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Introduction
Every charitable organization, regardless of size, should have clear policies and procedures that allow staff, volunteers, or clients of the organization to report suspected wrongdoing within the organization without fear of retribution. Information on these policies should be widely distributed to staff, volunteers and clients, and should be incorporated both in new employee orientations and ongoing training programs for employees and volunteers. Such policies can help boards and senior managers become aware of and address problems before serious harm is done to the organization. The policies can also assist in complying with legal provisions that protect individuals working in charitable organizations from retaliation for engaging in certain whistle-blowing activities. Violation of such provisions may subject organizations and the individuals responsible for violations to civil and criminal sanctions.
Policies that protect people who report wrong-doing—sometimes known as “Whistleblower
Protection Policies” or “Policies on Reporting of Malfeasance or Misconduct”—generally cover suspected incidents of theft; financial reporting that is intentionally misleading; improper or undocumented financial transactions; improper destruction of records; improper use of assets; violations of the organization’s conflict-of-interest policy; and any other improper occurrences regarding cash, financial procedures, or reporting.-
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The policy should be tailored to the nonprofit’s size, structure, and capacity, and it must reflect
the laws of the state in which the nonprofit is organized or operates. All policies should specify
the individuals within the organization (both board and staff) or outside parties to whom such
information can be reported. Small organizations with few or no paid staff may wish to designate an external advisor to whom concerns can be reported without any threat of retaliation. This is a particular concern for family foundations whose board members and staff may not feel comfortable sharing concerns about suspected illegal or unethical practices directly with another family member or close associate of the family. Larger organizations
should encourage employees and volunteers to share their concerns with a supervisor, the
president or executive director, and/or the chief financial officer of the organization, but should
also provide a method of reporting anonymously to either a board member or an external entity specified by the organization. Some large organizations have set up computerized systems that allow for anonymous reports, and a number of private companies offer anonymous reporting services via a toll-free telephone number, email address, or intranet site.It is equally important that the organization have clear procedures to investigate all reports and take appropriate action. The policy should stipulate that there will be no retaliation against any individual who reports a suspected violation, except in those instances where the organization determines that a false report was made with intent to harm the organization or an individual within the organization.
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Core Concepts
- Every organization should have a confidential process for addressing complaints or reports of suspected illegal or unethical activities.
- Staff and volunteers need to feel safe to report unacceptable acts.
- Retaliation against whistleblowers can be a criminal act that applies to all organizations.
- Appropriate internal controls can help alleviate the occurrence of unacceptable acts.
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Legal and Compliance Issues
- The Sarbanes-Oxley Act (SOX), Section 1107, makes it a federal crime to retaliate against whistleblowers in certain circumstances.
- IRS Form 990 asks whether the organization has a written whistleblower policy.
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Legal Background
Some states have enacted laws that provide protections for employees who report misconduct under specific conditions. Federal law prohibits employment related retaliation by all entities—including charitable organizations—against whistleblowers who provide information on certain financial crimes delineated under federal law.1 Whistleblowers who report suspected tax fraud to the IRS are also protected from retaliation.2
(From The Principles for Good Governance and Ethical Practice: Reference Edition,
Published in 2007)1 The Sarbanes-Oxley Act of 2002) Pub. L. No. 107-204, 18 U.S.C. 1513(e).
2 Tax Relief and Health Care Act of 2006, § 406, P.L. 109-432
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Discussion Points
These questions – from the Principles Workbook (PDF) – are intended to prompt discussion about the principle, assess the polices and practices of your organization, and encourage your organization to take steps to identify where improvements should be made.
- Do we have a process in place whereby individuals can report concerns without fear of retaliation? If not, what process should we implement? If so, does this process need to be strengthened? How?
- Do our orientation and training materials include information about the process and to whom reports of suspected wrongdoing should be made?
- Do we understand fully what “retaliation” means?
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Resources for Principle #4
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Related Principles
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Supplemental Materials
