Accountability Matters in Nonprofit Organizations

2012-07-03T19:19:00.000-07:00

“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*.

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>

PAD 6142 Blog

Accountability Matters in Nonprofit Organizations