Accountability is critical for today’s nonprofits

In recent years, the issue of accountability for any type of organization has garnered a lot of attention. Perhaps most notably, both public and private for-profit companies have been struggling to adapt to either the tenets or the effects of the Sarbanes-Oxley Act of 2002.

Although nonprofits in most states don’t have a specific piece of legislation dictating their standards of accountability, there can be no overstating the importance of operating your organization in an accountable manner. Simply put, accountability is a critical issue for today’s not-for-profits.

4 areas of accountability

A basic definition of accountability is fairly obvious: To conduct business transparently and ethically, always standing at the ready to provide the public with a thorough explanation of any action taken by your nonprofit. Generally, accountability takes place in four areas:

1. Finances. You should conduct regular, board-approved audits that are attested to by the executive director and principal financial manager. If your nonprofit doesn’t have an audit or finance committee, your board must review internal financials and compare them to the budget quarterly. In addition, your board should establish and regularly assess clear measures for financial performance that are open to public review. You must also follow any other common financial practices that apply to your activity area.
2. Governance. There can be no accountability without governance. That is, you must set in place the means and measures to keep your organization in compliance with all applicable laws, rules and guiding principles. More specifically, author and nonprofit expert Steven Ott describes a nonprofit’s governance as “a product of its purposes, people, resources, contracts, clients, boundaries, community coalitions and networks, and actions as prescribed (or prohibited) in its articles of incorporation and bylaws, state laws and codes, and the IRS codes and rules.”
3. Disclosure practices. You need to comply with all legally required reporting procedures. For example, any concerns or complaints related to accounting, internal accounting controls or auditing should be reported to the appropriate personnel (management or HR). Also, evidence of activity that may constitute fraud or violate federal or state law should be communicated to the appropriate personnel or your organization’s help line, which allows employees to report information confidentially.
4. Programs. As you carry out your initiatives, you must do so fairly and in the best interests of your constituents and community. Your status as a nonprofit means you’re obliged to use your resources only toward your mission and to benefit the community that you serve.

The role of the board

You’ve probably heard the expression “the buck stops here.” Well, when it comes to accountability, the buck unquestionably stops with your board. As such, it’s important that your board operate as soundly as possible.

For starters, be sure your board is focused on carrying out your organization’s mission — and doesn’t become mired in process-oriented details best handled at the staff or committee level.

Also, your board, not the executive director or staff, should set your not-for-profit’s agenda. Meetings should be structured around annually established strategic goals, and they shouldn’t be used for show-and-tell sessions or endless reports. The board is there to provide leadership, not act as an audience.

Last, at least annually, your board needs to examine its effectiveness as a whole. Is your nonprofit using its resources wisely, or do internal or external factors require changes in board or committee structure? If so, don’t be afraid to make those changes.

Beyond discussion

Not-for-profits that truly embrace accountability go beyond occasionally discussing the subject. To inspire trust and nurture loyalty among your key stakeholders, you need to establish measures to ensure accountability and regularly review these measures to make sure they’re effective. •