Minnesota Council of Nonprofits Principles & Practices for Nonprofit Excellence (1998) PREFACE The Principles and Practices for Nonprofit Excellence are based on the fundamental values of quality, responsibility, and accountability. The nine Principles for Nonprofit Excellence are the characteristics that distinguish the nonprofit sector from government and the business sector. The 87 Practices for Nonprofit Excellence provide specific guidelines that individual organizations can use to evaluate and improve their operations, governance, human resources, advocacy, financial management, and fundraising. This document has three intended purposes. The first is to educate individual organizations about the possibilities of excellence and serve as a tool for strategic planning and evaluation of their own operations in relation to the rest of the sector. The second is to improve the quality of the sector as a whole by establishing these principles. The third is to increase awareness and understanding of the nonprofit sector in the broader public. The Principles and Practices for Nonprofit Excellence are neither intended for use nor should be used by funders or government to evaluate organizations, or is it intended as a substitute for the wisdom of directors of individual organizations. Given the blurring of the lines between the three sectors of society and the enormous growth of the nonprofit sector in recent years, this document is an attempt to define our sector. A committee representing the breadth of the nonprofit sector created the Principles and Practices for Nonprofit Excellence and included input gathered from community meetings held throughout the state. The committee attempted to name the law, custom, and philosophy of excellence in the Minnesota nonprofit sector. The following Principles and Practices presume that each organization is in compliance with applicable law, including Minnesota Chapter 317A (the Minnesota Nonprofit Corporation Act); relevant sections of the Internal Revenue Code; and other federal and state laws dealing with employment, occupational health, and safety. Every nonprofit organization needs a strong foundation of compliance, along with a broad organizational awareness of laws and regulations related to fundraising, licensing, financial accountability, human resources, lobbying, political advocacy, and taxation. (Some of the Practices outlined below parallel Minnesota Law and are noted as such in the text.) Minnesotans join together throughout the state to form associations of every type. The Principles and Practices for Nonprofit Excellence were written for public benefit, 501(c)3, organizations that are not private foundations. The information, however, is also intended to apply broadly to the entire Minnesota nonprofit sector. Because of the diversity of the sector by size, region, and activity area, each organization must decide for itself whether or not an individual practice is appropriate for the organization in its current situation. Nonprofit organizations are essential elements of vital communities. These organizations enrich the quality of life, epitomize the highest societal values, and strengthen democracy. Volunteers, board members, and employees of nonprofits become involved because of their organization's public benefit mission. The continued success of Minnesota's nonprofit organizations depends upon public confidence and broad public support. This document is a testament to the public of the nonprofit sector's commitment to strive for excellence to the benefit of society. The critical role of nonprofit organizations in democratic societies underscores the importance of knowledge of how to form, govern, and manage these organizations. The growth and progress of the nonprofit sector depend on developing and improving this body of knowledge. Since its founding by nonprofits in the state, MCN has undertaken research, education, and technical assistance to strengthen nonprofit management and governance. The Principles and Practices for Nonprofit Excellence offer guidance for nonprofit boards of directors, volunteers, and employees across the broad range of nonprofit responsibilities. It provides a framework for high quality, responsible, and accountable organizations. The Principles and Practices will provide the framework for a companion workbook and training series that will include templates, samples, and suggestions of ways organizations can simply and cost effectively exemplify excellence. PRINCIPLES FOR NONPROFIT EXCELLENCE MISSION AND VALUES A nonprofit is founded for public benefit and operates to accomplish a well-defined, articulated mission. Its programs effectively and efficiently work toward achieving that mission and it is committed to continuous quality improvement. Based on the values of quality, responsibility, and accountability, nonprofit board members, volunteers, and employees act in the best interest of achieving the organization's mission at all times. GOVERNANCE Elected or appointed, volunteer boards of directors who are committed to the organization's mission and leadership govern nonprofits. A nonprofit board determines the mission, strategic direction, and future programming of the organization. A nonprofit board ensures and nurtures adequate human and financial resources and actively monitors and evaluates the organization's executive director/CEO, as well as service and financial results. Nonprofit board members approve and systematically implement policies to ensure achievement of the mission of the organization and to prevent perceived, potential, or actual conflict of interest. HUMAN RESOURCES Volunteers and employees are essential elements of a nonprofits ability to achieve its mission. Volunteers are unique to nonprofits, and are a vital resource in governance, administrative, and service capacities. Nonprofit human resource policies are fair, establish clear expectations, and provide for meaningful and effective performance evaluation for both paid employees and volunteers. FINANCIAL MANAGEMENT A nonprofit is a faithful steward of public funds entrusted to it, practices sound and timely financial management, and complies with a complex array of legal and generally accepted accounting principles. A nonprofit maintains accurate financial records and ensures that the organization's financial resources are used solely in furtherance of its mission. Regulatory, risk management, and liability concerns are periodically reviewed. CHARITABLE FUNDRAISING Charitable donations provide an important and unique source of voluntary financial support for the work of most nonprofits. Truthfulness, donor confidentiality, and responsible stewardship are the foundations of nonprofit fundraising. Nonprofit fundraising practices are consistent with and respectful of the intent of donors and prospective donors as well as its mission and organizational capacity. PUBLIC ACCOUNTABILITY AND COMMUNICATIONS Volunteers, board members, employees and donors voluntarily become involved with a private nonprofit corporation because of its public benefit mission. Therefore, a nonprofit is transparent and makes information about its mission, program activities, and finances available to its constituencies. A nonprofit is accessible and responsive to public inquiry and reaches out to interested parties. PUBLIC POLICY AND ADVOCACY A nonprofit is an essential element of democracy, serving as a vehicle through which individuals organize and speak together to achieve a common mission. A nonprofit amplifies the voice of its constituents through public education and public policy advocacy, as well as by encouraging civic participation. INFORMATION AND TECHNOLOGY A nonprofit manages information with regard for confidentiality, safety, accuracy, integrity, reliability, and cost-effectiveness. A nonprofit incorporates standard and emerging technology into its work when appropriate to improve its efficiency, efficacy, and accuracy in the achievement of its mission. PARTNERSHIP AND ALLIANCES A nonprofit forms alliances with other nonprofit, for-profit, or governmental organizations if and when appropriate to improve the organization's capability to advance its mission and serve its constituencies. A nonprofit identifies partners to create new opportunities to achieve mission-driven results. MISSION AND VALUES A nonprofit is founded for public benefit and operates to accomplish a well-defined, articulated mission. Its programs effectively and efficiently work toward achieving that mission and it is committed to continuous quality improvement. Based on the values of quality, responsibility, and accountability, nonprofit board members, volunteers, and employees act in the best interest of achieving the organization's mission at all times. A. Mission A nonprofit's purpose -- the answer to the question, "Why?" as defined and approved by the board of directors -- should be formally stated in writing. The organization's activities should be consistent with its stated purpose. A nonprofit should, at least biennially, revisit its mission to determine if the need for its services continues to exist. The organization should evaluate whether the mission needs to be modified to reflect societal changes; whether the organization's current programs should be revised or discontinued in light of the existing or newly defined mission; or whether new services need to be developed. A nonprofit should have defined replicable procedures in place for evaluating (both qualitatively and quantitatively) its processes and outcomes in relation to its mission. These procedures should address the efficiency and cost-effectiveness of processes and outcomes. B. Program Service and Quality A nonprofit should act with the utmost professionalism and treat all persons equally and with respect. A nonprofit should regularly monitor the satisfaction of service participants as well as other parts of the organization's constituencies and provide a grievance procedure to address complaints. A nonprofit should practice continuous quality improvement that includes evaluation and tracking of information. C. Values A nonprofit should act with integrity, openness, and honesty in all relationships, dealings, and transactions. A nonprofit should strive to earn and convey trust through integrity, openness, and honesty. A nonprofit should keep faith with the public trust through efficient, cost-effective, and compassionate stewardship of resources. A nonprofit should be mindful that its mission is accomplished through the generosity of others. A nonprofit should ensure that policies and procedures of human relations are legally grounded, of high quality, and respectful of the dignity and rights of individuals. D. Commitment to Diversity, Accessibility, and Social Justice A nonprofit should respect all people's race, religion, ethnicity, gender, age, socioeconomic status, sexual orientation, and ability and should not allow differences to affect a person's opportunities. A nonprofit's board, staff, volunteers, and contractors should reflect the diversity of the organization's constituencies and the broader community. A nonprofit should conduct its work in facilities that allow reasonable access to persons of all ability levels. A nonprofit should act in ways that further the equality of opportunity among individuals and communities. A nonprofit should act in ways that promote a sustainable environment. GOVERNANCE Elected or appointed, volunteer boards of directors who are committed to the organization's mission and leadership govern nonprofits. A nonprofit board determines the mission, strategic direction, and future programming of the organization. A nonprofit board ensures and nurtures adequate human and financial resources and actively monitors and evaluates the organization's executive director/CEO, as well as service and financial results. Nonprofit board members approve and systematically implement policies to ensure achievement of the mission of the organization and to prevent perceived, potential, or actual conflict of interest. A. Board Responsibilities The board should engage in ongoing planning activities as necessary to determine the mission of the organization and its strategic direction, to define specific goals and objectives related to the mission, and to evaluate the success of the organization's services toward achieving the mission. The board should approve the policies for the effective, efficient, and cost-effective operation of the organization. The board should annually approve the organization's budget and assess the organization's financial performance in relation to the budget at least four times per year. The board is responsible for the financial health of the organization and should actively participate in the fundraising process through members' financial support and active seeking of the support of others. As part of the annual budget process, the board should review the percentage of the organization's resources spent on program, administration, and fundraising, with a goal of at least 70% of revenue used for programs. The board should hire, set the compensation for, and annually evaluate the performance of the executive director/CEO. If the organization employs staff, the board should annually review its overall compensation structure, using industry-based surveys of salaries and benefits. The board should ensure that a livable hourly compensation is paid to all employees, whether full- or part-time. The board should ensure that sufficient funds are allocated to contribute to full-time, permanent employees' medical insurance and retirement plans. The board should establish policies, when appropriate, on employee benefits, vacation, and sick leave. The board should approve written policies and procedures governing the work and actions of its employees and volunteers. These polices and procedures should address the following: working conditions; evaluation and grievance procedures; confidentiality of employee, volunteer, client, and organization records and information; and employee and volunteer growth and development. The board should ensure that an internal review of the organization's compliance with known existing legal, regulatory, and financial reporting requirements is conducted annually and that a summary of the results of the review is provided to the entire board. The board should periodically assess the need for insurance coverage in light of the nature and extent of the organization's activities and its financial capacity. A decision to forego general liability insurance coverage or Directors and Officers liability insurance coverage should be made only by the board of directors. B. Board Composition The board members should be personally committed to the mission of the organization, willing to volunteer sufficient time and resources to help achieve the mission of the organization, and understand and fulfill their fiduciary responsibilities. No more than one employee of the organization should serve as a voting member of the board of directors and staff should not serve as chair or treasurer of the Board. To allow for significant deliberation and diversity, the majority of the board should be made up of at least seven persons unrelated to each other or staff. The organization's bylaws should determine term limits that establish individual terms of no more than three years, allow individuals to serve no more than three consecutive terms, and require at least one year intervening before eligibility for re-election after serving the maximum number of consecutive terms. Board membership should reflect the diversity of the organization's constituencies. Board members (who are not employees) should not receive compensation for their board service, other than reimbursement for expenses directly related to board duties. The board nomination process should be announced to the organization's public, so that interested persons or community members can nominate themselves or others. C. Conduct of the Board The board should be responsible for its own operations, including the education, training, and development of board members; annual evaluation of its own performance; and, when appropriate, the selection of new board members. There should be written job descriptions for board members, officers, committees, and committee members. The board should have written expectations for board members, including expectations for full board participation in fundraising activities, committee service, and service activities. The board should meet as frequently as needed to adequately conduct the business of the organization. At a minimum, the board should meet four times a year with a quorum present. The board should have written policies that address attendance and participation of board members at board meetings including a process to address noncompliance. Written meeting minutes should reflect the actions of the board, including reports of authorized board committees. The board should permanently retain the minutes, distribute them to board and committee members, and make them available for public review. D. Conflict of Interest The board should establish conflict of interest policies regarding board, staff, volunteers, contractors, and organizational partners or allies and adhere to these policies in all dealings. The policies should include an obligation of each board member to disclose all material facts and relationships and refrain from voting on any matter when there is a conflict of interest. HUMAN RESOURCES Volunteers and employees are essential elements of a nonprofits ability to achieve its mission. Volunteers are unique to nonprofits, and are a vital resource in governance, administrative, and service capacities. Nonprofit human resource policies are fair, establish clear expectations, and provide for meaningful and effective performance evaluation for both paid employees and volunteers. A. Employees and Volunteers Employees and volunteers should be committed to the mission of the organization and competently, efficiently, and professionally perform the duties they agreed to assume. The employees and volunteers of the organization should broadly reflect the diversity of their organization's constituency. A nonprofit should invest in the training of employees and volunteers as a means to ensure quality management and service. A nonprofit should have a system in place for written evaluation of employees and volunteers by their respective supervisors, at least annually. A nonprofit should have a system in place for the succession of employees, most notably for the executive director. New employees and volunteers of the organization should receive clear orientation to the mission of the organization, the organization's policies and procedures, job definitions and expectations, and a defined workspace. FINANCIAL MANAGEMENT A nonprofit is a faithful steward of public funds entrusted to it, practices sound and timely financial management, and complies with a complex array of legal and generally accepted accounting principles. A nonprofit maintains accurate financial records and ensures that the organization's financial resources are used solely in furtherance of its mission. Regulatory, risk management, and liability concerns are periodically reviewed. A. Financial Accountability A nonprofit should operate in accordance with an annual budget that has been approved by the board prior to the beginning of each fiscal year. A nonprofit should create and maintain financial reports on a timely (at least quarterly) basis, accurately reflecting the financial activity of the organization, including the comparison of actual to budgeted revenue and expense. A nonprofit with annual total revenues in excess of $350,000 should subject its financial reports to an annual audit by a Certified Public Accountant (MN Law). A nonprofit under this threshold, or excepted by law, should have a CPA provide a review of its finances to the board annually. Quarterly financial statements should be provided to the board of directors. The statements should identify and explain any significant variation between actual and budgeted revenues and expenses. A nonprofit should provide employees and volunteers with a confidential means to report suspected financial impropriety or misuse of organization resources. A nonprofit should have written financial policies governing the following matters, where appropriate: (a) investment of the assets of the organization; (b) internal control procedures; (c) purchasing practices; (d) reserve funds; (e) compensation, including salary and benefits; (f) expense account reporting; and (g) earned income. A nonprofit may budget for a deficit from time to time but should not incur persistent or increasing operating deficits. B. External Financial Arrangements A nonprofit, with board approval and full knowledge of its legal obligations and liabilities, may undertake responsibility of serving as a fiscal agent for another organization with a related mission and should review this relationship annually. Any subsidiary that a nonprofit establishes should be in the direct furtherance of the mission of the organization. CHARITABLE FUNDRAISING Charitable donations provide an important and unique source of voluntary financial support for the work of most nonprofits. Truthfulness, donor confidentiality, and responsible stewardship are the foundations of nonprofit fundraising. Nonprofit fundraising practices are consistent with and respectful of the intent of donors and prospective donors as well as its mission and organizational capacity. A. Fundraising Activities A nonprofit's fundraising costs should be reasonable in terms of percentage of charitable revenue spent for development. On average, over a five-year period, a nonprofit should have charitable contributions from fundraising activities that are at least three times the amount spent on fundraising. A nonprofit's fundraising methods should promote the public's trust in its stewardship of charitable dollars. Solicitation, promotional materials, and grant applications should be accurate, honest, and ethical. The materials should clearly identify the organization, its mission, and the intended use of the solicited funds. A nonprofit should follow to the greatest extent possible the known intentions of a donor regarding the use of donated funds and grants. A nonprofit should report systematically and regularly on the use of funds to donors and grantors. Upon completion of a project or a time for which a grant or donation was made, the nonprofit should send a final report detailing program and financial results to the donor or grantor. B. Donor Relationships and Privacy A nonprofit should respect the privacy of donors and safeguard the confidentiality of information that a donor reasonably would expect to be private. A nonprofit should provide individual donors with an opportunity to remain anonymous and to prevent their name, gift amount, or other information from being publicly released. A nonprofit should receive permission from individual donors before their names, addresses, and telephone numbers are included in any donor only mailing lists that are sold, rented, or exchanged (MN Law). A nonprofit should honor donors' and prospective donors' requests to curtail mailings or telephone solicitations from in-house lists. Solicitations should be free from coercion, undue influence, or excessive pressure. Solicitations should be respectful of the needs and interest of the donor or potential donor. To maintain the public's trust, a nonprofit should seek only the funds it needs to reasonably work toward achieving its mission over the foreseeable future. A nonprofit should remain cognizant of the fact that other nonprofits also need donations and grants from the charitable community. C. Acceptance of Gifts A nonprofit should have policies in place that govern the receipt and treatment of charitable gifts and grants. These policies should include procedures to determine any limits on individuals or entities from which the organization will accept a gift, the purposes for which donations will be accepted, and the type of property that will be accepted. The policies should also articulate whether to accept an unusual or unanticipated gift in light of the organization's mission and organizational capacity. All statements a nonprofit makes in its fundraising appeals and grant applications about the use of a contribution or grant should be honored or renegotiated. D. Employment of Fundraising Personnel Fundraising personnel, including both employees and independent consultants, should not be compensated based on a percentage of the amount raised or other commission formula. A nonprofit should only use the services of professional fundraisers who are registered with the Office of the Minnesota Attorney General, Charities Division (MN Law). A nonprofit should exercise control over any staff, volunteers, consultants, contractors, other organizations, or businesses that are known to be soliciting contributions on behalf of the organization (MN Law). PUBLIC ACCOUNTABILITY AND COMMUNICATIONS Volunteers, board members, employees and donors voluntarily become involved with a private nonprofit corporation because of its public benefit mission. Therefore, a nonprofit is transparent and makes information about its mission, program activities, and finances available to its constituencies. A nonprofit is accessible and responsive to public inquiry and reaches out to interested parties. A. Public Access A nonprofit should provide members of the public who express an interest in the affairs of the organization with a meaningful opportunity to communicate with an appropriate representative of the organization. A nonprofit should ensure that it discloses its IRS form 990 and audit or other financial statements to members of the public (Federal Law). B. Communication of Information A nonprofit should prepare and make available annually to the public information about the organization's mission, service activities, and basic financial data.The report also should identify the names of the organization's board of directors and management staff. A nonprofit should ensure that donors, funders, clients, volunteers, and the general public have access to appropriate financial records and records of organizational activity and effectiveness measures in fulfillment of the public trust. A nonprofit should ensure that personal information on individual clients, employees, and others is confidential unless permission to release information has been obtained. PUBLIC POLICY AND ADVOCACY A nonprofit is an essential element of democracy, serving as a vehicle through which individuals organize and speak together to achieve a common mission. A nonprofit amplifies the voice of its constituents through public education and public policy advocacy, as well as by encouraging civic participation. A. Public Policy Advocacy A nonprofit should have a written policy on advocacy, defining how decisions are made, what resources will be devoted to policy work, and the process by which the organization determines positions on specific issues. A nonprofit should ensure that information provided to policy makers and the media or distributed to the public is accurate and provides sufficient context. A nonprofit engaged in promoting public participation in community affairs should ensure that the activities of the organization are nonpartisan. A nonprofit engaged in lobbying which is subject to the state and federal reporting requirements should file accurate and timely reports on the activities of its board and staff. B. Promoting Public Participation A nonprofit should encourage voting and citizen participation in local, state, and federal policy making and elections. INFORMATION AND TECHNOLOGY A nonprofit manages information with regard for confidentiality, safety, accuracy, integrity, reliability, and cost-effectiveness. A nonprofit incorporates standard and emerging technology into its work when appropriate to improve its efficiency, efficacy, and accuracy in the achievement of its mission. A. Information Systems A nonprofit should have information systems in place that provide timely, accurate, and relevant information. A nonprofit's information system should include data storage and retrieval as well as data entry. A nonprofit should have policies that prescribe how all organizational information is gathered and stored, how accuracy is maintained, how and what information is backed up, and to whom information is made available. A nonprofit should annually review its procedures to ensure that its operations are effective and efficient. A nonprofit should designate responsibility for maintaining the organization's information systems to at least one staff person, volunteer, or board member. A nonprofit should maintain and implement a catastrophic recovery plan to deal with unforeseen events. The plan should include accurate equipment lists for insurance purposes and off-site, back-up copies of key data and information. B. Technology When feasible, a nonprofit should invest in telecommunications equipment (such as telephones, voice mail, and fax machines) as well as computer hardware and software that enhance its ability to achieve its mission. A nonprofit that chooses to invest in technology equipment should allocate sufficient resources to train its board, employees, and volunteers in its use. The nonprofit should establish goals for the information system's growth and future purchasing. The goals should be flexible enough to guide the nonprofit through a changing environment. A nonprofit should monitor ongoing technological developments that have the potential to impact its information systems or mission. PARTNERSHIP AND ALLIANCES A nonprofit forms alliances with other nonprofit, for-profit, or governmental organizations if and when appropriate to improve the organization's capability to advance its mission and serve its stakeholders. A nonprofit identifies partners to create new opportunities to achieve mission-driven results. A. Objectives A nonprofit should engage in collaborative efforts if and when such actions enhance its programmatic objectives and prevent, reduce, or eliminate duplication of services. A nonprofit should collaborate with agencies and other community organizations to ensure fairness and equity and to ensure effectiveness in the use of charitable resources. A nonprofit should provide leadership and collaborate with others to further the interests of its clientele and advancement of its mission. B. Structure When effectiveness and ease of management can be improved through partnership or alliance, a nonprofit should structure and formalize these relationships strategically. To the extent possible, when appropriate, a nonprofit should foster and encourage cooperation at the local, regional, and national levels in community and or constituency benefit efforts. MCN Principles & Practices for Nonprofit Excellence Copyright ©1998 Minnesota Council of Nonprofits Source: MCN Principles & Practices for Nonprofit Excellence

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