by Jennifer McVey, CPA | Manager, NFP Services Group and Amanda Meko, CPA | Partner and Team Leader of the NFP Services Group
In a downturned economy, in which donations to nonprofits are difficult for both individuals and organizations to make, being accountable carries more weight than ever. A nonprofit must not only conduct business ethically and transparently but also be able to publicly explain at all times the way it handles its finances and governance. Your nonprofit can meet this challenge if you understand the key areas of accountability and your board’s role.
Good governance sets the tone
There can be no accountability without governance. You must set in place the means and measures to keep your organization in compliance with all applicable laws, rules, and guiding principles.
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.”
When it comes to accountability and governance, the buck unquestionably stops with your board. Focus your board’s attention on carrying out your organization’s mission — not on process-oriented details best handled at the staff or committee level.
Finances play a key role
You should consider having annual independent audits that are presented to the finance or audit committee and ultimately the Board of Directors. If your nonprofit has no audit or finance committee, management should present internal financial statements to the board and review financial performance against approved budgets on at least a quarterly basis. In addition, your board should establish and regularly assess financial performance measurements that are open to public review.
Your organization must comply with all legally required reporting procedures — and certain financial practices that may apply to a specific activity. For example, you might need to provide key performance indicators or other reports linking operational results with financial information required by your major funders and contributors.
Programs act out your mission
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 are obligated to use your resources only toward your mission and to benefit the community that you serve. Programs should be evaluated accordingly.
Documents tell the story
Communication is a big part of accountability. Your annual report, for example, should explain your mission, activities, and results for the preceding year. The report also needs to provide financial data for the year and list board members, management, staff, and other key employees. Additionally, it is a good practice to list donors and contributors within your annual report.
You also should make available your nonprofit’s Form 990s for the previous three years, which will give your public a good overview of your organization’s exempt activities, finances, governance, compliance, and compensation methods.
Let them rest assured
Accountability established at the governance level, and transparency provided by audited financial statements and IRS Form 990, provide assurance to the public that your tax-exempt entity is operating with integrity and effectiveness as it meets its goals. Your board and staff are likely doing exemplary work to fulfill your mission — and this is something your public ought to know.