ACCOUNTABILITY,
TRANSPARENCY & ETHICS:
QUIZ FOR NONPROFITS
Editor
Note: Take the quiz below, count your Yes's and check below to see
how you measure up. Article written in 2009 but stil relevant.
While
Bernie Madoff's Ponzi scheme was a for-profit scandal, it resulted
in the deaths of 51 foundations, and many other nonprofits were adversely
affected. As one nonprofit financial officer - who considered investing
but declined after investigating an offer that sounded too good to
true - said, "Having procedures in place and simply doing the kind
of due diligence does result, in this case, in avoiding the problem."
That was acting accountably, but let's face it: despite a barrage
of news headlines, ensuring your organization is accountable, transparent
and ethical is not particularly sexy. The press and even donors will
ignore these issues unless (or until) you screw up. So what is involved?
Nonprofits
enjoy special tax exemptions that promote the idea of a public trust.
It helps if board members think of themselves as advocates for the
community. The public is entrusting to you the responsibility of running
your organization successfully, sensibly and ethically for the benefit
of the community. In these days of increasing regulations and financial
meltdown, boards and staffs must demonstrate that their programs/services
are effective at accomplishing their mission and run prudently and
honestly.
To
increase trust, organizations need to share with the public information
about their agencies, i.e. - be transparent. Just take a cue from
the younger generation's Facebook mentality and you will see the future
of transparency. The more information you share with the public, the
more you are apt to be considered accountable.
However most nonprofits don't get it. In a recent study
on transparency by Guidestar only 43 percent of nonprofits posted
their annual reports and only 13 percent posted their financial audits.
In fact, most organizations have nothing to hide. The
great majority of nonprofits (especially small-to-mid size agencies)
are not overpaying their executives, nor are board members benefiting
financially from their connections to the organization (usually quite
the opposite).
Accountability
includes having solid financial controls in place and basing decisions
on hard data using prudent and reasonable thinking. Tight budgets
mean you cannot waste funds on unsuccessful programs. You must be
able to show that your programs and services fit your mission, accomplish
specific goals and include oversight for quality control.
Using
the "fish test" can eliminate conflicts of interest, another area
of concern that generates publicity. If it smells fishy it is not
ok, either because it is generally a conflict or because it looks
like one and in either case is problematic. Just ask: would I want
this on the front page of our local newspaper? (Ok - these days it's
more likely to be your local blog, but you get the idea).
Ethical
leadership is about ensuring your leaders' behavior is honest and
consistent with the organization's values and beliefs. Doing what
you say you will and treating others as you would like to be treated
are invaluable traits. Honesty - in particular in your fundraising
practices - goes along with nothing to hide. Actions do speak much
louder than words! So much of what the nonprofit world does is admirable;
these measures should not be difficult.
SEE
HOW YOU MEASURE UP - TAKE THE QUIZ BELOW
Mission
& Program Evaluation 1. Does your organization periodically evaluate your programs
and services to ensure they are aligned with your mission?
Yes
No
2. Does your organization periodically evaluate your programs and
services to ensure they are effective at accomplishing their goals?
Yes
No
Governance
& Financials 3. Does the Board conduct sound budgeting practices and ensure
financial controls (such as independent audits) are in place to avoid
irregularities?
Yes
No
4. Does the Board review the prudence of overhead expenses (administration
and fundraising expenses vis-à-vis program expenses) and fundraising
ratios (what it costs to raise a $1)?
Yes
No
5. Does your organization have a process for determining and reviewing
executive compensation for reasonableness that is reflected in the
board minutes?
Yes
No
6. Is the Board familiar with the organization's Form 990 (the return
submitted by nonprofits to the IRS) and does it and ensure that the
organization's leaders can attest to its accuracy?
Yes
No
7. Does your organization utilize recruitment strategies that create
boards with diverse backgrounds (including, but not limited to, ethnic,
race and gender), experience, and the organizational and financial
skills necessary to advance the organization's mission?
Yes
No
8. Does your organization have a whistleblower protection policy and
document destruction policy?
Yes
No
Ethics
and Conflicts
9. Do leaders perform with ethical and trustworthy behavior (i.e.,
practice what they preach, avoid nepotism and favoritism, promote
respectful and professional behavior)?
Yes
No
10. Does your organization have a policy to ensure only reimbursement
of reasonable and necessary expenses for board and staff (e.g., travel,
meals)?
Yes
No
11. Does the board have policies that ensure the independence of a
substantial number of board members (free of conflicts of interest)?
Yes
No
12. Does your organization have a conflict of interest policy for
board members and high-level staff members?
Yes
No 13. Does your organization have a code of ethical conduct that
includes a values statement?
Yes
No
Transparency
14. Does your organization share information with the public about
its programs/services and their impact?
Yes
No
15. Does your organization share information with the public about
its Form 990?
Yes
No
16. Does your organization share information with the public about
its audit and financial information?
Yes
No
17. Does your organization share information with the public about
the background and demographics of its board members and key staff?
Yes
No
18. Is all (or most of) the above information available on an accessible
website?
Yes
No
Fundraising
19. Are your fundraising materials honest and do all funds raised
support the programs they were given for?
Yes
No
20. Are donors' wishes for privacy followed and an opt-out option
given for mailing lists or trading?
Yes
No
Scoring:EVALUATE
YOUR SCORE BY COUNTING "YES" BOXES - CHECK BELOW TO SEE HOW YOU MEASURE
UP AND TO READ MORE ABOUT PARTICULAR AREAS WHERE YOU MIGHT HAVE HAD
"NO's."
20Amazing! Please share your practices by emailing us……we would
like love to hear from you.Email
16-19Great! Keep up your good practices and share your model policies
for others to learn from. (You can Email
us also;
we would like to hear more about your practices).
10-15Good. There is room for improvement.
5-9A Start. You show some awareness of accountability areas but
need to advance beyond the basics.
0-4
Need Improvement. Time to get serious about accountability. Engage
your board, staff, and volunteers quickly to help make the needed changes.
Mission
& Program Evaluation
Accountability starts with aligning your services and programs with your
mission and ensuring they are successful. This item is not always first
on these types of checklists but if you are not working to fulfill your
purpose your existence is meaningless. You need to demonstrate that you
are providing a meaningful and effective benefit to the community. This
usually involves periodically (at least every few years) assessing the
needs of the community and evaluating your programs to see if they are
meeting those needs and are running efficiently and professionally.
Governance & Financials Overhead: While many factors could and should be looked
at to ensure prudent financial accountability, charitable oversight organizations
and donors often scrutinize nonprofits regarding the ratio of spending
on programs compared to spending on administration and fundraising (i.e.,
overhead). Throughout the nonprofit sector, there are wide discrepancies
in how this information is reported. Nonprofits should be honest about
what it costs: too little spent on overhead is not prudent management
and too much will irritate your supporters.
Finances: Boards need to guard against under-funding and
under-hiring in the accounting and finance departments. These are skilled
positions and management should either hire trained, experienced staff
or outsource the work to professionals. Regular audits or financial reviews
will help ensure that needed controls are in place and your books are
in order. Securing an independent auditing firm has become a very big
issue (and an expense) since passage of the Sarbanes-Oxley Act. This is
the accounting reform law that primarily focused on for-profit companies
whose cozy relationship with auditors led to turning a blind eye to financial
irregularities. It is, however, now required in some states (i.e., California)
that nonprofits form a separate, independent Audit Committee of the board
of directors, with no staff as voting members. Sarbanes-Oxley also mandates
that nonprofits have whistleblower protection and document retention policies.
Examples can be found using a search engine.
Form 990: It is vitally important that board members be informed
about the IRS Form 990. This is your organization's annual return. It
is akin to a tax return and was recently changed and updated - now all
organizations need to file it (small organizations can use an e-postcard).
It includes, among other things, administrative, fundraising and program
costs, the compensation packages of high-level staff, and information
about your programs. Some nonprofits are ignorant about, say, the difference
between a program cost and an administrative cost. Others are aware of
the difference but tend to "fudge" in order to keep administrative expenses
low. Ignorance is not a good excuse. For the first time, the 990 this
year asks for information about the governance practices of your organization
(e.g., do you have a conflict of interest policy?). Some question the
appropriateness of the IRS asking these questions, but it is doubtful
they are going away any time soon, and the requirements may get even more
cumbersome as time goes on.
Compensation: For most nonprofits, paying your E.D. paying
a decent salary is a far more important issue than overcompensating this
person, yet it is overcompensation that we read about all the time in
the news. The correct standard is "just and reasonable" compensation,
and board oversight should include and document a review of market practices
in your area.
Board Recruitment: Board member recruitment strategies need
to be based on the needs of the organization, not the friends of the current
members. Diversity outreach that goes beyond tokenism is simply de rigueur
for any nonprofit that is serious about meeting the community's needs.
Ethics and Conflicts Conflicts of Interest:The board owes a "duty of loyalty"
to represent and act in the organization's best interests. As a board
member, you must subordinate your personal interests to the welfare of
the organization, which means that you should not compete with the organization
or take advantage of privileged information for your own benefit. Understand
that not all conflicts are avoidable but being honest and above-board
(e.g. - not voting when a conflict arises) should be standard operating
procedure and reflected in all minutes. Follow the fish test (if it smells
fishy there is at least the appearance of a conflict) and you will meet
this standard. A best practice is to have independent board members -
those with no obvious conflicts - make up a substantial majority of your
board to ensure ethical behavior. Put "nonprofit conflicts of interest
policy" in a search engine and many examples show up which your organization
can review; you can then discuss what works best for you (even the IRS
has one).
Ethics: Codes of conduct that outline your governance policies
are becoming both popular and necessary to demonstrate that you have thought
about ethical issues and developed your own standards. The Independent
Sector has compiled over 100 compendia of standards, codes, and principles
for nonprofits. "These guidelines help board members, staff and volunteers
demonstrate their commitment to practice that is responsible, accountable,
and ethical, and provide benchmarks to determine how well an organization
is fulfilling its responsibility to its contributors and the general public."
Values: Organizations should create value statements (a great
staff and board exercise) for the organization; these can be incorporated
into your codes of conduct. All organizations should include in their
values treating others with respect and honesty; this is a hallmark of
any well-run organization. In addition, nepotism and favoritism demonstrated
by leaders erode confidence that the organization believes in competency
as a high value, which will ultimately erode effectiveness.
Transparency
Our favorite quote about transparency is from Supreme Court Justice Louis
Brandeis referring to the benefits of openness and transparency: "Sunlight
is the best disinfectant." How much do you tell the public? By this we
mean how much are you and your organization telling the outside community
(your donors and stakeholders) about your agency? Remember to think: We
don't have anything to hide. This is an opportunity to shine, so more
is better!
Transparency
should include (but not be limited to) sharing information about your
programs/services and your finances with the public. This is often done
in an annual report that can be displayed on your website. You must share
with the public (when asked but better to volunteer) the required IRS
Federal Form 990. If you do not want to make it available to the public
yourself, other organizations such as Guidestar are already doing this.
The
latest trend among forward-thinking organizations is to share biographical
and diversity information about its leaders with the public while respecting
privacy. This goes a long way toward being accountable as it demonstrates
who the decision-makers are and where they come from.
Fundraising
Sometimes things seem obvious when you stop to think, but not everyone
does. Being honest about your fundraising, including what you are soliciting
funds for, exercising control over fundraising activities (i.e., do not
let a consultant or firm make fundraising decisions without agency knowledge
or oversight), and respecting donors' wishes and privacy should be no-brainers.
Your job is to make sure these happen. Donors should be given the option
to have their names removed before any list is shared. Many states now
have detailed regulations in this area but again honesty and respect (this
time for your donors) are critical.
Conclusion
While it might seem a bit overwhelming when looking at the myriad issues
about which nonprofits should be aware, being accountable, ethical and
transparent are best practices all organizations should follow - and they
also make good common sense.
If
your nonprofit is interesed in the following workshop please contact us
at 510 510 (dot) 755 (dot) 5701
Creating
a Culture of Transparency:
Establishing and Ensuring Integrity in Your Nonprofit Workshop includes:
Accountability
governance standards
Transparency
- what it means today
What
the watchdog groups look for
Overhead
expenses and the IRS Form 990
Value
statements and codes of ethics
Nonprofit
conflict, whistleblower and document destruction policies.
Copyright
2009 Zimmerman Lehman.
This information
is the property of Zimmerman Lehman. If you would like to reprint
this information, please see our reprint and copyright
policy.
