Whistleblower Policy

Why Your Nonprofit Must Implement a Whistleblower Policy

Federal law prohibits all corporations—including nonprofits—from retaliating against employees who report concerns about financial mismanagement or questionable accounting practices. On top of that, over 45 states have their own laws protecting whistleblowers from workplace retaliation.

By putting in place a process that allows complaints to be reported safely and investigated properly, your nonprofit not only ensures compliance with these laws but also increases the likelihood that any problems are addressed quickly and effectively.

The Importance of a Whistleblower Policy

Adopting a whistleblower protection policy sends a strong message to your employees, board, and donors: your nonprofit takes accountability seriously. It shows that your organization is open to hearing concerns and is committed to ethical and transparent operations.

When Congress passed the Sarbanes-Oxley Act in response to corporate scandals, the law included provisions that also apply to nonprofits. These include:

Prohibiting retaliation against whistleblowers.

Banning the destruction of evidence related to investigations.

As a result, it is strongly recommended that all nonprofits adopt a whistleblower policy—not just for compliance, but as a best practice.

Today, many nonprofits are expanding their whistleblower policies beyond financial issues. These policies often include ways to report concerns about workplace safety, discrimination, harassment, or other operational problems. Even nonprofits without paid staff should have a policy in place to protect volunteers who speak up.

Benefits of Encouraging a Speak-Up Culture

Organizations with open-door policies and zero tolerance for retaliation are considered more accountable and trustworthy. They are better equipped to handle internal concerns in a proactive and ethical way.

Whether someone is reporting accounting fraud, unsafe working conditions, or misconduct, having a policy in place ensures they feel safe doing so.

The IRS’s View

The IRS supports whistleblower policies for nonprofits because they:

Encourage staff and volunteers to report illegal activity or violations of organizational policy.

Make it clear that retaliation will not be tolerated.

Outline specific channels—whether staff, board members, or outside parties—through which concerns can be reported.

Want help assessing your risks? Send us an email to request a 15-minute risk assessment memo. nathaniel@mckenzieforensic.com