Does your nonprofit have a whistleblower protection policy in place? It is now considered standard “best practice” for credible nonprofits to have a board-approved whistleblower policy in place. The IRS has also included this as a question in the Form 990 as it was a part of the Sarbanes Oxley requirements for all organizations. Here’s what you need to know.

What is a whistleblower policy?

When someone in an organization “blows the whistle,” in other words, informs the organization of suspected fraud, corruption, or other improper activity, he/she is at higher risk of retaliation from fellow employees.

A whistleblower protection policy is put in place to prevent employer and employee retaliation. Here are the main components of a whistleblower protection 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
• Identifies those staff, members of management, board members or outside parties to whom such information can be reported
• The option to come forward anonymously through a fraud hotline

What is an example of nonprofit fraud?

You’ve recently joined a nonprofit board and the organization’s bookkeeper comes to you with a concern—lately he has been entering checks signed by the organization’s treasurer made out to cash. The treasurer assures the bookkeeper that he need not worry, and he can simply assign the expenses to “office supplies”.

What happens next?

The bookkeeper’s (whistleblower) complaint of unethical conduct (on the part of the treasurer) is now in your hands, so you must make every effort to look into the problem and make sure the nonprofit’s charitable resources, legal obligations and reputation remain intact.

Once you locate your organization’s whistleblower protection policy, check the procedural safeguards it has in place. It should identify the person or committee that normally handles such matters, and provide for alternative assignment of responsibilities to other leaders. In this situation, for example, it would be unfitting for the Treasurer to receive the whistleblower’s complaint or to serve on the committee handling the complaint. The Treasurer should be excluded entirely.

The whistleblower complaint should be handled confidentially, with disclosure on a strictly “need to know basis,” since the allegation could prove to be false. Plus, the organization needs to ensure that the whistleblower will not be retaliated against. Keeping it confidential also safeguards the organization’s reputation.

What happens if the allegations are true?

If the whistleblower’s complaint proves to be true, remedial actions must be taken immediately. The organization will likely have to remove the Treasurer from office and also implement better financial protocols to prevent future incidents. The organization will also need to communicate with the bookkeeper, to assure him that the matter has been resolved.

It’s advised to seek legal counsel, to address the lost funds, form 990 reporting and related IRS compliance requirements, etc.

What are the benefits of a whistleblower protection policy?

After such an incident, it’s advised that the organization analyze the whistleblower protection policy in place and identify areas where it can be improved. Being well prepared for the next whistleblower complaint is crucial! It’s highly important than all employees and volunteers are well-versed in the organization’s policy for reporting problems.

It’s been estimated that nonprofits lose almost $77 billion per year to fraud. Fraud in a nonprofit organization hurts the organization, donors and the communities that they serve. A whistleblowing protection policy is another tool that your nonprofit can use to prevent and detect fraud and protect its precious resources.

Questions on your whistleblower protection policy? Contact us.