Financial Policy Guidelines
Developing and adopting a written financial policy is a valuable practice for any nonprofit organization, no matter how small or large. If the idea of creating a financial policy seems daunting, these basic guidelines and financial policy example may be helpful.
What is a financial policy?
A financial policy is a written document that clarifies the roles, authority, and responsibilities for essential financial management activities and decisions. The purpose of the financial policy is to describe and document how the board wants the financial management activities to be carried out.
In the absence of an
adopted policy, staff and board members are likely to operate under a set of
assumptions that may or may not be accurate or productive.
Five Essentials for Financial Policies
Every financial policy needs to address five areas:
- Assignment of authority for necessary and regular financial actions and decisions, which may include delegation of some authority to staff leaders
- Policy statement on conflicts of interest, or insider transactions
- Clear authority to spend funds including approval, check signing, and payroll
- Clear assignment of authority to enter into contracts
- Clear responsibility for maintaining accurate financial records
Developing and Approving a Financial Policy
The most important consideration is to create and adopt a policy that meets your organization's needs. There are some helpful steps you can take to make the policy as helpful as possible:
- Discuss policy needs with the Treasurer and Finance Committee or Executive Committee
- Conduct informal risk assessment
- Draft financial policy, followed by review and discussion by staff and Board leadership
- Present to board for adoption
- Train staff on policy
- Review at least bi-annually
Considerations when you start with a Policy Template
Our example financial policy is intended to be short and simple to address some of the basic elements of a good policy. Keep in mind that no example be an exact fit for your organization. Some nonprofits will need to develop more comprehensive and detailed policies that incorporate more specific responsibilities and add more detail. Remember, never adopt a policy without a thorough review and consideration of the risks, operations, and structure of the organization.