicpa.org/.../SASNo.115andSASNo.112/.../SAS_112_FAQ_030507.doc.
BoardSource & Independent Sector (2006). The Sarbanes-Oxley Act and Implications for
Nonprofit Organizations. Retrieved from http://www.boardsource.org/clientfiles/sarbanes-
oxley.pdf
Financial Accounting Standards Board (1993). Statement of Financial Accounting Standards No.
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Financial Accounting Standards Board (1993). Statement of Financial Accounting Standards No.
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Foley, E.H. (2008). Internal Reporting for Good Management. Greater Washington Society of
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management/policies.
Giganti, B. Preventing fraud. Association Management, v50 n10 p89.
GuideStar (2004). How Ethical is Your Nonprofit Organization? Retrieved from

http://www2.guidestar.org/rxa/news/articles/2004/how-ethical-is-your-nonprofit-
organization.aspx?articleId=827.
Hankin, JA, Seidner, A, & Zietlow, J (1998). Financial Management for Nonprofit
Organizations. New York: John Wiley & Sons, Inc.
Hayes, A. (1995) Fraud happens: a primer on lying, cheating, and stealing. Government Finance
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http://findarticles.com/p/articles/mi_hb6642/is_n6_v11/ai_n28664520/.
Herman, M.L. (2008). Financial Risk Management: A Guide for Nonprofit Executives.
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http://www.nonprofitrisk.org/store/pub_detail.asp.
Independent Sector & BoardSource (2009). THE PRINCIPLES WORKBOOK: Steering Your
Board Toward Good Governance and Ethical Practice. Retrieved from
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Governance_and_Ethical_Practice.pdf
Independent Sector. Learning from Sarbanes-Oxley: A Checklist for Charities and Foundations.
Retrieved from http://www.nonprofitmaine.org/blob_view.asp?blob=49
Internal Revenue Service (2011). Form 990 Redesign for Tax Year 2008. Retrieved from
http://www.irs.gov/charities/article/0,,id=176674,00.html.
Levin, R.H. INTERNAL CONTROLS FOR NONPROFITS. Maine Association of Nonprofits.

Retrieved from http://www.nonprofitmaine.org/blob_view.asp?blob=73.
Maine Association of Nonprofits (2010). Guiding Principles and Practices for Nonprofit
Excellence in Maine. Retrieved from
http://www.nonprofitmaine.org/principles_practices.asp.
Nonprofit Risk Management Center. Protecting Assets with Sound Internal Controls. Retrieved
from http://www.minnesotanonprofits.org/nonprofit-resources/financial-
management/budgeting/protecting-assets-with-sound-internal-controls.
Petrovits, C., Shakespeare, C., and Shih, A. (2011). The Causes and Consequences of Internal
Control Problems in Nonprot Organizations. The Accounting Review, Vol. 86, No. 1, p.
325-357.
Writing a Financial Policies and Procedures Manual for the Environmental Health
Strategy Center
The Environmental Health Strategy Center (EHSC) is an environmental public health
organization whose mission is to promote human health and safer chemicals in a sustainable
economy. Founded in Maine in 2002, the organization works for systemic change by blending
science-based advocacy and creative constituency development with strong coalition organizing
and strategic issue campaigns. The organization has two major program areas: Healthy
People, which seeks to improve health through safer chemical policy reform at the federal and
state levels, and Sustainable Economy, which models a green chemistry economic
development strategy to produce bioplastics from Maine potatoes and other biomass.
EHSC launched its operations under a fiscal agency relationship as a project of the Tides
Center, a national organization based in California that provides back office services to start-up
nonprofits. This allowed EHSC to ramp up its activities quickly without having to focus on the
operational details of setting up an organization, such as legal incorporation, filing for tax-
exempt status with the IRS, setting up bookkeeping systems, and hiring and managing
administrative staff. This model enabled a small staff of two to accomplish a great deal in a short
time without having to manage a back-office. After nine years, however, EHSCs operations
reached a scale that made incorporation as an independent 501(c)3 preferable. The organization
now has eleven staff members, two successful programs, and a strong track record of internal
management. The organization also now has a Managing Director who, as a liaison with the
Tides Center, essentially provides the same services she would if the organization were an
independent nonprofit (approving expenditures, reviewing financial reports, ensuring legal
compliance) but does so without the autonomy to set policies or design reports for the
organization independent of the Tides Center.
The organization has decided to spin-off from the Tides Center as an independent
nonprofit in 2011. This shift will enable the management team to better monitor key
organizational metrics and customize them to their most efficient application for the organization
(such as financial reports), more efficiently execute routine tasks (such as writing checks), retain
more of EHSCs resources in-state rather than sending an overhead percentage out of state
(currently 9 percent of all revenue), and ensure that there is no ambiguity for partners and
funders in-state that the organization is indeed a Maine-based organization with independent
governance. EHSC legally incorporated an independent Maine entity in 2008 and received IRS
approval as a 501(c)3 tax-exempt organization in 2010. In 2011, the organization must develop
the internal systems and protocols to enable the spinoff of operations from the Tides Center by
year-end.
A key element of preparing to operate independently is setting up independent a financial
management infrastructure. The draft policies and procedures document that follows creates a
framework for how financial management and all related transactions will be carried out by the
existing staff.
What is the Staffing Available to Help with Financial Management?
As a small organization, a key challenge for EHSC is creating sufficient segregation of
duties and internal controls. In addition, the organization has two physical offices. The largest is
in Portland (8 staff) and the smaller is in Bangor (3 staff). EHSCs organizational chart looks like
this:
Management Staff
The Executive Director works from the Bangor Office. Although the Executive Director
must play a lead role in financial oversight as the primary person having responsibility for
organizational health, having him work outside of the primary office creates logistical challenges
and makes it inefficient to have him involved in day-to-day transactions that cannot be
completed electronically (opening mail, writing checks).
The Managing Director is the lead staff person responsible for financial management,
playing the role of a Chief Financial Officer or Finance Director, including designing and
utilizing budgets and financial reports, recording and tracking revenue, approving expenditures,
purchases, and contracts, and ensuring compliance with all required procedures, both internal
and external.
The Executive Director, Managing Director, Associate Director, and Program Director
make up the Management Team. Each of these people has senior-level authority for making
decisions within their area of responsibility. However, it would be inefficient to have all of them
involved in managing financial information on a daily basis because it could lead to inconsistent
decision-making and would weaken efforts to centralize information. For this reason, division
directors other than the Managing Director will a role in financial management primarily limited
to making budget and expenditure decisions within their department, creating appropriate
segregation of duties when most necessary, and creating a backup system for cases when, for
example, the Managing Director or Executive Director is on vacation.
Other Staff
Other staff can be called on to play a role in financial management include the
Bookkeeper/Accountant, the Executive Assistant, and the Development and Marketing Manager.
The Bookkeeper/Accountant is a contractor hired to provide weekly bookkeeping services and
monthly financial analysis, and to ensure compliance with accounting standards. The Executive
Assistant, located in Bangor, can be called upon to provide administrative services in the Bangor
office (such as opening the mail) and support for the Executive Director in executing his duties.
The Development and Marketing Manager, located in Portland, will have a lead role in
processing and recording donations, including opening the mail in the Portland office and
recording gifts before they are entered into the financial system or deposited in the bank.
Ensuring Segregation of Duties With a Small Staff
EHSC must ensure above all else that no one staff member has sole control over cash
receipts, payroll, bank reconciliations, accounts payable or other accounting functions. For sound
internal controls, the check signer cannot be the same person who approves expenditures, records
bookkeeping entries, or prepares checks for signing. Bank statements must be seen by at least
one person other than the person performing the reconciliation. Bank deposits must be made by
someone other than the person recording the income. In addition, financial management staff, in
this case primarily the Managing Director, should be required to take annual vacation.
Mandatory vacation ensures that other staff are occasionally involved in transactions that could
other wise go unnoticed.
The Executive Director will be the primary person authorized to sign checks. This
provides a check against any inappropriate spending decisions that the Managing Director might
authorize. However, the Executive Director will not approve expenditures and he will not
prepare checks for signature. This ensures that he will not make any unauthorized payments.
Every spending decision will involve at least two people, the Managing Director who authorizes
it, and the Executive Director who signs it. (When the Executive Director is not available, the
Associate Director or Program Director may sign checks to ensure that there remains a
segregation of duties.)
The Managing Director will approve expenditures (except for her own, which will be
approved by the Executive Director), but will not make entries into the bookkeeping system or
prepare or sign checks. This ensures that she is not able to tamper with financial records after
checks are written, or prepare and sign checks for expenditures that only she has authorized.
The Bookkeeper/Accountant will make entries into the bookkeeping system and prepare
checks, but only when they are accompanied by proper authorization and documentation from
the Managing Director. Although she can prepare checks, she will not have check signing
authority. No one will be able to make or alter bookkeeping entries except the
Bookkeeper/Accountant. However, although the Managing Director will not be an authorized
user to make changes, she will be able to access bookkeeping records at any time, and will
review them at least on a monthly basis. The Bookkeeper/Accountant will perform the monthly
bank reconciliation, but the Board Treasurer or Executive Director will also review an original
copy of the bank statement to ensure that the Bookkeeper/Accountant cannot tamper with it.
The Executive Assistant and Development and Marketing Manager will open mail and
record gifts before sharing the information with the Managing Director. They will not make the
bank deposits.
Other Features of EHSCs Policies and Procedures
The document outlines a process for organizing financial information in budgets and
financial reports and states how performance will be reviewed regularly. The monthly review
process ensures that all senior managers and all members of the board can fulfill their oversight
responsibilities and make sound decisions on behalf of the organization. The organization does
not currently have accepted standards for financial ratios that will be used to assess performance,
but this could be added at a later stage of organizational maturity.
The policies and procedures for receiving funds ensure that all in-coming funds are
properly recorded and safeguarded through separation of duties and proper documentation. The
policies for approving disbursements of cash ensure that cash is disbursed only with proper
authorization, for legitimate business purposes, and with proper documentation.
Payroll policies and procedures ensure that access is limited to accounting staff
responsible for payroll processes. Payroll is processed by the Managing Director but approved by
the Executive Director. The outside payroll service is responsible for tax payments and reports.
The bookkeeper/accountant verifies the payments at the end of each month by analyzing the
payroll service reports and the bank reconciliation statement.
The organization doesnt regularly make large purchases or hire subcontractors, so a
detailed purchasing policy with bidding requirements is not necessary. However, the purchasing
policy as written does indicate that bids should be sought for large contracts and prices compared
for major purchases. The Managing Director will be the primary person authorizing purchases
and contracts, to ensure that there is a consistent and fair process and that risk exposure is
managed. The organization does not typically receive nonstandard gifts, so the gift acceptance
policy provides general guidance and grants the board permission to review unusual gifts,
without setting specific standards or restrictions.
The organization doesnt currently have any unrelated business activity or long-term
debts. Policies would be drafted and adopted when the need arose. The organization doesnt have
an endowment or a large enough reserve for investment of assets, so a formal investment policy
is not needed at this time. The introduction states that the policies and procedures will be
reviewed every two years. This ensures that any minor changes (such as changes in
organizational staffing) or new policies (such as an investment policy) that are needed can be
completed and the document kept up to date.
Certain policies that the organization has already adopted, such as an employee expense
reimbursement policy, policy on receipts, conflict of interest policy, whistleblower policy, and
others, are included as appendices.
NOTE: The purpose of this draft policies and procedures document is to apply accepted
best practices for nonprofit financial policies and procedures to a specific organizational
context for the Environmental Health Strategy Center. The following set of draft policies
and procedures was adapted from the best practices outlined in the following models.
Portions of language included in the draft may be copyrighted by its originators and should
not be used or redistributed without written permission:
Alliance for Nonprofit Management (2001). Developing an Internal Accounting Control System.
Retrieved from http://www.allianceonline.org/content/index.php?pid=163.
Levin, R.H. Internal Controls for Nonprofits. Maine Association of Nonprofits. Retreived from
http://www.nonprofitmaine.org/blob_view.asp?blob=73.
Montana Nonprofit Association (2006). Financial Policies and Procedures. Retrieved from
http://www.mtnonprofit.org/uploadedFiles/Files/Org-
Dev/Principles_and_Practices/MNA_Sample_Docs/Financial_Management_Policies.pdf.
National Alliance for Mental Illness. Accounting Policies and Procedures Manual. Retrieved
from
http://www.nami.org/Content/NavigationMenu/NAMI_Center_for_Excellence/Tools_for_Excell
ence/NAMIAccountingManual.pdf.
Nonprofits Assistance Fund (2007). Sample Financial Policy. Retrieved from

http://www.nonprofitsassistancefund.org/clientuploads/directory/resources/Financial_Policy_Exa
mple.pdf.
Nonprofit Financial Center (2000). SAMPLE Financial Policies and Procedures Handbook.
Retrieved from http://www.nonprofitmaine.org/blob_view.asp?blob=45.
Nonprofit Resource Center Inc (2009). Example NPO Accounting & Financial Policies and
Procedures Manual. Retrieved from
http://www.nonprofitresource.com/models/policiesindex.pdf.
Nonprofit Risk Management Center. SAMPLE Gift Acceptance Policies. Retrieved from
www.nonprofitrisk.org/tools/hallmarks/.../1gift-acceptance-policies.doc.
Rural Community Assistance Corporation (RCAC). Accounting Policies and Procedures

Manual. Retrieved from www.rcac.org/assets/srf_tools/fin-pol-and-procedures.doc.
The FMA Institute (2009). Sample Policies and Procedures Manual For Nonprofit Organizations.
Fiscal Management Associates. Retrieved from
http://www.fmaonline.net/media/Sample%20PPM%20Table%20of%20Contents-Website.pdf.
VolResource (2000). Sample Document: Financial Procedures. Retrieved from

http://www.volresource.org.uk/samples/fin_proc.htm.
[DRAFT]
Financial Policies and Procedures Manual for the

Environmental Health Strategy Center
Introduction
The board and staff of the Environment Health Strategy Center (EHSC) are committed to
ensuring the sound management of organizational assets in the interest of achieving the
organizations mission.
The policies and procedures contained herein are intended to:

Protect the assets of the Environmental Health Strategy Center
Put in place basic accounting, billing, and cash control policies and procedures
Ensure the maintenance of accurate records of the organizations financial activities
Create a framework for operating standards and behavioral expectations
Ensure compliance with all federal and state procedures and reporting requirements
The Executive Director, working with the Managing Director, is responsible for administering
these polices and ensuring compliance. Changes to these policies may be made by the Board of
Directors at any time. A full review of the policies should be conducted every two years. Every
member of the organizations management team and administrative staff is expected to be
familiar with and in compliance with these policies.
The Environmental Health Strategy Centers accounting policies and procedures are intended be
consistent with Generally Accepted Accounting Principles (GAAP). If this manual conflicts with
specific federal or State regulation or with other organizational policies that have been adopted
or updated more recently, the regulations or more recent board policy shall prevail.
Approved: Updated:
Ethics 9
The Environmental Health Strategy Center is committed to responsible stewardship of

organizational resources. The organization will spend a reasonable percentage of its annual
budget on programs in pursuance of its mission and on administrative expenses to ensure
effective accounting systems, internal controls, fundraising, competent staff, and other
expenditures critical to professional management and organizational sustainability. The
organization will not accumulate excessive operating funds but will maintain a responsible level
of reserves to enable our organization to respond to philanthropic trends and opportunities to
better serve the organizations mission.
Members of the board and staff of EHSC are committed to the following ethical practices:
Acting in the best interest of the organization rather than on the basis of personal interests
or the interests of third parties.
Practicing sound financial management and compliance with legal and regulatory
requirements.
Employing financial systems to ensure that accurate financial records are kept and that
financial resources are used to further the organizations mission and charitable purposes.
Creating and maintaining financial reports on a timely basis that accurately portray
financial status and activities, provide timely internal financial statements, and explain
any material variation between actual and budgeted revenues and expenses.
Providing employees and others with a confidential means to report suspected financial
impropriety or misuse of its resources.
Having written financial policies governing use of its assets, internal control procedures,
and purchasing practices.
Complying with laws and regulations related to fund raising; licensing; financial
accountability; human resources; lobbying and political advocacy; and taxation.
Respecting the interests and intentions of its donors, volunteers, and the general public
and managing them with the highest level of professionalism and integrity.
Using solicitation and promotional materials that are accurate and truthful and identify
the organization, its mission, and its intended use of solicited funds accurately.
Ensuring that contributions are used in accordance with donors' intentions and obtaining
explicit consent before altering the intended use of a restricted gift.
9
Language adapted from BourdSource Organizational Core Values and Statement of Ethics, retrieved from
http://www.boardsource.org/AboutUs.asp?ID=17.276 and Utah Nonprofits Association Standards of Ethics,
retrieved from http://www.utahnonprofits.org/knowledge/standard-of-ethics.
Roles and Responsibilities / Authority 10
The Board of Directors will assume responsibility for ensuring the financial health and sound
management of organizational assets. The board will employ management staff members who
are capable of producing, analyzing, controlling, reporting, and interpreting financial
information. The Management Team of the organization currently consists of the Executive
Director, Associate Director, Managing Director, and Program Director.
Board of Directors
The Board of Directors has the authority to execute any policies it determines to be in the best
interest of the organization within the parameters of the organizations articles of incorporation,
bylaws, or federal, state, and local law. The Board of Directors will approve the annual budget,
the audit, and the Form 990. The board delegates administration of the financial policies to the
Executive and Managing Directors, but reviews operations and activities regularly.
Executive Committee
The Executive Committee has and may exercise, when the Board is not in session, all of the
powers of the Board of Directors in the management of the organization except the authority to
amend the bylaws, adopt a plan of merger or consolidation, sell, lease, exchange, mortgage,
pledge or make any other disposition of all or substantially all of the property and assets of the
organization.
Treasurer
The Treasurer has the authority to choose the auditor, perform regular, in-depth reviews of the
organizations financial activity, and oversee the development of the annual budget.
Executive Director
The Executive Director has the authority to make spending decisions within the parameters of
the approved budget, employ and terminate personnel, determine salary levels within the
approved salary policy, make decisions regarding the duties and accountabilities of personnel
and the delegation of decision-making authority, enter into and contractual agreements, and sign
checks.
Most Senior Financial Manager (Currently Managing Director)
The Managing Director has whatever authority as may be designated by the Executive Director,
including to design the organizations accounting system and chart accounts, make spending
decisions within the parameters of the approved budget, make fixed asset purchase decisions,
approve expenses and make decisions regarding their cost allocation, hire the
10
Language in this section adapted from Nonprofit Financial Center (2000). SAMPLE Financial Policies and
Procedures Handbook. Retrieved from http://www.nonprofitmaine.org/blob_view.asp?blob=45.
bookkeeper/accountant, and sign and approve contractual agreements. The Managing Director
will not sign checks or make bookkeeping entries.
Division Directors (Currently Associate Director and Program Director)
Division Directors have whatever authority as may be designated by the Executive Director,
including to make spending decisions within the parameters of the approved department or
program budget subject to the approval of the Managing Director, and to sign checks or contracts
in rare circumstances when the Executive Director is not available.
Bookkeeper/Accountant
Bookkeeping and accounting services will be provided by a contracted individual who is hired
and supervised by the Managing Director. This person will make bookkeeping entries, prepare
checks for signature, and perform the bank reconciliation. The bookkeeper will not approve
expenditures or sign checks.
**Finance and/or Audit Committees of the board may be established at any time as they are
needed, and given proper authorities.
Indemnity Policy 11
To the full extent permitted by applicable law, EHSC may indemnify any past, present or future
Director, Officer, Employee or Agent of against all costs, expenses and liabilities, including
attorneys fees, actually and necessarily incurred by or imposed upon them in connection with or
resulting from their involvement with the organization.
No such reimbursement or indemnity shall relate to any expense incurred or settlement made in
connection with any matter arising out of their negligence or misconduct as determined either by
a court of competent jurisdiction or, in the absence of such a determination, by EHSC acting on
the advice of counsel.
EHSC shall purchase and maintain insurance on behalf of any person who is or was serving at
the request of EHSC, as a Director, Officer, or Senior Manager against any liability asserted
against him or her and incurred by him or her in any such capacity, or arising out of his or her
status as such.
11
Language in this section adapted from Nonprofit Financial Center (2000). SAMPLE Financial Policies and
Procedures Handbook. Retrieved from http://www.nonprofitmaine.org/blob_view.asp?blob=45.
Budgets
Budgets provide a standard by which to measure performance, encourage planning, and allocate
resources in accordance with funding source requirements.
Budgets should use reasonable assumptions of income and expenses. Budgets should be
balanced, and should lead to the accumulation of reasonable reserves, which can be used
to ensure cash flow over time.
The Board should be notified when cash reserves are below 3 months regular operating
expenses.
Procedures
The organization budget is prepared by the Managing Director, in consultation with
the Management Team, beginning no later than September of every year.
Budgets are approved by the Executive Director prior to submission to the Board of
Directors for formal adoption.
The Executive Director will submit an annual organization budget to the Board of
Directors for their approval in December. The Board will also approve a Capital
budget.
Budget Revisions
From time to time it will be necessary to deviate from the spending plans captured in
organizational budgets.
Non-budgeted expenditures that exceed $10,000 will be recommended by the Executive

Director to the Board for approval and to consider a formal revision of the approved
annual budget
Non-budgeted expenditures between $1,000 and $9,999 that cannot be easily
accommodated by shifting expenses from another budget line should prompt a discussion
within the Executive Management Team to justify the expense, how it will be financed,
and how other budgeted expenses may be affected. Executive Director may make final
decision.
Non-budgeted expenditures less than $1,000 do not require discussion if they are
approved by the Executive Director or the Managing Director.
Within any budgeted expense category, expenditure changes that do not exceed the total
budgeted amount are within the discretion of the appropriate Division Director. (For
example, funds allocated to Program may be redirected for other Program purposes as
long as the total line item amount is not exceeded.)
Procedures
The Managing Director should exercise the right to express disagreement and dissent
with a decision by the Executive Director, and should seek to resolve such
disagreements informally.
When that is not possible, in consultation with the Management Team, the Managing
Director may appeal to the Board Treasurer when the Executive Director overrules
her/his dissent and the Managing Director desires Board review of the expenditure
decision.
The Board may overturn the decision of the Executive Director within their fiduciary
responsibility for the organization.
Instances of actual fraud or illegal activity are also covered by the Environmental
Health Strategy Centers Whistleblower Protection Policy.
Financial Records and Reports
The organization will employ a regular process for assessing the status of organizational finances
and assets. The Board of Directors and Management Team will ensure that timely and accurate
financial information is available, understood, and used to guide decision-making.
The fiscal year for the organization will be January 1 December 31.
The financial records of the Environmental Health Strategy Center will be maintained
using the accrual basis of accounting.
Annual budgets will be prepared by the Managing Director and the Management Team
and will be approved by the Board.
A Chart of Accounts will be used to code receipts and disbursements to the proper
accounts to enable proper tracking.
The bookkeeper will reconcile the bank statement with bookkeeping records monthly.
The Treasurer or Executive Director will also review an original copy of the bank
statement.
At a minimum, the bookkeeper will prepare the following monthly financial reports for
review by the Managing Director and Management team: Balance Sheet, Income
Statement, Budget-to-Actual comparison, and Cash Flow Report.
The Managing Director will make a monthly presentation on the above noted reports to
the Treasurer and the Management Team.
The Executive Director will review a report on monthly journal entries for
reasonableness.
The Board of Directors will review a budget-to-actual presentation and financial report
prepared by the Managing Director and Treasurer at every meeting. Any budget
variances above 10% will be explained in writing.
The Board of Directors will review the auditors report and Form 990 annually.
At least every two years, an audit or review will be conducted by an independent CPA, to
be made available to members of the public.
Segregation of Duties
The Environmental Health Strategy Center is committed to sound internal controls that ensure
segregation of duties to create accountability and prevent misuse of organizational assets. The
most important of these include the following:
There will be separation of financial duties and responsibilities so that no staff member
has sole control over cash receipts, payroll, bank reconciliations, accounts payable or
other accounting functions.
The check signer will not be the same person who approves expenditures, records
bookkeeping entries, or prepares checks for signing.
Bank statements will be reviewed by at least one person in addition to the person
performing the reconciliation.
Bank deposits will be made by someone other than the person recording receipts.
Financial management staff will be required to take annual vacation of at least five days.
Safeguarding Assets
The follwing policies will ensure the security of organizational resources:
The Managing Director shall have primary responsibility for ensuring that proper
Financial Management procedures are maintained and that the policies of the Board are
carried out.
The Board of Directors will provide fiscal oversight in the safeguarding of the
organizational assets and shall have primary responsibilities for ensuring that all internal
and external financial reports fairly present its financial condition.
A proper filing system will be maintained for all financial records.
Actual income and expenditures will be compared to the budget on a monthly basis.
All funds will be kept at Bangor Savings Bank.
All excess cash will be kept in an interest bearing account.
No bank account should contain more than the FDIC insured amount.
Bank statements will promptly reconciled on a monthly basis by the
bookkeeper/accountant.
The board of directors shall approve annually any new signers for each bank account and
any new and necessary bank accounts.
The Managing Director is responsible for promptly notifying financial institutions of any
changes to authorized signers on organizational accounts.
Documents on all fixed assets will be kept in a locked file.
Appropriate insurance for all assets will be maintained.
Procedures
On a monthly basis, the bookkeeper/accountant will reconcile the bank statements

to the general ledger, and notify the Managing Director of any discrepancies.
The Managing Director will resolve all discrepancies with the assistance of the
bookkeeper/accountant, and the bank, if necessary.
Independently, the Executive Director or Treasurer will receive a copy of the
monthly bank statement for review of reasonableness.
Funds Received / Receipts Polices
The follwing policies govern how funds received by the organization will be processed:
In each office, mail is to be opened promptly and distributed by development or

administrative staff (currently the Development and Marketing Manager or Executive
Assistant).
All checks are stamped with a "For deposit only" stamp immediately upon receipt.
All cash receipts are recorded on pre-numbered receipts.
The Development and Marketing Manager will record all receipts in the donor database.
The Managing Director will be responsible for preparing the documentation on receipts
for deposits and making weekly deposits to the bank.
The Development and Marketing Manager will prepare the detailed cash listing to be
posted to the general ledger (amount, date received, account number, etc.).
This listing is compared to the cash journal to ensure all postings equal amounts
deposited.
A copy of the deposit slip from the Bank is compared and attached to the corresponding
receipt copies and cash listing.
Procedures
All checks and cash receipts received through the mail or in person are
restrictively endorsed immediately by the Development and Marketing Manager
and recorded in the cash receipts log maintained as a spreadsheet, listing the date
received, payor, check #, and amount received, as well as in the fundraising
database.
The Development and Marketing Manager will restrictively endorse the back of
any checks received prior to distributing checks to designated staff.
The Development and Marketing Manager will make a copy of each cash receipt,
and deliver all cash received and copies to the Managing Director. Cash and
receipts will be stored in a locked file cabinet for deposit.
The Managing Director shall prepare the bank deposit weekly, attaching a copy of
the deposit slip and deposit receipt to the cash receipts copies, and forward the
entire package to the bookkeeper/accountant.
The Managing Director will retain a copy of each cash receipt.
For gifts received online or by credit card, the Development and Marketing
Manager will post the transaction to a third-party vendor through the
organizational database.
When the deposit is confirmed, the Managing Director will print a copy of the
confirmation to be given to the bookkeeper/accountant for entry into the journal
on a weekly basis.
The Managing Director shall code all cash receipts according to the chart of
accounts.
The bookkeeper/accountant prepares the cash receipts journal on a timely basis,
using the cash receipts summary sheet.
The bookkeeper/accountant posts the cash receipts journal to the general ledger
monthly.
Accounts Payable and Fund Disbursement Policies
The follwing policies govern how funds disbursed by the organization will be approved and
processed:
The Managing Director will approve expenditures within the parameters set by the annual
operating budget as approved by the Board, with the exception of the Managing
Directors personal expense reimbursement items, which must be approved by another
person having check signing authority. The Executive Director may approve
expenditures in rare instances when the Managing Director is not available.
The Executive Director has single signature authority up to and including $5,000. Checks
above $5,000 require a second signature. The Associate Director or Program Director has
signing authority in rare instances when the Executive Director is not available or when a
second signature is required.
The Managing Director approves check requests after comparing to supporting
documentation. The bookkeeper prints the pre-numbered checks only with approved
requests. The unsigned check, support and request are presented to the authorized check
signer (usually the Executive Director) for his/her signature. The signer compares
information on checks to support for accuracy and appropriateness.
All disbursements, except petty cash, are made by check or credit card and are
accompanied by substantiating documentation. Credit card statements will be reconciled
to substantiating documentation monthly.
All checks are pre-numbered and accounted for monthly.
Blank checks are stored in a locked drawer.
The bookkeeper is responsible for invoices and check requests being marked "PAID"
once they have been.
Vouchers are required for all petty cash disbursements. The petty cash fund is reconciled
(beginning amount less voucher amounts) before the fund is replenished. Checks are
written only after an approved check request has been presented.
Blank checks may never be signed in advance.
Electronic banking allows wire transfers, electronic transfers, stop payments on checks,
and account balance inquiries be initiated and completed via computer or telephone. Wire
transfers, electronic transfers, and stop payments cannot be set up and approved by the
same person. The Managing Director may approve a transaction that is to be completed
by the bookkeeper/accountant.
When a wire transfer, electronic transfer, or stop payment has been set up by the
accounting staff, the documentation supporting the transaction is given to the Managing
Director for verification and approval before the transaction is initiated.
Procedures
All invoices received are stamped with the date received by the Managing
Director and placed in the unpaid open invoice file.
The Managing Director approves all invoices and expenditures and prepares
check requests weekly.
Check requests and support documentation are delivered to the
bookkeeper/accountant for check writing weekly.
The bookkeeper/accountant immediately records all disbursements in the accounts
payable ledger.
The bookkeeper prepares all checks for the approved expenditures, using pre-
numbered checks.
The checks, with support documentation (approved invoices, check requests), are
forwarded to the Executive Director. The Executive Director reviews all checks
and supporting documentation prior to signing checks. Any check for amounts
over $5,000 need a second signature. The Managing Director will be responsible
for obtaining the second signature from an authorized signer.
After the checks are signed, the Executive Assistant stamps the check request and
all supporting documentation PAID, noting check number and date. The
Executive Assistant will then make a copy of each check and check request. The
check copies and supporting documentation is then submitted to the Managing
Director. The Executive Assistant is responsible for mailing all checks.
The Managing Director will file a copy of the check, with supporting
documentation attached, in numerical order.
The bookkeeper/accountant prepares the cash disbursements journal on a timely
basis, using the check file.
The bookkeeper/accountant posts the cash disbursements journal to the general
ledger on a timely basis, using the cash disbursements journal.
The bookkeeper/accountant reconciles the accounts payable ledger to the general
ledger on a monthly basis.
Petty Cash Fund
The follwing policies govern how the Petty Cash Fund will be managed:
The Petty Cash Fund is maintained on an imprest basis, which means that the amount
spent will be reimbursed.
The Managing Director will act as the custodian of the petty cash fund.
The purpose of the Petty Cash Fund is to facilitate small purchases or reimbursements
needed in the day-to-day operations of the organization, without going through the check
writing process, or to provide change for an event requiring cash transactions.
Petty cash disbursements are limited to $50 in amount.
Any advances to employees from the petty cash fund must be authorized by the
Managing Director.
Procedures
Any employee receiving petty cash must sign a petty cash voucher. The petty cash
voucher must list the amount received, the purpose for which the cash is needed,
and the date of the purchase. In addition, receipts for goods/services purchased
must be attached to the petty cash voucher.
The Managing Director must submit a check request for reimbursement of the
petty cash fund to the bookkeeper/accountant. All petty cash vouchers used must
be attached to the check request as supporting documentation.
All checks for reimbursement of the petty cash fund must be made payable to the
custodian of the petty cash fund.
Periodically, the Executive Director and/or the Treasurer will make surprise
counts of the petty cash funds.
The petty cash fund will be kept in a locked file cabinet.
Payroll
The follwing policies govern how payment of all employees will be processed:
Personnel files will be maintained at organizations' Portland office for all employees in a
locked file cabinet. Access is limited to the Managing Director and may be accessed by
an employees supervisor upon request.
Personnel files will include at minimum: employment application/resume, dates of
employment, letter of hire, job description, salary and salary changes, authorization of
payroll deductions, W-4 withholding information, I-9 employment eligibility form,
performance reviews and/or disciplinary action, and termination data, when applicable.
Changes in payroll data will be approved by the Executive Director before files are
updated.
An outside payroll processing firm will be used to process the payroll and ensure
compliance with all applicable laws.
Payroll will be processed twice per month.
The Managing Director will notify the payroll service of any changes to the payroll
master file.
The payroll service will generate the payroll register, payroll checks and tax deposit
checks, and sends them to the organization.
The Managing Director reviews the payroll register for proper processing of amounts.
The payroll and tax deposit checks are sent directly to the Executive Director, who is
responsible for comparing the checks to the payroll register before manually signing the
checks (unless using direct deposit).
Procedures
All personnel salaries/wage rates are authorized by the Executive Director and/or
the Board of Directors.
The Managing Director maintains all personnel records.
The Managing Director monitors the usage of vacation and sick time, and
maintains the attendance records.
Each supervisor reviews and approves all time and attendance records for their
employees. The approved time records are submitted to the Managing Director for
review.
The Managing Director shall prepare the payroll, using the approved time records
and salary/wage rates for each employee, and transmit to the payroll service after
approval by the Executive Director. Payroll data is maintained online and
transmitted to the payroll service for processing.
Payroll is recorded in the bookkeeping system by the bookkeeper/accountant.
An electronic transfer of funds to cover payroll is made to the payroll service by
EHSCs bank at the request of the payroll service.
The payroll service prepares checks to vendors for employee deductions such as
contributions to 403(b) accounts, garnishments, and donations.
Paychecks are directly deposited to the employees bank accounts. Employees
receive duplicate vouchers that detail all deductions.
All payroll taxes are paid when due by the payroll service.
The bookkeeper/accountant verifies the payments at the end of each month by
analyzing the payroll service reports and the bank reconciliation statement.
Purchasing
The following policies govern how purchasing decisions will be made:
Only the Managing Director is authorized to make purchasing decisions for regular
supplies and large equipment, including furniture, computers, and software.
Bids should be sought for goods and services exceeding $3,000.
Some form of cost or price analysis shall be made in connection with every procurement
action.
Price should be one of the factors in the evaluation of responses, but the organization is
not required to take the lowest price if other factors are important to the decision.
Environmental and sustainability factors should also be considered.
Organizational Credit Cards
EHSC authorizes credit cards for the purpose of facilitating online and business purchases,
including business travel that is not easily handled through normal disbursement processing. The
use of organizational credit cards creates the opportunity for expenditures to be made without
prior approval. The following policies govern how these transactions will be handled:
Due to the potential for theft, misuse, and auditing problems, use of credit cards is
monitored carefully. Only the Executive Director and Managing Director will be issued
an organizational credit card. Other staff may request that purchases be made for
business purposes on their behalf using one of these cards.
In every instance of credit card usage, the individual using the card will be held
personally responsible in the event that the charge is deemed personal or unauthorized.
All credit card purchases above $50 must be reconciled and attached to supporting
documentation on a monthly basis.
The Managing Director and Executive Director will both review all credit card purchases
monthly and must approve all payments.
The bookkeeper/accountant will enter all credit card transactions into the accounting
software monthly.
Misuse of credit cards or failure to follow these procedures will lead to restrictions or loss
of credit card privileges.
The Managing Director must be notified immediately if a card is lost or stolen.
Vendor and Contractual Agreements and Leases
The following policies govern how decisions to enter into agreements with vendors or
contractors or leases will be conducted:
Only the Executive Director or Managing Director may sign a contractual or vendor
agreement or lease.
The Managing Director will maintain a secure file of all vendor, contract, and lease
agreements according to the document retention policy.
All vendors must submit an IRS Form W-9 Request for Tax Payer Identification and
Certification or equivalent prior to payment.
A determination is made by the bookkeeper/accountant on the need to file an annual IRS
Form 1099-Misc. on payments made to vendors.
Gift Acceptance Policy 12
The following policies govern how nonstandard gifts will be handled:
EHSC solicits and accepts gifts that are consistent with its mission.
Donations will generally be accepted from individuals, partnerships, corporations,
foundations, government agencies, or other entities, without limitations.
In the course of its regular fundraising activities, EHSC will accept donations of cash,
marketable securities, bequests, life insurance policies, commercial annuities, retirement
plans, and in-kind services.
Certain types of gifts must be reviewed prior to acceptance due to the special liabilities
they may pose. Examples of gifts that may be subject to review include gifts of real
property, gifts of personal property, and gifts of securities.
12
Language in this section is adapted from Nonprofit Risk Management Center. SAMPLE Gift Acceptance Policies.
Retrieved from www.nonprofitrisk.org/tools/hallmarks/.../1gift-acceptance-policies.doc.
All decisions to solicit and/or accept potentially controversial gifts will be made by the
Executive Committee of the Board in consultation with the Executive Director. The
primary consideration will be the impact of the gift on the organization.
EHSC will not accept gifts that (a) would result in violating its corporate charter, (b)
would result in losing its status as an IRC 501(c)(3) not-for-profit organization, (c) are
too difficult or too expensive to administer in relation to their value, (d) would result in
any unacceptable consequences, or (e) are for purposes outside EHSCs mission.
Fixed and Capital Assets and Depreciation
The following policies govern how fixed and capital assets will be treated:
EHSC has established a capitalization threshold of $1,000 for property expected to

benefit the operations of the organization for multiple years to be considered a fixed
asset.
Property purchased meeting the fixed asset definition is tagged with a pre-numbered asset
tag noting EHSC and added to the list of assets maintained by the Managing Director.
This inventory list will include the description, serial numbers, asset number, date of
purchase or receipt, date of installation, cost including taxes, and life expectancy for
depreciation purposes. A copy of the invoice(s) should be maintained with these asset
records until asset is sold or deleted.
The purpose of depreciation is to recognize the decreased value of the property over time
(useful life) and to quantify this usage as an expense to each year deriving benefit from
its use.
Fixed assets are depreciated according to the EHSC Depreciation Policy. The
Depreciation Policy sets the useful life of property types.
Depreciation Schedules are prepared for the full fiscal year utilizing the guidelines of the
Depreciation Policy.
As depreciable property is purchased, it is added to the depreciation schedule in the
month following purchase/installation.
A recurring journal entry is set up for posting each month, charging the depreciation
expense to the appropriate program(s).
Security and Computer Controls
The following policies govern the security procedures that will be taken to ensure the safety of
physical and electronic records:
The bookkeeper is responsible for inputting the financial data into the computer and
bookkeeping software for generating financial reports. Only the bookkeeper will have
access to the password required make changes the system. The Managing Director may
have access to review or print information from the system, without making changes.
Batch totals are calculated prior to input and compared to batch totals calculated by the
system. Any errors made during the inputting of information will be corrected.
Detailed printouts of cash receipts and cash disbursements are to be obtained. The
Managing Director is responsible for comparing the detailed printouts to source
documents for accuracy.
All subsidiary account balances are reconciled to the control accounts monthly.
A trial balance on the general ledger totals should be obtained and compared to detailed
reports for accuracy of balances.
Access to computer or on-line systems for accounting, personnel, payroll, and online and
phone banking is controlled by the Managing Director. Within each system, access
permission is set to allow the appropriate level of access depending on staff positions and
job duties.
The bookkeeper will perform a backup of electronic records on a weekly basis to assure
that data is secure and will not be lost in the event of a computer failure.
All organizational offices will be kept locked when not in use. Only staff members will
have office keys.
All confidential and financial information will be kept in locked files, including
personnel files, financial records, invoices or expenses to be paid, cash or gifts to be
deposited, fixed asset listings, and petty cash funds.
External Audit
EHSC will have an audit or review prepared by an external CPA firm at least biannually.
The selected auditing firm will not be used for non-auditing services except tax form
preparation.
Every three years, a Request for Proposal will be sent to audit firms qualified to provide
the type of audit that meets EHSC and/or funder need.
The Managing Director is responsible for soliciting bids, interviewing firms and making
the recommendation to the Board Treasurer and Board of Directors when selecting the
firm to be awarded the audit contract. Acceptance of the audit contract will be evidenced
by a signed audit engagement letter.
The audit is reviewed in detail by the Treasurer, but presented to the board by the auditor
and accepted by the Board of Directors based upon recommendation by the Treasurer.
IRS Form 990 Preparation
An external CPA firm or individual will prepare the organizations annual Form 990 for
submission to the IRS to ensure accuracy.
The Managing Director and Treasurer will oversee preparation of the form, with the
bookkeeper/accountant.
The Board will review and approve the form before submission to the IRS.
Risk Management
EHSC will insure those risks which the Board deems appropriate using an insurance
professional who is knowledgeable about the market, who understands or is willing to
learn about EHSCs operations, is an assertive advocate for EHSCs interests, and is
organized and responsive to EHSCs needs.
The Managing Director will approve purchase of insurance policies, as directed by the
Board.
The board will review insurance policies and needs annually in December.
APPENDIX A
Employee Expense Reimbursement Policies
FY 2011 Travel Reimbursement Policy
For fiscal year 2011, due to budget considerations the Environmental Health Strategy Center
(EHSC) cannot reimburse all business-related expenses as defined or allowed under IRS
regulations. Employees are encouraged to track their un-reimbursed employee business
expenses in the event that they may be itemized on individual tax returns [See:
http://www.irs.gov/pub/irs-pdf/p463.pdf and http://www.irs.gov/taxtopics/tc511.html].
Mileage
In 2011, EHSC will reimburse mileage at a rate of $.25/mile. Employees should make an effort
to carpool with other employees, volunteers, or allies whenever practicable to minimize mileage
expenses.
Mileage is reimbursed for legitimate business-related travel by personal vehicle, excluding travel
between home and office. All mileage expenses should be calculated from your office location
(Bangor or Portland) and not from your home, even if you left from your home for the trip,
unless the distance you traveled from your home is actually less than the distance from your
office, in which case you would use the actual miles traveled. (Note: If your trip is on the way to
the office and you were headed to the office anyway, its not reimbursable.) For example
Your home is further away from your destination than the office
If you work in the Portland office but live in Kittery, and you drive from your house to a
meeting in Augusta, you would reimburse for the distance between the Portland office
and Augusta.
Your home is closer to your destination than the office:

If you work in the Bangor office but live in Waterville, and you drive from your house to
a meeting in Augusta, you would reimburse for the distance between Waterville and
Augusta, not Bangor and Augusta.
Buses and local transportation
When traveling in-state by bus, employees should attempt to take a local bus or get a ride from
other staff to travel from the bus station to the office whenever practicable. Taking a taxi is
discouraged, and should be done only when other solutions are not practical.
Airfare
Employees should generally seek the lowest cost airfare that reasonably allows them to reach
their destination efficiently.
Overnight Accommodations
Some employees job descriptions require occasional overnight travel, and a few require frequent
travel.
For occasional travelers, accommodations should be sought with colleagues, allies, or friends to
reduce costs for hotels, particularly for in-state travel. Employees must seek prior approval from
their supervisor before scheduling any overnight travel that requires paid accommodations.
For frequent travelers, or when paid accommodations have been approved in advance, employees
should generally select a low or average cost hotel.
Meals
For out-of-state travel, employees may reimburse for actual meal expenses, with receipts, up to a
daily maximum not to exceed 80% of the federal per diem rate for the location (see
http://www.gsa.gov/portal/category/21287).
For FY 2011, employees will not be reimbursed for meals while traveling in-state on trips that
do not involve an overnight, except in rare circumstances with prior approval. For overnight
travel in-state when bringing a meal would not be practical, employees may reimburse according
to the per diem same rates indicated above out-of-state travel.
For partial travel days when it becomes necessary to determine the reimbursement amount for
individual meals (from the per diem rate), the following calculations should be used, rounded to
the nearest dollar:
The breakfast portion is 20% of the set daily per diem.
The lunch portion is 24% of the set daily per diem.
The dinner portion is 51% of the set daily per diem.
Employees are not to pay for meals for volunteers or donors, except when unavoidable or with
prior approval of employee supervisor or Executive Director.
Any deviations from this policy require approval by supervisor prior to reimbursement.
APPENDIX B
Cell Phone Expense Reimbursement Policy
Minutes
The organization will reimburse all staff a flat $40 per month toward the cost of plan minutes.
For staff who have a prepaid phone plan rather than a monthly contract, the organization will
reimburse for actual work minutes used, up to an agreed upon amount, to be determined at the
time the phone is purchased.
The organization will not reimburse for expenses incurred by using minutes over plan
allowances. In extreme cases, staff may seek prior approval from the Managing Director if an
overage is likely.
Data
For staff members whose workflow is significantly shaped by external demands (e.g. legislative
events, media opportunities, etc.), the organization will reimburse up to $30 per month for data
service.
Staff currently falling into this category are the Executive Director, Associate Director, and
Campaigns Director.
Equipment and Supplies

The organization will reimburse 70% of the cost of new phone purchase one time every 2 years.
Staff shall be responsible for other expenses.
Documentation and Reimbursement

All staff with a monthly phone plan shall provide one copy of a cell phone bill or agreement to
be held on file by the Managing Director.
Staff are expected to submit cell phone reimbursement requests monthly on regular expense
reimbursement forms.
For staff that are only reimbursed for minutes ($40), documentation is not required on a monthly
basis (per existing policy only requiring receipts for purchases over $50).
For staff that are reimbursed for minutes and data ($70), the original monthly statement must
accompany reimbursement requests.
APPENDIX C
Substantiating Documentation / Receipts Policy and Process
Reminders will be sent on the first of every month to submit expenses from the previous month.
Employees should submit expenses no later than 1-month from the date of the expense. Notify
the Managing Director immediately if there are large expenses that are more than 1 month old
that have not been submitted.
Employees are responsible for collecting receipts for all expenses and credit card charges
throughout the month in a file. When preparing monthly expense reports, collected receipts
should be used to complete your check request/expense reimbursement form.
Once the check request form is complete, employees will always email check request/expense
reimbursement form (and mileage form, if applicable) to the Managing Director.
Expenses / receipts over $50
Employees must submit original receipts for expenses over $50.
Original receipts for all expenses over $50 should be attached to 8.5x11 paper and stapled to a
print-out of the check request/expense reimbursement form.
A copy should be made and retained by the employee.
A hard copy of the check request/expense reimbursement form with the original receipts attached
should be submitted by mail or in person to the Managing Director.
Expenses / receipts under $50
Receipts are not required for expenses below $50. Originals should be retained by employees in
a file, attached to a copy of your check request/expense reimbursement form.
Expense reimbursement requests with no expenses above $50 may be submitted electronically.
APPENDIX D
CONFLICT OF INTEREST POLICY
Article 1 Purpose
The purpose of the conflict of interest policy is to protect Environmental Health Strategy
Center (the Organization) interest when it is contemplating entering into a contract,
transaction or arrangement that might benefit the private interest of an employee, independent
contractor, officer or director of the Organization, or might result in a possible excess benefit
transaction under the Internal Revenue Code. This policy is intended to supplement but not
replace any applicable state and federal laws governing conflicts of interest applicable to
nonprofit and charitable organizations.
Article 2 - Definitions
1. Interested Person
Any employee, independent contractor, director, principal officer, or member of a committee
with governing board delegated powers, who has a direct or indirect financial interest, as defined
below, is an interested person.
2. Financial Interest
A person has a financial interest if the person has, directly or indirectly, through business,
profession, investment, or family:
a. An ownership or investment interest in any entity with which the Organization has a contract,
transaction or arrangement,
b. A compensation arrangement with the Organization or with any entity or individual with
which the Organization has a contract, transaction or arrangement, or
c. A potential ownership or investment interest in, or compensation arrangement with, any entity
or individual with which the Organization is negotiating a contract, transaction or arrangement.
3. Compensation
Compensation includes direct and indirect remuneration as well as gifts or favors that are not
insubstantial.
4. Conflict of Interest
A conflict of interest exists when the interests of an interested person have the potential to be at
odds with the best interests of the Organization. The interested persons interests may be
personal (for example, the consideration of a family member for employment) or professional
(such as affiliation with a potential supplier to the association). A financial interest is not
necessarily a conflict of interest. Under Article 4, Section 3, a person who has a financial interest
may have a conflict of interest only if the appropriate governing board, committee or decision
maker decides that a conflict of interest exists.
Article 3 - General Principles
1. Interests in conflict
Interested persons may have interests in conflict with those of the Organization. The duty of
loyalty requires that a director, officer or employee be conscious of the potential for such
conflicts at all times and act with candor and care in dealing with such situations. Conflicts of
interest involving an interested person are not inherently illegal, nor are they to be regarded as a
reflection on the integrity of the interested person, Board of Directors, or the Organization. It is
the manner in which the interested person, and those making decisions for the Organization, deal
with a disclosed conflict, that determines the propriety of the transaction.
2. Awareness and disclosure

An interested person should be sensitive to any interest he or she may have any decision to be
made and, as far as possible, recognize such interest prior to the discussion or presentation of
such a matter before the Board of Directors or other decision making entity or person When an
interested person has an interest in a transaction being considered, the interested person should
disclose the conflict at the earliest time practical before a decision is made on the matter. Upon
disclosure by the interested person, the decision making entity or person should provide a
disinterested review of the matter as described in this policy.
3. Insider transactions
Sometimes, the Organization may decide to choose to deal with an inside supplier of goods or
services (i.e., involving an interested person) because of familiarity with the suppliers reliability
or for another reason. Although such association with an interested person or their business or
family in providing services may result in extra benefits for the Organization, the record of the
decision must show that the best interests of the Organization were the overriding consideration
in deciding to use such a supplier.
Article 4 - Applicability and Procedures
1. Applicability
In the case of interested persons who are employees or independent contractors, the same
procedures described below as to directors and committee members apply, except it is the
interested persons supervisor or the Executive Director to whom disclosure must be made, and
who must deal with the disclosed conflict, not the directors and members of committees with
governing board delegated powers. The persons supervisor or the Executive Director, as
appropriate, shall then make such disclosures of the conflict that are proper, to the directors and
members of committees.
2. Duty to Disclose
In connection with any actual or possible conflict of interest, an interested person must disclose
the existence of the financial interest and be given the opportunity to disclose all material facts to
the directors and members of committees with governing board delegated powers considering the
proposed transaction or arrangement. The officer presiding over the meeting has a duty and is
expected to make inquiry if any such conflict appears to exist and the affected board member has
not made it known.
3. Determining Whether a Conflict of Interest Exists

After disclosure of the financial interest and all material facts, and after any discussion with the
interested person, he/she shall leave the governing board or committee meeting while the
determination of a conflict of interest is discussed and voted upon. The remaining board or
committee members shall first decide if a conflict of interest exists, and if one does exist, the rest
of this article applies. If a conflict does not exist, the interested person shall resume normal
participation in the meeting.
4. Procedures for Addressing the Conflict of Interest

The remaining board or committee members shall follow the following procedures if a conflict
of interest exists:
a. An interested person may make a presentation at the governing board or committee meeting,
but after the presentation, he/she shall leave the meeting during the discussion of, and the vote
on, the transaction or arrangement involving the possible conflict of interest.
b. The chairperson of the governing board or committee shall, if appropriate, appoint a

disinterested person or committee to investigate alternatives to the proposed transaction or
arrangement.
c. After exercising due diligence, the governing board or committee shall determine whether the
Organization can obtain with reasonable efforts a more advantageous transaction or arrangement
from a person or entity that would not give rise to a conflict of interest.
d. If a more advantageous transaction or arrangement is not reasonably possible under

circumstances not producing a conflict of interest, the governing board or committee shall
determine by a majority vote of the disinterested directors whether the transaction or
arrangement is in the Organizations best interest, for its own benefit, and whether it is fair and
reasonable. In conformity with the above determination it shall make its decision as to whether to
enter into the transaction or arrangement.
5. Violations of the Conflicts of Interest Policy

If a member of the Board of Directors or committee suspects a violations of the Conflicts of
Interest Policy, he or she must bring the matter to the attention to the board or committee, which
shall deal with it as follows:
a. If the governing board or committee has reasonable cause to believe a member has failed to
disclose actual or possible conflicts of interest, it shall inform the member of the basis for such
belief and afford the member an opportunity to explain the alleged failure to disclose.
b. If, after hearing the members response and after making further investigation as warranted by
the circumstances, the governing board or committee determines the member has failed to
disclose an actual or possible conflict of interest, it shall take appropriate disciplinary and
corrective action.
Article 5 - Records of Proceedings
The minutes of the governing board and all committees with board delegated powers shall
contain:
a. The names of the persons who disclosed or otherwise were found to have a financial interest in
connection with an actual or possible conflict of interest, the nature of the financial interest, any
action taken to determine whether a conflict of interest was present, and the governing boards or
committees decision as to whether a conflict of interest in fact existed.
b. The names of the persons who were present for discussions and votes relating to the
transaction or arrangement, the content of the discussion, including any alternatives to the
proposed transaction or arrangement, and a record of any votes taken in connection with the
proceedings.
Article 6 - Compensation
The following policies apply to compensation-related matters:
a. A voting member of the governing board who receives compensation, directly or indirectly,
from the Organization for services is precluded from voting on matters pertaining to that
members compensation.
b. A voting member of any committee whose jurisdiction includes compensation matters and
who receives compensation, directly or indirectly, from the Organization for services is
precluded from voting on matters pertaining to that members compensation.
c. No voting member of the governing board or any committee whose jurisdiction includes
compensation matters and who receives compensation, directly or indirectly, from the
Organization, either individually or collectively, is prohibited from providing information to any
committee regarding compensation.
Article 7 - Annual Disclosure Statements
Each employee, independent contractor, director, principal officer and member of a committee
with governing board delegated powers shall annually sign and any potential director before
election shall sign a statement that affirms such person:
a. Has received a copy of the conflicts of interest policy,
b. Has read and understands the policy,
c. Has agreed to comply with the policy, and
d. Understands the Organization is charitable and in order to maintain its federal tax exemption it
must engage primarily in activities which accomplish one or more of its tax-exempt purposes.
Article 8 - Periodic Reviews

To ensure the Organization operates in a manner consistent with charitable purposes and does
not engage in activities that could jeopardize its tax-exempt status, the Board of Directors or its
designee(s) shall conduct periodic reviews. The periodic reviews shall take place at least
biennially, and, at a minimum, include the following subjects:
a. Whether all compensation arrangements and benefits are reasonable, based on competent
survey information, and the result of arms length bargaining.
b. Whether disclosure statements are being properly used; partnerships, joint ventures, and
financial arrangements with interested persons conform to the Organizations written policies,
are properly recorded, reflect reasonable investment or payments for goods and services, further
charitable purposes, and do not result in inurement, impermissible private benefit or in an excess
benefit transaction.
Article 9 - Use of Outside Experts
When conducting the periodic reviews as provided for in Article 8, the Organization may, but
need not, use outside advisors. If outside experts are used, their use shall not relieve the
governing board of its responsibility for ensuring periodic reviews are conducted.
Approved: November 22, 2008
APPENDIX E
DOCUMENT RETENTION & DESTRUCTION POLICY 13
Environmental Health Strategy Center takes seriously its obligations to preserve information
relating to litigation, audits, and investigations. From time to time, the Executive Director may
issue a notice, known as a legal hold, suspending the destruction of records due to pending,
threatened, or otherwise reasonably foreseeable litigation, audits, government investigations, or
similar proceedings. No records specified in any legal hold may be destroyed, even if the
scheduled destruction date has passed, until the legal hold is withdrawn in writing by the
Executive Director.
The following table provides the minimum requirements.
Type of Document Minimum Requirement

Accounts payable ledgers and schedules 7 years
Audit reports Permanently
Bank Reconciliations 2 years
Bank statements 3 years
Checks (for important payments and purchases) Permanently
Contracts, mortgages, notes and leases (expired) 7 years
Contracts (still in effect) Permanently
Correspondence (general) 2 years
Correspondence (legal and important matters) Permanently
Correspondence (with customers and vendors) 2 years
Deeds, mortgages, and bills of sale Permanently
Depreciation Schedules Permanently
Duplicate deposit slips 2 years
Employment applications 3 years
Expense Analyses/expense distribution schedules 7 years
Year End Financial Statements Permanently
Insurance Policies (expired) 3 years
Insurance records, current accident reports, claims, Permanently
policies, etc.
Internal audit reports 3 years
Inventories of products, materials, and supplies 7 years
Invoices (to customers, from vendors) 7 years
Minute books, bylaws and charter Permanently
Patents and related Papers Permanently
Payroll records and summaries 7 years
Personnel files (terminated employees) 7 years
Retirement and pension records Permanently
13
Adapted from Maine Association of Nonprofits SAMPLE DOCUMENT RETENTION & DESTRUCTION
POLICY, 2004 National Council of Nonprofit Associations, retrieved from
www.nonprofitmaine.org/documents/MANPDocumentRetensionPolicy.doc.
Tax returns and worksheets Permanently
Timesheets 7 years
Trademark registrations and copyrights Permanently
Withholding tax statements 7 years
In addition to the above, the organization will annually update an electronic archive containing
final versions of key public program documents.
1. Electronic Documents and Records.

Electronic documents will be retained as if they were paper documents. Therefore, any
electronic files that fall into one of the document types on the above schedule will be maintained
for the appropriate amount of time. If a user has sufficient reason to keep an e-mail message, the
message should be printed in hard copy and kept in the appropriate file or moved to an archive
computer file folder. Backup and recovery methods will be tested on a regular basis.
2. Emergency Planning
Environmental Health Strategy Centers records will be stored in a safe, secure, and accessible
manner. Documents and financial files that are essential to keeping Environmental Health
Strategy Center operating in an emergency will be duplicated or backed up at least every week
and maintained off-site.
3. Document Destruction
The Executive Director is responsible for the ongoing process of identifying its records which
have met the required retention period and overseeing their destruction. Destruction of financial
and personnel-related documents will be accomplished by shredding.
Document destruction will be suspended immediately upon any indication of an official

investigation or when a lawsuit is filed or appears imminent. Destruction will be reinstated upon
conclusion of the investigation.
4. Compliance
Failure on the part of employees to follow this policy can result in possible civil and criminal
sanctions against Environmental Health Strategy Center and its employees and possible
disciplinary action against responsible individuals. The Executive Director and Board Chair will
periodically review these procedures with legal counsel or Environmental Health Strategy
Centers certified public accountant to ensure that they are in compliance with new or revised
regulations.
Approved: June 18, 2010
APPENDIX F
WHISTLEBLOWER POLICY 14
POLICY
It is the policy of the Environmental Health Strategy Center to abide by all applicable federal,
state and local laws, rules and regulations, and to have all of its employees do the same.
PROCEDURE
In accordance with this policy and applicable law, an employee will be protected from
discrimination and retaliation if the employee reports to the Executive Director or the President
any good faith concern regarding Environmental Health Strategy Center practices or conditions
which the employee has reasonable cause to believe are in violation of any federal, state or local
law, rules or regulation, or which the employee has reasonable cause to believe risk the health or
safety of that employee or any other individual. Environmental Health Strategy Center will
promptly investigate each complaint to determine its merits and the appropriate action to be
taken. Confidentiality will be maintained to the extent practical and appropriate under the
circumstances. If an investigation reveals that unlawful conduct has taken place, appropriate
disciplinary action will be taken, up to and including suspension or discharge.
Environmental Health Strategy Center will not discharge, threaten, discriminate or otherwise
retaliate against an employee who submits a good faith complaint to Environmental Health
Strategy Center, participates in any investigation or legal proceeding arising from any such
complaint, or on the basis of any other lawful actions of such employee in submitting a good
faith report relating to real or perceived unlawful conduct. This statement applies even if an
investigation proves that there has been no unlawful activity involving Environmental Health
Strategy Center or any of its employees.
In order to receive the protections under the Maine Whistleblowers Protection Act, the
employee who has reported or caused to be reported a violation or unsafe condition or practice to
a public body must first bring the alleged violation, condition or practice to the attention of the
Executive Director or the President, and must allow Environmental Health Strategy Center a
reasonable opportunity to correct that violation, condition or practice, unless the employee has
specific reasons to believe that a report to Environmental Health Strategy Center will not result
in a prompt correction of the violation, condition or practice.
Any action considered to be discriminatory or retaliatory should be reported immediately to the
Executive Director or the President. Environmental Health Strategy Center will not tolerate
discrimination or retaliation against the complainant by any employee and will subject such
employee to discipline, up to and including suspension or discharge from employment.
Employees who are not themselves complainants, but who assist in an investigation relating to
unlawful activity, will also be protected from discrimination and retaliation.
14
Adapted from Maine Association of Nonprofits SAMPLE WHISTLEBLOWER POLICY, retrieved from
http://www.nonprofitmaine.org/documents/MANPWhistleblower.doc.
RESPONSIBILITY
The administration of this policy is the responsibility of the Management Team.
FILING INSTRUCTIONS
This policy supersedes all previous policies on this subject. This policy will be filed in the
Policies and Procedures Manual.
APPENDIX G
EXECUTIVE COMPENSATION POLICY 15
Purpose
1. To assure that Environmental Health Strategy Center is able to retain high quality
executive leadership by providing reasonable compensation.
2. To assure that decisions regarding executive compensation are made through a process
free of potential conflicts of interest.
Persons whose compensation is subject to this policy
The Executive Directors compensation shall be reviewed under this policy.
Process
Executive Committee
The Executive Committee of the board is authorized to make recommendations to the Board
regarding executive compensation. The Executive Committee shall make this determination at
least every 2 years.
Only those members of the Executive Committee who are free of conflicts of interest may be
involved in evaluation of executive compensation. Neither the Executive Director nor his/her
subordinates shall be involved in the decision regarding compensation.
The Executive Committee will rely upon the Environmental Health Strategy Centers Salary
Policy for guidance in determining compensation. That policy shall include consideration of
appropriate data regarding market comparability, including the most recently available survey of
nonprofit salary rates in Maine or similar data. The Executive Committee will
contemporaneously place comparability data and other reasons for its recommendation in the
minutes.
Final Board Action
The full Board will give final approval. Only those directors who are free of conflicts of interest
may vote on executive compensation.
Documentation
All deliberations and decisions of the Executive Committee and the full Board shall be
contemporaneously documented and preserved. The basis for the final determination of
compensation will be documented not later than the next meeting of the Board, and it shall
include (1) the terms of the compensation and date approved, (2) members of the Board who
15
Adapted from Montana Nonprofit Association Executive Compensation Policy, retrieved from
http://www.mtnonprofit.org/uploadedFiles/Files/About/Executive_Compensation.pdf.
were present during debate and those who voted, (3) the comparability data that was relied upon
by the Board, and (4) any actions by a member of the Board having a conflict of interest.
APPENDIX A
Salary Policy and Schedule
Principles
To be fair and equitable, positions of comparable level of responsibility should be

assigned to the same salary range
Wages should reward both relevant experience and level of responsibility, rising as either
of those factors increase
Salary rates should be highly competitive within the nonprofit sector in Maine for similar
size organizations
The process for determining salaries and rate increases should be transparent and based
on objective criteria
Policy
1. PROCESS. The salary policy will be applied by the Executive Director for all existing
and new employees (and by the Board for the Executive Director). All salary allocations
and increases must be consistent with budget and available funding. The timing of salary
adjustments will be at the discretion of the Executive Director except that for new
employees the salary rate will be determined when a job offer is agreed upon and the
Experience rate increase will occur on the annual anniversary date of employment with
the Center. Salary determinations will be made in order according to the following
sequence of steps.
2. MINIMUM. No employee will be paid less than the minimum salary rate specified for
the job category associated with their position. Any current salaries below that rate shall
first be raised to the minimum rate.
3. EXPERIENCE. Salary rates shall be adjusted annually to account for experience. Upon
initial application of this policy, the experience adjustment will be made by increasing the
minimum salary rate for the applicable job category by $500 (annual FTE rate) for each
year equal to the difference between the total number of years of directly relevant work
experience (and time spent acquiring a relevant advanced degree) minus the minimum
years of experience required for that position. Any current salaries below that rate will be
raised to that rate with years of experience rounded down through the most recent annual
anniversary date of employment with the Center, which also establishes the baseline for
salary offers to new employees. The same rate increase ($500 annual FTE) will be
applied to annual experience increases.
4. MARKET. The Executive Director may further adjust upward an individual salary rate
to account for market rate differences with other comparable positions as documented in
the most recently available survey of nonprofit salary rates in Maine or based on similar
data. For new employees, the Executive Director may also consider prior salary history
or counter-offers by other potential employers in determining a market-based adjustment
in starting salary while maintaining relative parity with existing staff salaries.
5. ANNUAL RAISE. The Executive Director shall increase annual salary rates for all
employees by an equal percentage amount above current salaries after making any
applicable adjustments above unless such increase is suspended du to financial
conditions. All employees whose work performance is satisfactory or better shall qualify
for an annual raise.
6. BONUS. The Executive Director may award one-time salary bonuses for exceptional
performance above and beyond expectations. Where practicable, any bonus should be
awarded to all members of a team on the basis of team performance.
7. CHANGE. This policy may be periodically revised by the Executive Director to reflect
changes in market conditions, job categories or other relevant factors after providing a
reasonable opportunity for staff input.
Salary Schedule:
Job Category (Minimum Current Positions Annual Salary Rate,

years experience reqd) Starting Range, FTE
($)
Chief Executive (10 years) Executive Director 70,000 90,000
Division or Program Director (5 Associate Director 45,000 60,000

years) Managing Director
Program Director
Project Manager (3 years) Outreach & Organizing 37,500 47,500

Director, Coordinator,
Sustainable Bioplastics
Technology Manager,
Sustainable Bioplastics
Project, Executive
Assistant &
Communications
Coordinator
Project Associate (2 years) Development & 30,000 40,000
Marketing Associate
Admin. Support (0 years) Administrative Assistant 25,000 35,000
Entry Level / Intern (0 years) 15,600 25,000
Approved: May 2010

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University of Southern Maine

Financial Policies and Procedures Manuals for

Follow this and additional works at: http://digitalcommons.usm.maine.edu/muskie_capstones

They must be particularly vigilant in guarding against any appearance of impropriety,

roles and authorities of different parties in carrying them out.

Safeguarding Organizational Assets from Fraud

stewardship of organizational assets, accountability, transparency, and ethical practices. Internal

and office security, and engaging in external audits.

A key element of internal controls is segregation of duties. Segregation of duties creates a

The Association of Certified Fraud Examiners 2010 Report to the Nations on

hats, they may be even more vulnerable.

and procedures documents is the first step.

Providing Efficiency and Accuracy for Sound Management

Ensuring Compliance with External Regulations and Standards

the U.S. Federal Office of Management and Budget (OMB).

recently updated to include a series of questions related to governance and organizational

questions in policies related to conflict of interest, executive compensation, decision-

making, and whistleblower protections, among others. 4

well-managed organizations are more likely to be transparent with regard to their

nonprofits to consider adopting the policies discussed on the form.

corporate accounting scandals. It created new standards for governance, financial

nonprofit sector have adopted the recommended standards in anticipation of future

legislation. BoardSource and Independent Sector have made recommendations on how

Nonprofits. 7 They include recommendations related to managing conflicts of interest,

whistleblower protection, and document destruction. Importantly, two provisions of the

be included in any financial policies and procedures manual.

Professional Standards FASB, AICPA, and OMB

Financial Accounting Standards Board (FASB), the American Institute of Certified

the preparation of financial reports.

FASB has issued only a small number of standards specific to nonprofit

Received and Contributions Made, requires nonprofits to record contributions according

nonprofit organizations provide a statement of financial position, a statement of activities,

and a statement of cash flows. It also requires nonprofit organizations to classify

expenses by functional expense categories (program services, management and

general, and fundraising, at minimum).

and maintaining internal controls. It further requires external auditors to convey in

Financial policies and procedures should indicate an organizations compliance with

Challenges for Small Organizations

Small organizations face particular challenges developing financial policies and

common in small nonprofit organizations.

Business Conduct Principles, Policies, and Procedures

Overall Compliance and Government Returns Clarify commitment to meeting all

Whistleblower Policy Explains how complaints from employees about perceived

Mandatory Vacation for Financial Staff Specifies required amount of vacation

Roles and Responsibilities of Board and Staff

Budgeting and Reserves

Basic Information Regarding Financial Accounting System

Accounting Method Whether the organization will use a cash- or accrual-based

Accounts Receivable and Cash Receipts

Processing of Credit Card Contributions Outlines procedures for processing credit

Accounts Receivable Outlines procedures to ensure that money owed to the

Accounts Payable and Cash Disbursements

Payroll Administration and Process Clarifies whether payroll will be handled

General Purchasing or Procurement Policy Outlines procedures for purchasing

Contractor and Vendor Policies

Asset / Property and Equipment Policies and Procedures

2010 IRS Form 990. Retrieved from http://www.irs.gov/pub/irs-pdf/f990.pdf.

Giganti, B. Preventing fraud. Association Management, v50 n10 p89.

GuideStar (2004). How Ethical is Your Nonprofit Organization? Retrieved from