Board Approval of Expenses: A Nonprofit Policy Template

A well-defined expense management for non-profit organizations policy helps protect tax-exempt status and donor trust. For a complete overview, see our expense management guide.

Establishing a Clear Expense Approval Policy

To establish a clear expense approval policy, consider the following key requirements. Any excess advances must be returned within a reasonable period.

• Document the expense policy and make it easily accessible to all staff and volunteers.
• Set clear guidelines for the types of expenses that are reimbursable, such as mileage, meals, and travel expenses.
• Designate a person or department to review and approve expense claims.

To ensure compliance, it's essential to maintain accurate and detailed records of all expenses, including receipts, invoices, and bank statements.

By establishing a clear expense approval policy, you can help prevent fund misuse, ensure financial accountability, and maintain the trust of your donors and stakeholders.

Defining Reimbursable Expenses and Approval Processes

Reimbursable expenses should be reasonable and necessary. To determine what expenses are reimbursable, consider the following guidelines:

• Lodging expenses require receipts. Other expenses of $75 or more also require receipts.
• Reimbursement for expenses incurred in connection with volunteer service, such as parking and travel to meetings, is more typical for board members.

When establishing your approval process, consider the following:

• Ensure that all employees and volunteers understand the approval process and what expenses are reimbursable.

• Program expenses
• Management and general expenses
• Fundraising expenses

Documentation Requirements and Timely Claim Submission

Accurate and timely documentation is crucial for reimbursement. Ensure all expense claims include:

• A detailed receipt or invoice
• A clear description of the expense, including date and purpose
• The name and title of the employee claiming the expense
• The date the expense was incurred
• The amount claimed, including any applicable taxes

For mileage expenses, document the:

• Start and end dates of the trip
• Mileage log with dates, locations, and odometer readings
• Business purpose of the trip

Expense claims should be submitted promptly, ideally within [X] days of incurring the expense. Ensure all supporting documentation is attached to the claim.

For advances, employees should return any unspent amount within [X] days of submitting the expense claim.

Board Approval and Financial Thresholds

The board of directors should approve transactions involving a material commitment of money, changes to the organization's legal structure, major hiring decisions, and any transaction involving a board member or their business.

Some organizations set specific financial thresholds for board approval, such as contracts over $15,000. Consider setting a threshold for board approval that aligns with your organization's size and financial situation.

Nonprofits are prohibited from using funds to benefit individuals connected to the organization (board members, employees, etc.) for personal gain. This means that the board should not approve transactions that could benefit a board member or their business.

Although there are no laws preventing compensation for board service, most public charities do not compensate board members. However, if your organization does choose to compensate board members, the board should approve the compensation arrangement.

This includes receipts, invoices, and other documentation related to expenses. For charitable use, the rate is 14 cents per mile.

Additionally, consider the following best practices:

• Keep all receipts and invoices for a minimum of three years.
• Verify the reasonableness of employee compensation.

Tax rules, limits and rates change. Confirm current figures with the IRS or your accountant before you file.