July 8, 2025 - In our sixth and final article in our Governance Best Practices for Not-for-Profit Organizations Series, we focus on whistleblower policies and procedures that protect both not-for-profit (NFP) employees who lodge complaints about financial practices or illegal violations from retaliation as well as the organization, itself. Please see the other articles in our series, which cover topics such as: crafting a mission statement, document retention and destruction policies, executive compensation, the purpose of a governing body, and conflicts of interest.

Federal law prohibits all corporations, including NFPs, from retaliating against employees who “blow the whistle” on their employer’s financial management or accounting practices. In addition, almost all states have enacted laws to protect whistleblowers from retaliation in the workplace. Therefore, adopting a whistleblower policy and enacting an internal process for addressing complaints about financial practices that protects whistleblowers from retaliation will help a not-for-profit comply with state and federal laws and can help ensure that if there is a problem, it will be investigated and corrected.

Today, NFPs are much more likely to adopt whistleblower protection policies that are broader than just financial accounting practices, and address complaints about other aspects of the NFP’s activities and operations. Adopting such a policy signals to employees, board members, volunteers, donors, and other members of the public that the organization is open to hearing concerns or complaints about its practices and demonstrates that it values transparency and accountability. Additionally, certain states (New York for example) require NFPs of a certain size to adopt a whistleblower policy.

In the IRS’ view, an appropriate 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.
• Identifies those staff or board members or outside parties to whom such information can be reported.

An NFP’s Form 990 asks whether the organization had a written whistleblower policy during the tax year. In order to answer “Yes,” the organization’s governing body must have adopted the policy no later than the last day of the tax year. No further descriptions regarding the policy are required.

While it is important to remember having a whistleblower policy in place is not required by the IRS to obtain or maintain exempt status, an NFP which has adopted such a policy is putting its best foot forward in the eyes of its many stakeholders. If you work with an NFP in an oversight capacity, be sure to take some time annually to review your whistleblower policy and the accompanying processes that are currently in place, consider updating them as your organization matures, or consider adding them if you have yet to implement.

If you have any questions, please reach out to your Citrin Cooperman advisor. Our Not-For-Profit Industry Practice will work with your organization to ensure the best policies are in place to support future growth and success.

An important note on governance issues

Not-for-profit organizations (NFPs) face scrutiny from a multitude of perspectives – the Internal Revenue Service (IRS), the legislature, watchdog organizations, donors, news media, and the states in which they operate. Because the annual information return (Form 990) filed by most NFPs is readily available on the internet, these stakeholders have easy access to data about an organization’s operations which they can use to make judgements about it. The first line of defense is the establishment of good governance practices which are regularly followed.

Although the federal tax laws do not require the adoption of any particular policies or procedures, it is essential for an NFP to carefully consider which governance practices are most appropriate to enable the organization to operate in an effective and compliant manner. Additionally, since the Form 990 discloses information about a number of governance-related items, not only have they become the de facto best practices for NFPs, there will be many data points from which readers of the form can draw conclusions about the organization.

Therefore, it is not only crucial for an NFP to establish good governance practices, it must also prepare its Form 990 while disclosing these practices effectively. This series explores the key governance areas disclosed in the Form 990 and highlights important considerations for not-for-profit organizations.