When it comes to spending publicly-raised funds, nonprofit organizations often have to jump through a number of hoops to remain compliant. In most cases, there are strict purchasing guidelines to follow that include strict vendor selection and clear-cut payment terms.
This should come as no surprise. Nonprofits play a vital role in our communities and it’s their responsibility to ensure that progressive and positive practices come from spending public funds, practices that benefit all of society.
In this blog, we outline the four key considerations you need to make when writing a nonprofit purchasing policy so that you can produce a clear, concise, and easy-to-digest rulebook that minimizes the risk of non-compliance, and that reduces wasted spend.
Before we begin: the five methods of procurement
Uniform Guidance, as outlined by the U.S. Office of Management and Budget (OMB), remains to be the standard for regulatory compliance in the nonprofit space since their introduction in 2014.
Under Uniform Guidance, spend management rules apply to all federal awards and contracts where there is the use of government capital to obtain goods and services that help further a nonprofit’s cause.
To ensure compliance, it’s important to know these rules inside and out, and although they evolve year over year, keeping up with the changes is a necessary part of responsible spending.
Here are the five basic principles of procurement, as outlined by Uniform Guidance:
- Micro-purchase: If a purchase is below USD$3,000, or below $2,000 if construction related and subject to David-Bacon and related acts, competitive quotes are not required.
- Small purchase: If the dollar amount exceeds the micro-purchase amount but is less than $150,000 (which is the Simplified Acquisition Threshold), informal purchasing procedures are acceptable, but price quotes are still required.
- Sealed bids: If the purchase is more than $150,000, a formal solicitation is required. The responsible bidder (someone who meets all the required criteria, has the required experience, and is the lowest price) receives the purchase.
- Competitive proposals: If the purchase is more than $150,000, this method would be used when sealed bids are not appropriate and there is a fixed price or cost reimbursement contract.
- Noncompetitive proposals: This is also called sole-source procurement and has specific criteria as to when it can be used, such as when an item is only available from one source, or when a public emergency does not allow time for a full competitive proposal, or the competition is deemed inadequate.
With these procurement methods in mind, here are four considerations to make when it comes to your nonprofit purchasing policy.
4 considerations to make when developing a nonprofit purchasing policy
There are a few critical questions you need to ask yourself to ensure you’re producing something that is truly compliant with today’s regulatory standards:
1. Do you understand the foundational procurement principles?
Every nonprofit should know their own culture of spending money, and how it ties in with specific state, local, and federal procurement standards. Ultimately, this will inform your procurement policy, and will ensure you cover areas like how to govern the actions of teams who win grants or government contracts, and how to handle conflicts of interest.
As well as these areas, your nonprofit purchasing policy needs to include Uniform Guidance ‘musts’, which essentially include:
- The organization must maintain written policies and procedures for procurement covering the methods available under these regulations.
- Costs must be reasonable and necessary
- Must provide for full and open competition
- The organization must maintain written standards of conduct covering internal and external conflicts of interest
- The organization must maintain documentation addressing cost and price analysis and vendor selections where applicable based on the method of procurement used.
Are you keeping track of changes to procurement thresholds?
Uniform Guidance spending thresholds are often subject to change, and keeping track of them is key to ensuring your nonprofit purchasing policy is always up to date.
In your policy, be sure to outline where, how often, and when to check and update these thresholds.
For example, in 2018, the OMB issued a memorandum to implement the effect of a National Defense Authorization Act (NDAA). This new ruling increased the micro-purchase threshold from $3,500 to $10,000, as well as affected other purchasing thresholds.
… and are you updating your policy to reflect these updates?
When procurement thresholds change like in the above example, it’s up to your organization to amend your procurement policy to ensure you are compliant with this new threshold. To operate under the higher thresholds outlined above, for instance, your organization must revise the sections of procurement policies that relate to Uniform Guidance requirements.
Remember, you are subject to the ‘most restrictive rule.’ You are bound by your policy’s rules despite increased thresholds.
Have you documented how to avoid (and handle) penalties?
In cases where vendors, teams, or executive board members violate your procurement policy, it’s critical you know what to do.
Outlined in your nonprofit purchasing policy, you need to identify any fines or termination rules that exist should such an event occur.
Adding these into your policy builds trust across your nonprofit and ensures all team members are clear on expectations and how to succeed when spending awarded capital.
More than anything, though, these guidelines help to build a conscious spend culture that creates end-to-end compliance.
Build confidence with compliant purchasing
Retaining regulatory compliance for nonprofits is no easy feat; as we describe above, there are a multitude of rules to follow and guidelines to understand. Without clear documentation of these guidelines, it becomes tricky for team members to know exactly how to purchase, when, and what to do.
But a nonprofit procurement policy really is the tip of the iceberg. Once you’ve outlined how to spend, it’s time to bake those rules into your purchasing workflows so that teams can develop the confidence to spend without fear.
To do that, it requires modern spend management.
To find out how Procurify can help your nonprofit spend smarter and remain compliant, watch a demo today.