Strengthen your organization’s transparency and governance
Building an organization committed to the highest ethical standards demands more than just following the law: it also requires fostering practices that create an environment of transparency, accountability and integrity. The steps listed here will help every charitable organization reassure its stakeholders of its commitment
to upholding the public trust vital to earning support and fulfilling its mission. Creating an accountable organization is an ongoing process. Board and staff members should review recommended practices regularly, and adjust their rules, methods and communications as needed.
Fortunately, no one has to start this work from scratch. There are many resources available as models, and we encourage you to share your policies and practices with colleagues. Independent Sector recommends that each charitable organization take the following steps to demonstrate accountability. Adapt them to fit your unique circumstances, and check back for updates as the checklist is expanded.
1. Develop a Culture of Accountability and Transparency
Rules, standards, and practices are far more effective when
the people they affect understand them, know why they
are important, and embrace them. Teach new employees,
volunteers, and board members about your principles,
and give those with more experience refreshers and
updates. Use your website, intranet, and other internal
communications vehicles to share examples of good
behavior and policies.
Obedience to the Unenforceable: Ethics and the Nation's Voluntary and Philanthropic Community by Independent
Sector, explains why nonprofit organizations need to promote sound ethical behavior.
2. Adopt a Statement of Values and Code of Ethics
This document describes the ethical principles that an organization’s staff, board and volunteers agree to follow, and includes a statement of values articulating the principles it is committed to uphold. An indispensable part of an accountable organization, a statement of values and code of ethics should be approved by the board of directors, included in staff and board orientations, and available to the public on the organization’s website.
Independent Sector offers a model Statement of Values and Code of Ethics for Nonprofit and Philanthropic Organizations and a checklist for developing your own.
w w w. i n d e p e n d e n t s e c t o r . o r g / i s s u e s / a c c o u n t a b i l i t y /
Good Governance: The Devil is in the Details by William S. White, chairman, president, and CEO of the Charles Stewart Mott Foundation, uses the experiences of the Mott Foundation to show the commitment it takes to
create an ethical, transparent organization.
Access more than 100 standards, codes and principles from a number of charity watchdog groups and associations, as well as individual organizations at IS’s web- based compendium of standards.
Ten Things That Every Director Should Know For 2004 by Ira M. Millstein, Holly J. Gregory, and David Murgio, has ten items that a director should know to adhere to the spirit of good governance.
3. Adopt a Conflict of Interest Policy
Adopt and enforce a conflict of interest policy tailored to your organization’s specific needs and consistent with laws in your state. Few actions will undermine the credibility of a charitable organization faster than having its tax-exempt funds not used exclusively for charitable purposes. Adhering to a well-defined conflict of interest policy will help preempt even the perception that funds are being used for personal gain by the managers or board members. Many states have laws that govern conflict of interest situations and all organizations should consult their state laws to ensure that their conflict of interest policy affords them the necessary protections.
A conflict of interest policy should:
The Internal Revenue Service has a Sample Conflict of Interest Policy available on its website.
4. Ensure that the Board of Directors Understands and Can Fulfill Its Financial Responsibilities
The board has the legal—as well as ethical—responsibility of ensuring the exclusive and effective use of all assets for
charitable purposes. As part of this obligation, the board or appropriate board committee should review and
approve all financial statements for completeness and accuracy. To perform this function effectively, the board
should include individuals with financial literacy or adopt other mechanisms for drawing on independent financial
5 Conduct Independent Financial Reviews, Particularly Audits
Charitable organizations need to have independent reviews of their financial procedures, controls, and policies in order to provide strong financial safeguards. Charitable organizations that are required to file a Form 990 or 990-PF and that have average annual revenues of $1 million or more should have an audit conducted of their financial statements and operations. These statements should be made available for public inspection. Charitable organizations that are required to file a Form 990 or 990-PF and that have at least $250,000 and under $1 million in total annual revenues should have their financial statements
reviewed by an independent public accountant. Organizations with less than $250,000 in annual revenues should consider periodically obtaining a review of financial statements or other means of independently verifying financial statements and controls.
Charitable organizations that conduct audits should:
?Avoid any conflict of interest in staff exchange
between audit firm and organization;
?Disclose your audited financial statements in a current
and easily accessible way; and
?Consider rotating audit firms or partners every five
years or more when it makes sense to do so.
Audit committees are responsible for:
?Retaining and terminating the independent auditor;
?Reviewing the terms of the auditor’s engagement at
least every five years;
?Overseeing the performance of the independent
?Conferring with the auditor to ensure that the affairs
of the organization are in order;
?Recommending approval of the annual audit report
to the full board;
?Overseeing policies and procedures for encouraging
whistleblowers to report questionable accounting or
auditing matters of the organization;
?Approving any non-audit services performed by
the auditing firm;
?Reviewing adoption and implementation of internal
financial controls through the audit process; and
?Monitoring the organization’s response to potentially
illegal or unethical practices within the organization,
including but not limited to fraudulent accounting.
Checklist for Accountability
6 Ensure the Accuracy of and Make Public Your Organization’s Form 990
The IRS Form 990, Form 990-EZ, and Form 990-PF is one way that organizations share information about their finances and operations with charity regulators and the public. To be effective, however, its information must be complete, accurate and publicly available. Be sure to have your Form reviewed by your board and signed by your CEO or CFO. Support efforts to improve the quality and timeliness of information about nonprofits by filing your Form electronically with the IRS. And, finally, be sure to post it on your website.
Charitable organizations that file a Form 990, Form 990- EZ, or 990-PF should:
7. Be Transparent
Your donors, volunteers, and staff will have much more confidence in your organization’s work if they know how you’re doing it. Use your website to share documents that provide information about your finances, operations, governance, and impact.
Information that should be on your website.
8. Establish and Support a Policy on Reporting Suspected Misconduct or Malfeasance (“Whistleblower Protection Policy”)
In order to protect the credibility of your organization, each organization needs policies and procedures that encourage individuals to come forward as soon as possible with credible information on illegal practices or violations
of adopted policies. Employees and volunteers who identify misbehavior must feel safe to report it. Not only
is this good practice, but the Sarbanes-Oxley Act requires all entities, including nonprofit organizations, to protect whistleblowers and levies criminal penalties for actions taken in retaliation against whistleblowers.
Independent Sector’s “Reporting of Financial, Auditing or Governance Improprieties” policy is a model for other organizations.
National Council of Nonprofit Associations, a network of state and regional associations of nonprofits, offers a sample whistleblower policy.
Next Page: Remain Current with the Law
9. Remain Current with the Law
Make sure that a board member, member of staff, consultant or volunteer is designated to keep up to date with the law. Ensure that your organization fully complies with all existing laws governing charitable organizations.
Checklist at a Glance
1. Develop a culture of accountability and transparency.
2. Adopt a Statement of Values and Code of Ethics.
3. Adopt a Conflict of Interest Policy.
4. Ensure that the board of directors understands and can fulfill Its financial responsibilities.
5. Conduct independent financial reviews, particularly audits.
6. Ensure the accuracy of and make public your organization’s Form 990.
7. Be transparent.
8. Establish and support a policy on reporting suspected misconduct or malfeasance, also known as Whistleblower Protection Policy.
9. Remain current with the law. Assess your organization’s accountability IQ, page 4
Checklist for Accountability: Test Your Accountability IQ
Does Your Organization:
Give your organization one point for every yes. If your organization scores:
Visit www.IndependentSector.org for:
. . . and on the more about all item checklist!s
The Checklist for Accountability combines recommendations made by Independent Sector and the Panel on the Nonprofit Sector. It was developed with the additional input of the Ethics and Accountability Committee and Communications and Marketing Advisory Task Force. Request to reprint the Accountability Checklist available on the IS website
© Copyright Independent Sector - JUNE 2005