CPA INSIDER

6 ways not-for-profits can fortify ethics

Focus on these areas to protect your organization’s reputation and instill confidence in potential donors.
By Janet Hankins

In the midst of election season, news outlets have questioned the management of the presidential candidates' charitable foundations. These reports are troubling some not-for-profit leaders.

A 2015 poll by The Chronicle of Philanthropy cited a decline in Americans' faith in charities. When negative headlines hit the press, we get concerned that public trust will continue to erode. Americans are not alone in their skepticism of charitable organizations. A 2016 report by The Charity Commission for England and Wales found that trust in charities is at the lowest recorded level since monitoring began in 2005, in the wake of recent scandals.


How can not-for-profit leaders be proactive to protect their organization's reputation and instill public confidence? Here are key areas to focus on to fortify your ethics policies:

  1. Conflicts of interest. Conflicts between the organizations' publicly stated mission and their leaders' personal motivations could raise ethics concerns if not handled appropriately. Organizations should adopt a written conflict-of-interest policy (see tips for creating one here) to identify and address potential conflicts in a transparent manner. Typically, such policies require recusal, where an individual with a conflict of interest abstains from participating or voting on a matter for which he or she has a conflict.
  2. Compensation practices. Even if a particular transaction is not against the law per se, even more important is the court of public opinion. The perception that charitable funds are being misused to provide unreasonably excessive salaries, benefits or travel, and gifts or meals could raise ethical concerns. For this reason, the Association of Fundraising Professionals discourages providing commission-based compensation to fundraising staff. Many organizations have formal policies regarding review and approval of compensation and expense reimbursements. An organization's board of directors should establish a system to review compensation annually, and refer to salary studies or benchmarks to establish compensation that is comparable to positions at similar organizations and appropriate for the entity's size and geographic region.
  3. Fundraising appeals and solicitations. Lack of transparency when soliciting contributions, as well as reporting of fundraising-related expenses, is a common area of scrutiny, not only by the donating public, but also by government agencies. Internally, the organization should provide training to all staff and volunteers carrying out fundraising activities and ensure that representations made to potential donors are truthful. Additionally, it is important to perform due diligence if an organization is hiring external consultants or fundraising agencies to solicit donations on its behalf.
  4. Gift acceptance. Not-for-profits may face ethical dilemmas when deciding whether to accept contributions from groups that conjure negative associations in people's minds, or have stipulations that might be unpalatable for some stakeholders. For example, the Girls Scouts of Western Washington made national headlines last spring when it returned a $100,000 contribution when the donor stipulated that the money not be used to support transgender girls.  Not-for-profit leaders can be proactive by establishing a gift acceptance policy that clearly describes which gifts are acceptable by the organization and which ones are not.
  5. Socially responsible investing. Many organizations invest excess cash in stocks or mutual funds. When considering investments, not-for-profits need to take into consideration the organization's mission and its values, not just its return on investment. For example, an organization whose mission is to raise awareness about climate change might not invest in companies with high carbon emissions.
  6. Whistleblower policies. Establishing a process that allows individuals to report concerns without fear of retaliation, and widely disseminating this policy, can help establish an ethical culture. It will help an organization's leaders uncover potential issues and handle them proactively.

Use a risk-based approach to prioritize your implementation plan. This will help you avoid hits to your reputation, get staff aligned with your vision, and offer donors more reasons to give.

The AICPA's Not-for-Profit Section has resources on reputation risk management and sample governance policies, including a sample conflicts-of-interest, whistleblower, and gift acceptance policy, which are available at aicpa.org/NFP. Additionally, the AICPA offers an online, two-hour e-learning course on ethical issues in not-for-profits, available at the AICPA Store. The program includes new gamification features, including a simulated ethics hotline.

Janet Hankins is founder and CEO of Ethical Advocate, an organization that provides ethics and compliance training, and confidential and anonymous hotline services to not-for-profits, public and private companies, and educational and government institutions.

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