Monday, April 09, 2012

Accountability, Transparency & Fraud Prevention in Nonprofit Organizations

In the last few years, the public, the press, donors, volunteers and supporters are more observant and aware of the actions of nonprofits than ever before. There are a number of proactive steps that nonprofit organizations should take to accommodate the changes in expectations and ensure that they are using best practices as stewards.


Simply defined, accountability means that the resources of a nonprofit do not belong to the organization, but instead to the community it serves. This means nonprofit organizations should seek to be open and accountable for decisions and resource allocations.

Nonprofits should make sure that they have up-to-date conflict of interest policies for both the senior management team and executive board. Policies should be reviewed annually with everyone in the organization reading and agreeing to adhere to the policies.

Have an annual outside audit, not just a review. For many nonprofits, an annual outside audit is a cost issue. However, nonprofit academic literature is full of organizations that tried to avoid a $2,000 audit expense and ended up with $30,000 in internal theft. If there has been fraud, theft or other malfeasance, an audit is more likely to find it. One of the benefits of a higher degree of accountability demands is that donors are more willing to help pay for a full audit to maintain accountability.

Have a strategic plan, and encourage input from the community during the planning process. A strategic plan may seem at first glance to have no place in a checklist of ways to improve accountability or transparency. However, planning is not only good stewardship; it also lets everyone know where the organization is going. Having a plan is a public form of accountability. Goals are set and organizations are expected to achieve them, or explain why they didn’t.

Nonprofits should emphasize the value of their mission and discuss trends in businesslike terms. Nonprofits are passionate about their mission and feel that if they talk about it long and passionately enough, other people will join the cause. Sometimes that works. But in the current environment, nonprofit organizations must be both passionate advocates and responsible managers.

Clear and concise financial reports are the best tools to demonstrate impact to the community. It doesn’t do much good to create a financial report if people can’t understand how to read them. It is a good idea to set up a one hour overview followed by a series of short sessions at three or four executive board meetings that lead up to the budget discussion and adoption meeting. By reporting in this manner, the board can see how the organization is making progress and adopt change if necessary.

Nonprofits should develop mandatory document retention and periodic document destruction policies. Nonprofits should consult their CPA and trade association before establishing a policy to ensure any and all applicable laws are being met.

External Transparency

Every year, post 990 and 990T (if necessary) forms on the web site. By posting the 990 online, nonprofits are demonstrating an openness and forthright within the management.

Post an annual strategic plan on the web site that notes the status of each goal, and what accomplishments are the most significant. Putting a regular plan update on the web increases an organization’s visibility and transparency, and holds the organization accountable for reaching expectations.

Post the date, time and location of board meetings on the web site.


Good stewardship demands good management. This includes avoiding as many bad things as possible. Fraud prevention, accountability efforts, and transparency are a part of this category. By attending to these issues, nonprofits, their boards and management team can help ensure that the organization will be viewed well within the community, and will not suffer the potentially damaging results of fraud or an investigation by outside investigators. We live in a cynical world, so nonprofits should do their best to combat that cynicism by being open, accountable and prudent.

Reprinted 2007 Kintera, Inc.

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