As a part of my new rant on policies nonprofits should have – next in line is a whistleblower policy.
Why should you have a whistleblower policy?
Easy answer – the 990 asks whether an organization has one (although, like the conflict of interest policy, it is not required). Also, it’s just good governance.
Long answer:
In 2002, in response to financial mismanagement in the for-profit sector, Congress passed the Sarbanes Oxley Act. Part of that legislation reads as follows: “Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense, shall be fined under this title or imprisoned not more than 10 years, or both”
Sound scary? Sound like it may not apply to your organization? Well, it does. This type of whistleblowing could occur because an employee or volunteer reports an organization’s actions to the IRS, an agency that disburses federal grants, the Department of Justice, Federal Election Commission, etc.
Even if you don’t succumb to my scare tactics (sorry, I’m a lawyer – that’s my job) — the goal of a whistleblower policy is not just to protect an organization from liability. It helps to foster an open and transparent environment where all employees and volunteers are held accountable. I think that aspect of a whistleblower policy is one that all of us in the nonprofit world can understand. While we hope that those that are driven by mission to work on wonderful projects will not do something intentionally to hurt the organization – we do have to keep the good of the organization in mind and create an environment where all participants in an organization are concerned about the welfare of the organization and its ability to carry out its mission long-term.
Organizations should welcome the reporting of fraud, theft, or other bad behavior by its employees and/or volunteers. Employees and volunteers are an organization’s first line of defense against organizational mismanagement and give the organization a chance to identify unethical or illegal practices so that they can deal with them internally – before regulatory authorities or the press/general public hear about them. Therefore, whistleblowing should be encouraged by the organization through implementation of a policy that ensures that those who engage in whistleblowing are not retaliated against (and thus opening up another realm of liability for the organization). The concept of anti-retaliation should be familiar to organizations that have employees – as it is applicable in many other arenas on both the state and federal level, particularly in anti-discrimination laws [Civil Rights Act of 1964, Age Discrimination in Employment Act, and the Family and Medical Leave Act, Minnesota Human Rights Act, Fair Labor Standards Act]. There are numerous state and federal statutes that protect whistle-blowers who report (in good faith) violations of the law.
So what does a whistleblower policy do?
The type of whistleblower policy that the IRS is asking about is with regards to financial, accounting and governance procedures (vs. employment related retaliation – which is generally handled in separate policies). It provides employees and volunteers with a set of procedures to report violations of organizational policies and/or federal/state law with the confidence that they will not be subject to reprisal or harassment. In order to be able to check “yes” on the Form 990 that the organization has a whistleblower policy, the policy must meet at least the minimal expectations set out by the following description (from the Instructions to the 2011 Form 990):
A whistleblower policy encourages staff and volunteers to come forward with credible information on illegal practices or violations of adopted policies of the organization, specifies that the organization will protect the individual from retaliation, and identifies those staff or board members to whom such information can be reported.