Not-for-Profit Accountability and Transparency

Not-for-Profit Accountability and Transparency

Everyone talks about not-for-profit accountability and transparency, but what is it, how is this best achieved and whose responsibility is it anyway? Accountability and transparency are necessary in today’s not-for-profit environment because these elements can shield the organization from negative public comments and are an indication of good governance.

Not-for-Profit Accountability

Accountability relates to how much trust an organization can demonstrate. In a not-for-profit environment, there are multiple layers of responsibility when it comes to accountability. It starts with the Board members; we are all familiar with the phrase “tone at the top,” and this trickles down to the management, employees, volunteers and vendors. The organization is accountable to contributors or funders, program recipients, regulators and the general public. This accountability varies as far as importance and applicability to each group based on the type of not-for-profit organization. For instance, a membership organization may be more accountable to its members, a social service organization may be more accountable to the recipients of its services, contributors, governmental or foundation funders and an advocacy network may be more accountable to the general public or to certain communities or groups.

Not-for-Profit Transparency

Transparency relates to making information available to the public. Donors will give to organizations that they trust will use their contributions wisely and are primarily concerned that the funds they contribute towards an organization’s program or mission are properly spent. Not-for-profit organizations must be transparent in their finances, governance and program performance. Federal law does not mandate any particular administrative policies or procedures; however, as demonstrated by the questions on Form 990, the IRS is authorized to ask any information they consider relevant to tax administration and governance. In the IRS Compliance Guide for Public Charities, the IRS encourages the adoption of a mission statement, an actively engaged governing body; policies relating to conflict of interest, document retention and destruction, and whistleblower; and documentation of governance decisions.

Financial Accountability

Financial accountability requires an organization to maintain a strong, effective management system which includes segregation of duties and approval processes to help reduce errors, misappropriations and fraud in the reporting of information. It includes complying with donor restrictions on the use of funds and expending funds only for purposes related to the organization’s mission. Providing audited information to the public via the organization’s website, submitting information to GuideStar or a charity watchdog site, or publishing an annual report can best serve to provide information on a regular basis to any interested party. The 990 or comparable document should be readily available to the public; reporting on the use and oversight of funds shows that the organization is transparent in its financial responsibilities. Certain funders require specific reports on the source and use of funds based on financial information maintained, documented and reviewed internally by management and the Board or a Committee of the Board.

Earning the Public’s Trust

Board members earn the public’s trust by demonstrating ethical leadership and responsible practices. Governance accountability starts with making certain documents available to the public, including their bylaws and governing documents, a written conflict of interest policy, code of conduct, code of ethics, document retention and destruction policies and their whistleblower policy.

Board oversight of finances, internal controls and compliance requirements also helps to establish trust with the public. The adoption by the Board of a set of policies and procedures which serves as the basis for Board decisions and actions should be documented in writing. These policies and procedures relate to the finances of the organizations in the form of an accounting manual and the conduct of employees in the form of a personnel manual.

A written mission statement also reflects an organization’s purpose and its goals as they relate to the resolution of certain social problems. This mission statement should be revisited and modified as societal needs change based on goals which have been achieved or new needs identified.

Clients will seek out an organization for services and recommend that organization to others when the organization has shown that it is accountable for its actions and responsive to the needs of the communities it serves. An organization can demonstrate transparency in program performance by making available the results of their program, both quantitatively and qualitatively, and linking their programmatic goals to actual outcomes achieved. This can be achieved by preparing public announcements, discussing their programs with potential donor groups, sharing their information via the web, reporting compliance requirements with funders and including specific results on their Form 990.

The many layers of responsibility require the organization to document what they do and how they do it. Preparing reports, evaluations and assessments and complying with industry regulations are the best ways to accomplish this task. If the organization falls short in any area based on the internal or external monitoring of their activities, steps must be taken to regain the public trust. Unfortunately, it seems that public demands for information are only increasing and additional resources will need to be allocated to the area of not-for-profit accountability and transparency in order to comply.

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