A thoughtful spending policy helps nonprofits balance today’s funding needs with tomorrow’s financial stability. Now is an ideal time to evaluate whether your current approach supports your mission. Here’s a look at common spending policies and what to consider when determining the best fit for your organization.

Review regularly

Your spending policy determines how much of your investment portfolio is tapped each year for expenses such as operating costs and capital projects. Because every nonprofit has different financial needs and objectives, there’s no one-size-fits-all optimal spending policy.

It’s generally advisable to stick with your spending policy once it’s established, but periodic reviews are important. Your board and executive leadership team should regularly evaluate your policy to ensure it continues to align with your nonprofit’s mission, financial goals, liquidity needs and long-term sustainability.

Understand your options

Several common spending policies have emerged, each with its own pros and cons. They include:

Fixed-rate. Also known as the simple spending rule, this approach applies a set spending rate annually to the investment portfolio’s market value at the beginning of the fiscal year. The policy is simple to understand and apply, but it can cause significant spending fluctuations from one year to the next, based solely on the portfolio’s performance the previous year. Over a multiyear period of strong investment performance, the fixed-rate approach can lead to the highest spending increases compared with other techniques. This may reduce the portfolio’s long-term growth potential.

Inflation-based. With this method, the nonprofit sets an initial spending amount, which is then adjusted annually for inflation (sometimes with a cap and a floor based on the beginning market value). This can simplify budgeting and stabilize spending, but annual distributions tend to be smaller than those from other approaches. As a result, this method may help preserve and grow the investment portfolio over time.

On the other hand, the inflation-based method can allow more spending during challenging times than the rolling-average method. (See below.) Of course, this higher spending can also eat into the portfolio. Because inflation can rise or fall significantly over time, organizations using this approach should periodically review whether their assumptions and adjustment methodology remain appropriate.

Rolling-average. Here, the organization applies a spending rate to a moving average of the market value of its investment portfolio, typically calculated over a three-year period. A rolling average generally provides more consistency in spending from year to year but is vulnerable to market volatility. For example, this method could lead to more spending than is wise in a year when the portfolio value has dropped substantially. Conversely, it may produce a spending amount that’s too low when your nonprofit needs additional financial support.

Geometric spending. The formula for geometric spending is complicated, but it reflects both inflation and market movement. Although it can be difficult to calculate, geometric spending reduces year-to-year volatility and can lessen the impact of market declines on spending.

Hybrid. This approach generally considers both inflation and market value. A large portion of annual spending is based on an inflation adjustment to the previous year’s spending. The remainder is based on a fixed rate — for instance, applying a fixed rate to the portfolio’s market value or to a percentage of its rolling average. Hybrid spending policies tend to produce stable spending both in dollar amounts and as a percentage of portfolio value.

Note that each of these policies generally should include a provision allowing spending to exceed the prescribed amount if determined necessary by the board of directors or another authorized party.

The right policy matters

If it’s been several years since your organization last reviewed its spending policy, or if your financial circumstances have changed, now is a good time to take another look. Contact us to evaluate your current spending policy and help ensure it supports your mission for years to come.

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Partner with WCS for Nonprofit Audit & Tax Advisory Services

A well-designed spending policy is just one part of maintaining your nonprofit’s long-term financial health. Weyrich, Cronin & Sorra can help you strengthen your organization with experienced audit and tax advisory services. Nonprofit organizations face unique financial reporting and compliance requirements. WCS provides specialized Audit & Assurance and Tax Advisory services to help nonprofit organizations meet regulatory obligations while maintaining transparency and accountability.

Our team has experience serving a diverse range of tax-exempt organizations, including private and charter schools, churches, environmental organizations, animal shelters, labor unions, and other organizations recognized under Section 501(c) of the Internal Revenue Code. We understand the reporting, governance, and compliance challenges these organizations face and provide the guidance needed to support sound financial stewardship.

We understand the reporting and governance challenges nonprofits face and provide the guidance needed to support sound financial stewardship. Learn more about WCS’s nonprofit services and how our experienced professionals can assist your organization with audit and tax advisory needs. Contact WCS today to discuss how we can support your nonprofit.

Insurance is a critical part of a nonprofit’s overall risk-management strategy. From protecting employees and volunteers to safeguarding facilities, programs and financial resources, the right coverage can help your organization remain resilient in the face of unexpected events. The challenge is finding the appropriate balance — securing adequate protection without paying for more coverage than you need based on your actual risks.

Evaluate the basics

One type of insurance that’s almost always necessary is a general liability policy for accidents and injuries that occur on a nonprofit’s property involving clients, volunteers, suppliers, visitors and anyone other than employees. Also, your state likely mandates unemployment insurance and workers’ compensation coverage.

Property insurance that covers theft and damage to your buildings, furniture, fixtures, supplies and other physical assets is essential, too. When buying a property insurance policy, make sure it covers the replacement cost of assets, rather than their current market value (which is likely much lower).

Consider other types of coverage

Depending on your nonprofit’s operations and assets, you may want to consider optional insurance protection, including automobile, product liability, fraud/employee dishonesty, business interruption, umbrella coverage, and directors and officers (D&O) liability insurance.

Today, it’s also important to look at cyber insurance. It can protect your organization from the financial impact of data breaches, ransomware attacks and other cybersecurity incidents. It typically covers costs such as breach response, legal expenses, notification requirements and lost income from system downtime.

If you conduct special events, also consider insurance that covers associated risks. Before purchasing a separate policy, however, check whether your nonprofit’s general liability coverage extends to special events.

Prioritize significant exposures

Because you’re likely working with a limited budget, focus on the risks that pose the greatest threats. Then discuss with your financial and insurance advisors the types — and amounts — of coverage that will mitigate those risks.

Don’t assume insurance alone will address your nonprofit’s exposure. You should also take steps to help reduce the likelihood that you’ll ever need to file an insurance claim. For example, put in place internal controls and other risk-avoidance policies, such as employee orientations and ongoing training.

Right-size your protection

Your nonprofit’s insurance coverage should reflect its specific activities, assets and obligations — not follow a one-size-fits-all checklist. Regularly reviewing coverage can help ensure your organization is protected against evolving risks while avoiding unnecessary costs. Contact us to evaluate your insurance needs and strengthen your risk-management strategy.

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Accountable plans remain the most tax-efficient way for nonprofits to reimburse employee business expenses. When properly structured and implemented, these plans allow reimbursements to be excluded from employees’ taxable income and save payroll taxes for the organization.

Eligible expenses

To qualify under an accountable plan, reimbursements must meet three core IRS criteria: 1) they must be for expenses that have a legitimate business purpose, 2) those expenses must be adequately substantiated, and 3) any excess advances must be returned within a reasonable period. “Reasonable” is generally interpreted under IRS safe-harbor rules, such as substantiating expenses within 60 days and returning excess amounts within 120 days.

Qualifying expenses commonly include business-related travel, meals, lodging, transportation, professional dues, continuing education, and necessary tools or supplies. Home office expenses may qualify in limited circumstances, but only when they’re directly tied to the employer’s business needs and not personal use.

A formalized policy

Although the IRS doesn’t require accountable plans to be in writing, a documented policy is generally recommended — especially for nonprofits subject to heightened governance and audit scrutiny. A written plan helps demonstrate compliance and supports internal controls.

It’s also critical that reimbursements are clearly separated from wages. Accountable plan payments must be made in addition to regular compensation and can’t be used to recharacterize taxable wages as tax-free reimbursements. Misclassification can trigger payroll tax liabilities and penalties.

Recordkeeping standards

The IRS also requires employers with accountable plans to keep good records for expenses that are reimbursed. For each expense, to the extent applicable, documentation should include the:

• Amount and date,
• Business purpose,
• Location (for travel-related costs), and
• Business relationship of any individual involved.

Receipts are generally required for lodging and for any expense of $75 or more. If your nonprofit uses per diem rates for travel, receipts aren’t required. But ensure your per diems align with current federal rates and that employees still substantiate the time, place and business purpose of travel.

Integrating your plan with digital expense reporting tools can improve compliance, streamline approvals and strengthen audit trails. Nonprofits should periodically review their accountable plans to ensure they remain aligned with IRS regulations, state laws and organizational policies.

Establishing (or refining) an accountable plan

A well-structured accountable plan can provide tax benefits for nonprofit organizations and their employees. It can also help ensure reimbursements are handled consistently, transparently and in line with IRS expectations.

If your nonprofit hasn’t reviewed its reimbursement practices recently, now is a good time to do so. We can help you assess whether your current policy meets accountable plan requirements, identify potential areas of risk and implement a structure that supports both compliance and operational efficiency.

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Board composition plays a critical role in a nonprofit’s governance, financial oversight and long-term sustainability. One question many organizations face is whether to have term limits for board members. While term limits aren’t legally required, they can be a sound governance practice. The right approach depends on your organization’s size, structure and strategic goals. You need to evaluate both the benefits and drawbacks before making a change.

The case for term limits

Over time, some long-serving board members may become less engaged, reducing overall board effectiveness. At the other end of the spectrum are board members who do so much that they’re at risk of burnout. Term limits give nonprofits a graceful way to ensure members exit the board at an appropriate time.

Other benefits of term limits include:

Bringing in new knowledge and perspectives. Regular turnover creates opportunities to add skills and expertise that align with evolving organizational needs. It can also support efforts to build a board that better reflects the community the organization serves.

Expanding influence and collaboration. Without turnover, decision-making authority can concentrate among a small group. This can make it harder for new members or staff to contribute ideas and influence decisions — particularly in areas such as financial oversight, budgeting or strategic planning. Term limits help create a more balanced and collaborative governance environment.

Broadening stakeholder engagement. Board rotation allows more individuals to become involved with the organization over time, strengthening community ties and broadening support networks.

Preventing insider fraud. It’s easier for long-term board members who know an organization’s ins and outs to override internal controls and hide fraudulent schemes. From a governance and oversight perspective, periodic turnover resulting from term limits can help strengthen organization-wide accountability. However, term limits should complement (not replace) strong internal controls and financial oversight practices.

Possible drawbacks

Despite many advantages, term limits aren’t without drawbacks. One of the most significant is the potential loss of institutional knowledge, leadership continuity and financial support. Long-serving board members often bring deep historical context and strong donor relationships. Replacing that experience can take time. But these losses can be mitigated by keeping former board members engaged with your organization in advisory or emeritus roles.

Term limits also require an ongoing investment in recruitment, onboarding and development. Your organization must be prepared to identify qualified candidates, integrate new members and maintain board cohesion as turnover occurs. Disruption caused by board turnover can be particularly problematic during periods of growth, capital campaigns or executive leadership transitions. For this reason, some nonprofits adopt more flexible approaches, such as allowing exceptions or using performance-based renewals rather than strict limits.

Well-designed term limits

Term limits should be thoughtfully designed and clearly documented in your bylaws. Common structures include two consecutive three-year terms or a maximum number of years with a required break before reappointment. The goal is to strike a balance — terms that are too long may limit opportunities for new members, while terms that are too short may not allow individuals to contribute meaningfully.

To maintain continuity, terms can be staggered so only a portion of the board rotates off at any given time. This helps preserve institutional knowledge while still allowing for regular refreshment. It’s also important to plan for transitions. Exit interviews can provide valuable insights, and maintaining relationships with board members after they leave can help retain their financial and nonfinancial support.

Because board structure decisions can have governance, financial and operational implications, many organizations benefit from involving outside advisors in the process. An objective perspective can help facilitate discussions, evaluate risks and align governance policies with overall organizational strategy.

Taking a thoughtful approach

There’s no one-size-fits-all answer when it comes to board term limits. What matters most is having a governance structure that supports accountability, effective oversight and sustained impact. If your organization is evaluating board term limits or considering other governance changes, working with an experienced external accountant can help. We can assist with assessing the implications, identifying potential risks and designing policies that align with best practices. Contact us to get started.

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Nonprofits are built on trust — from donors, grantors and the communities they serve. When concerns about possible fraud by an employee arise, trust can be shaken quickly. How leadership responds can restore and preserve trust. It can also help reduce and recover potential losses and provide insights that can lower future employee fraud risk.

Start with a coordinated response

Suspicions of employee fraud, whether raised through a whistleblower hotline, internal control procedures or another way, can be unsettling. Acting quickly is important, but don’t act impulsively. Leadership should focus on gathering facts, preserving evidence and involving the appropriate parties early in the process. Consider taking these key steps:

Refer to established policies and procedures. Your organization’s fraud, whistleblower and internal control policies should serve as the starting point. These documents often outline reporting protocols, investigation procedures, and roles and responsibilities. Following established policies helps ensure consistency and demonstrates good governance.

Engage the board at the appropriate level. The executive director or other senior leadership should promptly involve the board or a designated committee, such as the audit or finance committee. The board has fiduciary oversight responsibilities and will typically play a role in determining how the organization proceeds, particularly in more significant or sensitive matters, such as if the potential fraud involves a large amount of money or a member of the leadership team.

Coordinate with legal counsel early. Because employee fraud investigations have legal and employment implications, it’s important to involve legal counsel early in the process. An attorney can help guide decisions around investigative steps, employee rights, confidentiality and potential reporting obligations.

Preserve evidence. Maintaining the integrity of records is critical. This may include securing accounting data, transaction histories, emails and supporting documentation. Access to systems may need to be limited in certain cases. Digital evidence is best handled with input from qualified specialists to avoid unintentional alteration or loss.

Consider engaging financial and forensic specialists. Independent professionals — such as forensic accountants or certified fraud examiners — can help assess the scope of the issue, quantify potential losses and analyze internal control breakdowns. Their work can also support decision-making by management and the board.

Evaluate next steps in consultation with advisors. Decisions such as whether to place an employee on leave, initiate disciplinary action or involve external authorities should be made carefully and typically in consultation with legal counsel and other advisors. These decisions often depend on the strength of available evidence and the specific circumstances involved.

Conduct a structured investigation. Responsibility for the investigation will vary. In many cases, management leads the process with oversight from the board or a committee. If senior leadership is implicated, the board may take a more direct role. Regardless of structure, the investigation should be documented, objective and guided by appropriate expertise.

Address reporting and compliance considerations. Certain situations may trigger reporting or disclosure requirements. For example, significant diversions of assets may need to be disclosed on Form 990, and insurance carriers may require timely notification to support potential claims. Communication with stakeholders — such as donors or grantors — should be handled thoughtfully and in coordination with legal counsel.

Strengthen controls and governance going forward

Once the immediate situation has been addressed, it’s important to step back and evaluate how the fraudulent activity was able to occur. In many cases, employee fraud reveals gaps in internal controls, such as oversight and segregation of duties.

A structured review can help identify:

• Control weaknesses or process breakdowns,
• Opportunities to strengthen financial oversight, and
• Enhancements to policies, training and monitoring.

Addressing these areas not only helps reduce future risk but also reinforces accountability and confidence among stakeholders.

Prepare, protect, respond

Even well-run nonprofits can face employee fraud risk. Having clear policies, strong internal controls and a response plan in place can help reduce this risk and enhance your organization’s handling of a fraud incident should one still occur. If your nonprofit suspects an employee of fraud or wants to proactively strengthen internal controls, contact our team. We can help assess risk, support investigations and implement safeguards.

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