you have to add a privacy policy somewhere on your site where visitors can view it. Most people make a seperate page with the privacy policy and link it to the home page.
Make a seperate page containing your privacy policy and then place a link to it on your home page. You can use a free privacy policy maker like this one to generate your privacy policy... http://www.serprank.com/privacy-policy-generator/index.php
the privacy policy needs to be visible from any page/post displaying adsense adverts. best method is to add the privacy policy to your site footer
Privacy Policy in the footer is the best bet, Privacy Police, that's a good one, wish the domain name wasn't taken.