“Without
the public trust, nonprofits wouldn’t exist”
Liz
Marenakos
Nonprofit
organizations have the choice to set their own goals; they also craft their own
strategies to reach the goals they want to achieve. As private organizations
that they are, they are granted charters to serve purposes that society has
deemed to be of public benefit. As we have learned through our MPA program,
these organizations are exempted from taxation, and donors are permitted
deductions for gifts made to charitable nonprofits to further those purposes.
This benefit of being exempted from taxation, works as a tax subsidy, making
the nonprofits work with the public’s money; this makes these nonprofits
accountable for their use of the resources entrusted to them and that those
resources are being directed toward the pursuit of their social missions.
Nowadays, with all the
financial and economic problems that entire countries are going through, calls
for greater accountability are not new. Leaders of different types of
organizations (nonprofit, business, or government), are facing nowadays even
more demands from several constituents claiming for accountable behavior.
As we have learned, accountability is about trust.
Nonprofit leaders pay attention to accountability issues once they see a
scandal in the sector or in their own organization, and they should be always
looking forward to avoid accountability problems, because as nonprofit
organizations, having a tarnished accountability reputation hinders their
chances of growing, getting donations, accessing grants, etc.
Being accountable means being required to answer, to take
responsibility, for one’s actions. There are three principal mechanisms by
which nonprofits are held accountable: the rule of law; self-regulation, and
transparency. That is, holding nonprofit behavior up in clear view for donors,
the media, and others to see. (Worth, 2012)
Accountability is all about being responsible to those
who have invested their truth, faith and money in you. Legitimate authorities
are not the only stakeholder nonprofit organizations are accountable to.
Nonprofits must be accountable to multiple stakeholders, including private and
institutional donors; local, state, and federal agencies; volunteers; program
recipients; and the public at large. (Blackbaud, 2011)
Steps
for Nonprofit Accountability
8 steps
to strengthen non-profit organizations’ accountability and transparency:
1.
Develop a Culture of Accountability and Transparency.
2. Adopt Code of Ethics. 3. Adopt a Conflict of Interest Policy. 4. Ensure that the Board of Directors Understands Financial Responsibilities. 5. Ensure the Accuracy of Form 990.(How to read it)
6.
Conduct Independent Financial Reviews.
7. Be Transparent. 8. Establish and Support a Policy on Reporting Suspected Misconduct or Malfeasance.
To learn
more about each step, watch the video*.
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Arguments in favor of improved nonprofit
accountability:
• Accountability
has the potential to increase the trust and commitment of stakeholders because
it can prove an organization’s effectiveness and demonstrate whom the
organization represents. It thereby increases the organization's legitimacy.
• Accountability
increases organizational performance and learning.
• Accountability
may help counter criticisms that nonprofit organizations are "secretive, undemocratic
in their decision-making and have less than rigorous standards of
governance".
• McKinsey &
Co has made a financial argument, claiming that the U.S. nonprofit sector alone
could leverage an additional $100 billion if it changed its notions of stewardship
and its operating practices. This effect is also closely linked to the three
above mentioned benefits. (Lee, 2004)
ACCOUNTABILITY
FOR WHAT?
Given
that nonprofit organizations face demands for accountability from multiple
actors, it follows that they are expected to be accountable for different
things by different people. These expectations may be broken down into four
broad, but far from comprehensive, categories: accountability for finances,
governance, performance, and mission (Ebrahim, 2010).
Several questions about finances
have received more attention in the wake of various accounting scandals and
crises not only in the nonprofit world but also in the private sector. The second type of expectation focuses on
organizational governance which, especially in the United States and United
Kingdom, has often centered on the role of the board of directors. The third
broad stream of accountability demands centers on performance, built on the
premise that organizations should be held to account for what they deliver. The
fourth type of accountability that focuses on the very core of nonprofit
activity: organizational mission.
ESTABLISHING
ACCOUNTABILITY
There are several steps
that nonprofits can take to make their financial processes more effective and
their activities more transparent. As Thomas McLaughlin mentions, there are
four principles of accountability:
- Systems (procedures and technologies, including internal controls and smart software that produce predictable results)
- Oversight (including financial reporting and solid governance structures)
- Culture (an intangible quality that reflects the values of the organization)
- Knowledge (professional financial expertise, along with a well-trained board and staff) (Blackbaud, 2011)
There are many
mechanisms of accountability available to nonprofits — including, for
example, better
information disclosure, evaluation and performance assessment, industry
codes and
standards, participation, and adaptive learning (to name just a few). Nonprofit
leaders must
adapt any such mechanisms to suit their organization, whether it is a
membership-based
organization, a service-delivery nonprofit, or an advocacy network
(among others).
CONCLUSION
Nonprofits are expected to be
accountable for multiple purposes: finances, governance, performance, and
mission. These expectations cannot be handled separately, but require
integration and alignment throughout the organization.
There
are many mechanisms of accountability available to nonprofits including, for
example, better information disclosure, evaluation and performance assessment,
industry codes and standards, participation, and adaptive learning.
The charitable sector is based on
public trust. Nonprofits count on private donations and government funding to
carry out critical services in communities across the United States and around
the world. As a result, every nonprofit should have in place a governance
structure and strict financial controls in order to assure their stakeholders
that every dollar invested in their organization is appropriately allocated and
well spent.
References
Lee, Julian. "NGO Accountability: Rights and Responsibilities." . CASIN, 2004. Web. 6 Jul 2012. <http://www.icomfloripa.org.br/transparencia/wp-content/uploads/2009/06/ngo_accountability_rights_and_responsibilities.pdf>.
Ebrahim, Alnoor. NGO Accountability: Rights and Responsibilities. Harvard, 2010. Web. 6 Jul 2012. <http://www.hbs.edu/research/pdf/10-069.pdf>.
Worth, Michael. Nonprofit Management Principles and Practice. 2nd. Thousand Oaks, CA: Sage Publications, Inc, 2012. 133-57. Print.
Marenakos, Liz. "Accountability Matters." Whitepaper Accountability. Blackbaud, Oct 2011. Web. 6 Jul 2012. <https://www.blackbaud.com/files/resources/downloads/WhitePaper_Accountability_Full.pdf>
Kuralay0505. Steps for Nonprofit Accountability. 2009. Video. YouTube. 6 Jul 2012. <http://www.youtube.com/watch?v=Wn__L_8anMc>.
Baibatyrova, Kuralay. "Nonprofit Accountability."Nonprofit Accountability. N.p., 2010. Web. 6 Jul 2012.<https://sites.google.com/site/nonprofitaccountability/Home>
