Non-profit organizations ensure liability through mandatory and voluntary means, such as making financial information public, following regulations like the Sarbanes-Oxley Act, conducting audits, and collecting data about their impact. Accountability also includes having a code of ethics, conflict of interest policy, and responsiveness to concerns.
Non-profit liability is ensured through a variety of mandatory and voluntary means. Governments may require certain documentation to be made public, and many non-profit organizations choose to make more information accessible. Lenders often require proof that their money was spent as intended. Both of these goals are supported by the encouragement of a culture of transparency in the nonprofit sector. For example, in the United States, many nonprofit agencies choose to follow the rules set forth for publicly traded companies by the American Competitiveness and Corporate Accountability Act of 2002, also called the Sarbanes-Oxley Act.
When people talk about nonprofit liability, they often mean financial liability specifically. Nonprofit tax exemptions are one of the primary ways a nonprofit saves money, and many governments require that documentation of this status be readily available for public scrutiny. Depending on where a nonprofit organization is located, the same can be true for annual tax returns and other financial documents such as audits.
The integrity of an audit is another measure of nonprofit accountability. An external audit ensures the highest level of accountability, but may not be required by law. Many non-profit agencies, however, conduct internal audits to demonstrate to the public that they are accountable for their financial status. Nonprofit organizations that follow Sarbanes-Oxley Act regulations ensure that internal auditors are members of the organization’s board of directors, have financial literacy, and are not compensated for their services. Nonprofits also rotate their review team every five years and avoid making loans to their executives.
Nonprofit accountability extends beyond showing how much money has been spent on service delivery and other expenses to preserve the integrity of the organization’s mission. Many non-profit organizations collect and publish data about the nature and impact of their work. This assures donors not only that their money is for its intended use, but also that the nonprofit is generating positive, concrete results. Truthful and accurate solicitations for funds also speak to the accountability of a nonprofit agency.
Other nonprofit indicators of accountability include the existence of a code of ethics, a conflict of interest policy, and a strong confidentiality policy at the organization in question. Responding to questions or concerns is also a measure of accountability. This applies to both “upward” responsiveness to lenders and regulatory agencies and “downward” responsiveness to the customers and community served by a given nonprofit organization.
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