June 25, 2015
Associations and charities do incredibly important work. And it’s a kind of work that engages everyone with a stake in the mission—from the CEO of a multinational NGO down to the young recipient of the hot lunch provided by the PTA. When the people behind a nonprofit turn out to be less than honorable, even criminal, it sends ripples of doubt through the entire affected community.
This kind of fraud can be hurtful in ways small, huge, and excruciating. When a member of the PTA or booster club pockets the cash from the can shake, maybe only a relatively few dollars go astray. When it’s the leadership of an international sports organization enabling fraud on a global scale, it’s hard to wrap one’s head around the amount of money that’s misappropriated. And perhaps the very worst kind of fraud is that which preys on the victims of tragedy or disease.
As donors and volunteers, too, we have to have confidence that our trust is not misplaced. Whether we’re giving canned goods to the local food bank, donating $50/month to our favorite public radio station, paying annual dues to our professional associations, or putting our names on buildings at our alma mater, we believe the people operating the institutions we’re backing understand and will observe their responsibilities in good faith. Because nonprofits depend on a broad base of trust and goodwill for their very existence, retaining that trust is Job One for the Board of Directors, management and staff. People unite around shared missions for good, but that’s not always enough to keep everyone honest—the organization needs to enforce policies that prevent misconduct, and there must be some watchdogs in place.
It boils down to oversight and transparency. Here are just a few ways to earn and maintain your stakeholders’ confidence in the organization.
- Division of labor for constant checks and balances: When the person who writes the checks is the same person who approves the expenses and balances the account, temptation may override judgment. Two or three people must share the responsibility for approving expenses and making payments, with no one person holding all authority. If it’s unavoidable due to limited staff, take the next step:
- Outsource the bookkeeping / require annual audits by CPAs. These expenses are an investment in the organization’s future—the best way to assure your constituents that the management’s hands are not in the cookie jar.
- Public records: Maintain openly available records of tax filings (such as 990s- read a recent blog post about the important form 990 here) and other reports that attest to the organization’s practices and fiscal solvency. Make sure your reports are filed in a timely manner and are complete and accurate.
- Term limits/open elections: A formal process for regular turnover of officials, board members, committee chairs or other leadership is critical. Volunteer misbehavior can take hold in situations where someone has been in place so long that oversight is overlooked.
- Meticulous recordkeeping: Limited file-cabinet space is no excuse anymore. Make sure records are kept for everything your organization does. Avoid relying on institutional memory for facts and figures.
- Reports to the membership/donor community: Provide regularly scheduled reports—annual, quarterly, or some other frequency—that shares how the organization is doing. Tell your story via formal annual reports, member newsletters, testimonials, case studies, or social media (or all of the above), to let your audience see behind the curtain.
- Encourage questions from stakeholders: Leadership should be available for questions on a regular basis. Don’t get defensive when questions are asked—every question shows interest and bodes well for future involvement.
In the nonprofit world, earning the good faith of the constituents goes way beyond good customer service, because they are more than just customers. These procedures are a baseline for protecting your organization, and its stakeholders, from fraud.