11 Ethics and Accountability in the Nonprofit Sector.

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Ethics and Accountability in the Nonprofit Sector

Create a list of all of the ethical scandals (with company names) that have faced corporate America in the last few years.

Divide into teams 5 minute timed activity

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Create a list of all of the ethical scandals (with nonprofit names) that have faced US nonprofits in the last few years.

Same teams 5 minute timed activity

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Agenda for Seminar

Opening exercises

Why ethics and accountability are important to

nonprofit leaders

Ethics codes/statements/programs

Developing a Nonprofit Ethics Code/Program

Credentialing/Nonprofit Sector Self Regulation

Nonprofit Ethical Issues Case Study Discussion

Questions and Answers

Why should ethics and accountability be important to nonprofit leaders

today?

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Why ethics and accountability are important to nonprofit leaders!

Scrutiny at an all time high National and local scandals Growth in the number of nonprofits Sense of public distrust and confusion about

the sector Gaps between expectations and performance

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Scrutiny at an all time high National and local scandals Growth in the number of nonprofits Sense of public distrust and confusion about the

sector Gaps between expectations and performance

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Legislative and Regulatory Scrutiny at a High Point

US Senate Committee on Finance Hearings and On-going Monitoring/Press on Charity Oversight

and Reform US House of Representatives Committee on Ways and Means

Hearings and Committee Meetings on the Tax Exempt Sector Internal Revenue Service

Recent publishing of best practice standards for management and governance, sweeping Form 990 Revisions with added emphasis on how nonprofits are managed and governed

State Attorneys General, proposals in many states

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Pension Protection Act of 2006

Annual reporting by nonprofits not filing 990 Tighten rules for gifts of façade easements New rules for donor advised funds and supporting

organizations Requires cancelled check or receipt for ALL

donations Limits deductions for donation of “fractional interests”

in artwork Excise tax exemption for blood collector

organizations 9

Pension Protection Act of 2006 continued

Limits donations of clothing and household items, must be good or better condition

Tightens requirements for credit counseling agencies

Increases penalties for valuation misstatements Doubles penalties for “excess benefit transactions” Limits deductions for donations of stuffed trophy

animals—lesser of taxidermy cost or value 990-T disclosure (UBIT)

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Scandals and increased public attention

1988 - PTL Ministries (Jim & Tammy Baker) collapses

among allegations of sexual liaison and payoff with

church funds.

1992 - Aramony defrauds United Way of $1.2 million.

1994 - NAACP executive resigns after disclosure of

payments to employee who was alleging sexual

harassment.

1995 - Foundation for New Era Philanthropy declares

bankruptcy. $100 million lost by 160 charities. 12


1998 – 6 charity officials plead guilty or no contest to embezzlement/fraud of $15 million from Goodwill Industries in Santa Clara County, CA.

2001 – American Red Cross criticized for “ignoring intent of donors” in planned use of $260 million in 9/11 donations.

2002 – Clara Hale, founder of Hale House in Harlem charged with stealing $1 million from the charity.

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2005 – Washington Post series questions land transactions

between Nature Conservancy and its board members and

other practices

2003 & 2004 – San Jose Mercury News and Boston Globe

criticize excessive compensation and spending by foundations. “’Maybe the homeless people in Dallas need their soup more than

our trustees need their plane.’ But, he added, ‘I don’t think it’s

valid.’”

2004 – Catholic HealthCare West reported to make $2m

interest free loan to CEO. Majority of repayment waived if

tenure exceeds 5 years.

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2005 – Ameridebt pays $6 million in FTC settlement amid bankruptcy and allegations involving related for-profits.

2005 – Big game hunters alleged to use phony appraisals to net large tax deductions for donations of trophies to museums.

2007 – Inappropriate expenditures and lavish personal spending at Smithsonian Institution

2009 – ACORN 15




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How many nonprofits are there in the U.S.?

More than a million

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501(c)(3) 501(c)(4) 501(c)(6)0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

594704

127567

68575

1,014,165

116,539

72,549

1996

2006

Based on numbers available at http://nccs.urban.org/

http://nccs.urban.org/

Why might this dramatic growth in the number of nonprofits spark greater

scrutiny for the whole sector?

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Public Opinion

“Who does the best job of providing services to people in need?” (N=1,557)

62% Religious/Charitable/Community Organizations

28% Government

21NPR-Kaiser-Kennedy School Poll May-June 2005

Public Opinion

A Great Deal A Fair Amount Not Too Much None

0%

10%

20%

30%

40%

50%

60%

15%

50%

25%

7%

Aug. 2004

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How much confidence do you have in charitable organizations?

Overall Confidence In Charitable Organizations, 2002-2006

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A Great Deal

A Fair Amount

Not Too Much

None

September 2002 13% 47% 26% 11% August 2003 12% 47% 27% 10% October 2003 18% 45% 27% 7% January 2004 13% 49% 25% 9% August 2004 15% 50% 25% 7%

July 2005 15% 49% 24% 8% July 2006 20% 49% 20% 9%

Confidence In Charitable Organizations, 2006. August 2006, PAUL C. LIGHT

How good a job do charities do at spending money wisely?

Very Good Somewhat Good Not Too Good Not Good at All0%

10%

20%

30%

40%

50%

60%

11%

51%

19%

7%

Aug. 2004

24Source: Light, Paul. “Fact Sheet on the Continued Crisis in Charitable Confidence,” NYU & Brookings Institution, September 2004.

Public Opinion Mixed

Are Nonprofits on the Right Track?

25These are some of the results of a Harris Poll conducted online by Harris Interactive® among a nationwide cross-section of 1,833 U.S. adults between October 11 and 17, 2005.

%

Wrong Direction 30

Right Track 34

Not Sure 37




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What are some expectations of nonprofit performance that the

public might not feel are being met?

What are some expectations of nonprofit performance that the

public might not feel are being met?

Why does the public have these expectations?

Name some ethical dilemmas that nonprofit professionals face in these areas

Finance

Board Governance

Fundraising and Development

Public Policy/Advocacy

Nonprofit Operations

Human Resources

Grantmaking 29

Existing Ethics and Accountability Systems in the Nonprofit Sector

Ethics Codes, Values Statements, Similar Documents Ethics Education Credentialing: accreditation, certification, licensing,

standardization Other more general ethics and accountability

mechanisms -- Measuring satisfaction of program participants Evaluating staff Program evaluation Evaluating boards

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“…because nonprofits have an obligation to do the right things-often wrenching choices among competing priorities, and having to ask what choice best fits their mission-they must develop methodologies for analyzing and resolving right-versus-right dilemmas.”

Rushworth Kidder in Leading with Values, 2003

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Ethics Codes, Values Statements, Similar Documents

Generally: Aspirational, values based Performance or Conduct based

Wide range of topics covered Mandatory/voluntary Developed using varying methodologies

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What is a code of ethics?

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What are some of the motivations for developing ethics codes and ethics programs?

For nonprofits: Uphold high standards Shared values Part of organizational culture Ward off people doing bad things

For for-profits See above Reducing risks to the company of employee misconduct (79 %) Ensuring commitment to corporate values (75 %) Establishing a better corporate culture (68%)

Ethics Officer Association Survey (based on 2000 survey, published in 2001)

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Other Potential Reasons for Developing a Code of Ethics, Ethics Program

Federal Sentencing Guidelines Corporations held liable for misconduct of their employees

Antitrust Bid rigging Buying of influence Collusion Software piracy Truth in advertising Kickbacks Lying Illegal Aliens

Intellectual property etc. 35

“The principal rational for having a code of ethics, regardless of what your business is, is to express a shared vision of the organization’s beliefs, culture and values”

Charles E. M. Kolb, Developing an Ethics Program, BoardSource

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The Steps to Develop an Ethics Code

Step 1: Recruit a Working Group Step 2: Research Other Codes of Ethics Step 3: Preliminary Decisions about the focus

and structure of Code of Ethics Step 4: Drafting the Code of Ethics Step 5: Testing the Code of Ethics Step 6: Approval by Leadership Step 7: Dissemination and Education Step 8: Maintenance

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Step 1: Recruit a Working Group

Involve staff, board, other volunteers All levels of the organization including

leadership and front line Ensure ability for involvement of all, even non-

work group members

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Step 2: Research Other Codes of Ethics

Systematic research Reviewing for targeted content areas Assessing the best and worst features

Informal research Codes from similar nonprofit entities Codes developed by professions in your field Codes from businesses, government

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Some sources of ethics codes

Independent Sector website

www.independentsector.org (Compendium of

Standards, Codes, and Principles of Nonprofit and

Philanthropic Organizations) with more than 100

codes of conduct for nonprofit organizations

Patrick Murphy’s Eighty Exemplary Ethics Codes

(South Bend, IN: University of Notre Dame Press,

1998).

Ethics Resource Center website, www.ethics.org 40

http://www.independentsector.org/

“None of our experience has shown that two organizations, regardless of their similarities, can use each other’s codes. Ethics codes, are, or ought to be, culturally driven, and they must take into account each organization’s unique product line, management structure, founding vision, and culture.”

Stuart Gilman, Former President, Ethics Resource Center

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Step 3: Preliminary Decisions about the focus and structure of Code of Ethics Aspirational (values based) or Performance or Conduct based Combination of values and conduct based

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Aspirational Values

Results of Shared Values Exercise involving People of diverse backgrounds Honesty Responsibility Respect Fairness Compassion

Leading with Values, Institute for Global Ethics

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Sample values based statements that can be found in a code of conduct:

“Teamwork: We believe in teamwork and that everyone has a valuable contribution to make. . . (Channel Marker, Core Values)

“Respect and seek out the truth and avoid misrepresentation . . .” (United Way of America Code of Ethics)

“Always be open and honest in your interactions. No games. No hidden agendas.” (Northwest Hospital Center Foundation Management Team Code of Conduct) 44

Some sample statement focused on conduct that can be found in a code of ethics

“A nonprofit should have information systems in place that provide timely, accurate, and relevant information…” (Minnesota Council of Nonprofits, Principles and Practices for Nonprofit Excellence)

“Members shall not accept compensation that is based on a percentage of charitable contributions; nor shall they accept finder’s fees” (Association of Fundraising Professionals Code of Ethical Principals and Standards of Professional Practice)

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Step 4: Drafting the Code of Ethics

Small groups of two or three work group members draft different sections

Do not copy other codes of conduct--There is nothing worse than a

plagiarized ethics code.

Allow for a few rounds of revisions

Content should: Reflect the culture of an organization

Cover areas that employees or volunteers may encounter as part of their

work with the agency

Consistent level of detail

Allow for separate complimentary documents for special, in-depth

treatment of certain content areas (accepting gifts from vendors, conflict

of interest policy, whistleblower policy)

Step 5: Testing the Code of Ethics

Roundtables Small group discussions Provide an opportunity for all individuals to

have input Make adjustments Create final draft

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Step 6: Approval by Leadership

Board approval of the document

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Step 7: Dissemination and Education

Ethics codes, values statements and similar documents are rarely

self executing

Written materials

Web sites

Training Programs Peer learning

Role Playing

Discussions of hypothetical scenarios

Provide to all employees, volunteers and board members at their

initial affiliation and annually thereafter

May request or require a “sign off” on the commitment to the ethics

code of all employees, board, and volunteers 49

Dissemination/Education

Enforcement mechanisms Ombudsman service Ethics officer hotline Informal educational opportunities Confidential means to report improprieties

One source of nonprofit ethics case studies Institute for Global Ethics www.globalethics.org

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http://www.globalethics.org/

Step 8: Maintenance

Develop a way to review and revise the code on a

periodic basis

Collect suggestions on an on-going basis or at distinct

time periods

Periodic/perhaps annual review of the content of the

code

Test to make sure the language in the code of conduct

addresses the day to day needs of the organization

Make sure the code is a living, breathing document

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Credentialing

“to assure professional competence/establish standards”

“to enhance the prestige of the profession or industry”

Policies and Procedures in Association Management, 1996.

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Selected different types of accreditation programs for nonprofits

Accreditation required for membership In a National NPO Subsector Association

Accreditation voluntary for membership In a National NPO Subsector Association

Accreditation voluntary for membership In a Statewide NPO Association

State level watchdog rating organization National watchdog rating organization

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Evangelical Council of Financial Accountability (ECFA)

Nearly 1400 members members demonstrate compliance with the

Standards of Responsible Stewardship condition of membership est. 1979

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ECFA cont…

Field Review On site or distance reviews of over 12% of its

membership each year Standards Committee www.ecfa.org

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http://www.ecfa.org/

American Assoc. of Museums (AAM)

Assoc. of 3,000 institutions Plus 15,000 museum professionals, 300

corporate members est. 1906 Offers:

Accreditation Museum Assessment Program

www.aam-us.org

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http://www.aam-us.org/

American Assoc. of Museums cont…

779 accredited institutions Apply to participate in Accreditation Program

1 year of self study Questionnaires covering all aspects of

operation Interim approval Onsite review Accreditation

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Maryland Nonprofits// PANO Standards for Excellence

Organization est. 1992// 1984 Standards released 1998// 2002 1500+ members// 800+ 85 certified organizations in state // 55

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Maryland Nonprofits// PANO Standards for Excellence cont…

Initial 3 year review cycle, then review every 5 years

Staff assisted, peer review process www.marylandnonprofits.org // www.pano.org

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http://www.marylandnonprofits.org/

http://www.pano.org/

Watchdog Organizations

Created to inform donors Generally develop a set of criteria by which

organizations are judged Most focus on financial management,

fundraising percentages, ratios Most do not focus on program outcomes,

missions, or effectiveness

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Watchdog Organizations

NCIB and BBB PAS merged to form BBB Wise Giving Alliance

American Institute of Philanthropy National Center for Responsive Philanthropy Charity Navigator Minnesota Charities Review Council Local BBB chapters

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Charities Review Council- Minnesota

Est. 1946 Database on 4,000 organizations More than 394 reviews through their

“accountability wizard”

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Charities Review Councilcont…

Voluntary compliance Organizations that do not reply with requested

information are reported in Giving Guide www.smartgivers.org

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http://www.smartgivers.org/

Duration of Accreditation

ECFA 1 year AAM 10 years Maryland Nonprofits 3 years, then 5 Charity Review Council 3 years Wise Giving Alliance annual

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Publicity for Accredited Groups

ECFA Website, hard copy/directory, individual org. reports, help certified

groups promote achievement, seal

AAM Website, newsletter, help certified groups promote achievement

Maryland Nonprofits Website, help certified groups promote achievement

Charity Review Council Website, hard copy, individual reports, meet Standards seal for

accredited

Wise Giving Alliance Website, hard copy, individual reports, pay for seal

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Assistance with Compliance

ECFA One on tech. assist., Mentorship project provides one time consultation with a

retired exec

Training programs

AAM Resource kits, video

Planning guide, online resources (fact sheets, glossaries, books)

Maryland Nonprofits One on one technical assistance, list of certified consultants

Written education packets, trainings

Charity Review Council Some general training opportunities

Wise Giving Alliance An interpretive document

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Publicity for Noncompliance

ECFA Public listing of terminations, suspensions

AAM Omission from list of certified organizations

Maryland Nonprofits Only publicize names of certified organizations

Charity Review Council Public listing of non-compliance, non-response

Wise Giving Alliance Public listing of non-compliance, non-response

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Topics Generally Covered in Accreditation Programs

Industry/field specific standards Governance/ boards of directors Financial issues Fundraising Conflicts of Interest Human Resources Legal Requirements

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Other more general accountability mechanisms

Program evaluation Measuring satisfaction of program participants Evaluating staff, leadership of organization

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Su Casa Case Study

Divide into two teams

Read the case study

List all of the ethical dilemmas faced by this organization

Team 1 reviews the situation from Betty’s point of view

Team 2 reviews the situation from the board’s point of

view What actions could the organization have taken ahead of

time to prevent this situation?

What steps do you take to handle this difficult situation?

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Final Questions and Answers

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[Your name and contact info here]

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11 Ethics and Accountability in the Nonprofit Sector.

Documents

nonprofit sector slide

nonprofit names

sector gaps

us nonprofits

ethical scandals

local scandals growth

time high national

donations limits deductions