People usually think about whistleblowers in connection with the government or business sectors. Since nonprofit organizations often operate with more transparency and high ethical standards, do they really need whistleblower policies?

The answer is a resounding “yes.” Whistleblower policies are just as important to nonprofits as they are to business and government. While federal and state laws provide protection to whistleblowers related to financial and accounting matters, whistleblower policies broaden their protection and provide a higher level of public transparency. They make clear that an organization will not tolerate illegal and fraudulent activity.

The 2002 Sarbanes-Oxley Act provides federal legal protection for whistleblowers. The law was a result of the Enron scandal, which led to the bankruptcy of one of America’s largest energy companies and the demise of one of the “big eight” accounting firms, Arthur Andersen. Sarbanes-Oxley prohibits retaliation against whistleblowers related to accounting and financial procedures. Moreover, most states and territories have either passed laws protecting whistleblowers or have recognized common law exceptions to the “employment at will” doctrine, which allows employers to fire an employee for any reason or no reason at all. That doctrine makes it easy for employers to terminate employees in retaliation for reporting illegal or unethical conduct.

So, if there are laws protecting whistleblowers, why should a nonprofit have a whistleblower policy? The answer is simple: A whistleblower policy sends a message of transparency to the world. Since nonprofit organizations depend on donations and membership dues, it is important that they have the trust of its constituents and the general public. Also, a formal policy protects whistleblowers from all forms of retaliation, including being fired, laid off, demoted, threatened, isolated, ostracized, or blacklisted. These actions by an employer could deal a serious blow or even put an end to a whistleblower’s career.

While federal and state laws provide protection to whistleblowers related to financial and accounting matters, whistleblower policies broaden their protection and provide a higher level of public transparency.

Characteristics of a Strong Policy

If you’re ready to develop a whistleblower policy for your organization, make sure it has the following important characteristics:

It applies to a wide range of conduct. A strong whistleblower policy applies not only to the financial and accounting departments but to others as well. It should clearly state that any fraudulent activity in any part of the organization will not be tolerated.

It clearly defines retaliation. Make sure the policy defines the many forms of retaliation, including termination or layoff, demotion, denial of overtime pay, denial of benefits, failure to hire or rehire, threats, reassignment to a lower position, and reduction of pay or hours. Other forms of retaliation may be more subtle but should also be defined in the policy, including isolating, ostracizing, or falsely accusing the whistleblower of poor performance. Also include constructive discharge (making it so uncomfortable for an employee at work that he or she leaves), suspension, discrimination, and blacklisting (to deny the person future job opportunities).

It includes a mechanism for reporting complaints. In today’s world, the best way to report the complaints might be through a web-based platform.

It includes a clear method for complaint resolution. Ideally, there should be a compliance officer, but in smaller organizations volunteers or an ad hoc board team may have to fulfill this responsibility.

It has been reviewed by an attorney. This step is essential to ensure that the policy complies with federal and state law.

It is communicated widely. Communicate the policy not only to staff but also to all constituents—members, vendors, donors, even legislators and the public—so that it is clear that the organization is transparent and will not tolerate any unethical activity.

It protects against false allegations. The policy should state that allegations must be based on reasonable grounds and that anyone who knowingly provides false statements will be disciplined. It should also spell out the disciplinary action that can be taken.

Whistleblower policies are a crucial part of organizational transparency and are critical to protecting against fraudulent or illegal behavior in an association. In short, a whistleblower policy is not a luxury for associations, it is a necessity.