This new standard, along with several others, was added in connection to the new IRS Form 990. Although the IRS doesn’t prohibit loans to employees or board members, it does ask about it. However, in reviewing our Accountability Standards, the Council felt it was important to address this issue.
Now some could argue that providing loans to employees is a way to attract top talent and to ease the cost of moving to a new city or state. We’ve also heard from some organizations that they provide very small loans (less than $500) to employees in times of need. In both instances, these practices wouldn’t be allowed under this new standard since it makes a blanket statement that no loans or loan guarantees will be provided. Our feeling is that although there may be good reasons to offer loans to employees or board members, the funds raised by a nonprofit should be in support of its mission and solely used for that purpose.
For those that have been following this blog, you know by now that we want your opinion on this topic. By making a blanket prohibition on loans to employees, board members and trustees are we going too far? Or did we hit the mark?
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