Why Do We Need NPO Accountability? Or, Do We?*

We are glad that we can say with utter honesty that in all of our dealings we have been pure and sincere, quietly depending upon the Lord for His help, and not on our own skills.

My letters have been straight forward and sincere; nothing is written between the lines!

We use no hocus-pocus, no clever trick, no dishonest manipulation of the Word of God.

And even though you don’t know me well (and I hope someday you will), I want you to accept me and be proud of me, as you already are to some extent.

We want to avoid any criticism of the way we administer this liberal gift. For we are taking pains to do what is right, not only in the eyes of the Lord, but also in the eyes of men.


2 Corinthians 1:12-14, 8:20

My last series of posts addressed challenges to the whole idea of transparency and accountability. In this post, I would like to take on the basic question of accountability, and what it is all about, particularly as we look at the nonprofit sector. As you will note, there are some overlaps between the problem of analyzing what accountability looks like and what some of the challenges are to transparency and accountability.

In a recent release from the Harvard Business School, Working Knowledge online forum in the Executive Education Program, the Executive Summary of faculty research by Dr. Alnoor Ebrahim and his paper, The Many Faces of Nonprofit Accountability, stated:

Nonprofit leaders face multiple, and sometimes competing accountability demands from numerous actors (upward, downward, internal), for varying purposes (financial, governance, performance, mission), and requiring differing levels of organizational responses (compliance and strategic). Yet is it feasible, or even desirable, for nonprofit organizations to be accountable to everyone for everything?

The Executive Summary goes on to point out that few nonprofits have paid serious attention to how they might be more accountable to the communities they seek to serve. Moreover, as Professor Ebrahim noted in his paper's abstract, "nonprofit leaders tend to pay attention to accountability once a problem of trust arises -- a scandal in the sector or in their own organization, questions from citizens or donors who want to know if their money is being well spent, or pressure from regulators to demonstrate that they are serving a public purpose and thus merit tax-exempt status."

In his INTRODUCTION, Professor Ebrahim affirms that "at its core, accountability is about trust." As he points out, many definitions of accountability define it in terms of "a process of holding actors responsible for actions." What the various definitions of accountability seem to share is the understanding that accountability centers on the relationship of various actors, with some giving accounts of their behavior and others receiving and judging those accounts. Furthermore, most of these discussions pose two further questions: Accountability to whom? And accountability for what? It is this second question that interests me in this post.

In Plato’s The Republic, the myth of Gyges sets out the question: Why be moral? Gyges was given the opportunity to live life invisibly, able to do anything he wanted to do without anyone discovering what he had done. Given the chance to live like this, Plato raises the issue: Would a person want to be moral? After further dialogue, Plato concluded that being moral was inherently valuable, apart from any benefits one might experience from being moral or harm one might avoid from being moral.

Being moral is normally associated with doing well in life as a person. It is the principal reason that is central to most concepts of human fulfillment. Doing well in life and being a good person seem to fit together for most people. The same is true in the case of society or even organizational life. Most people would not want to be members of a society in which morality was unimportant and in which conceptions of right and wrong carried little or no weight. This is true even if they would define morality relativistically and maybe even a little narcissistically.

Similarly, most people would not want to associate with a charitable organization, either by work, volunteer support, or funding, if morality carried no weight, if there were no concerns for right and wrong, and if there was no concern for important moral virtues, such as fairness, justice, truthfulness, and compassion, as Aristotle would define them.

If accountability simply involves a process of being held responsible for one's acts, then what is the point if there is no moral core against which those acts can be evaluated. It is, therefore, appropriate, that the idea of NPO accountability be associated somehow with the context of morality or ethics if trust has anything to do with the relationship between actors. After all, “accountability” has become the term of modern political correctness in our society to describe a process that has little to do with the choices that are being made by governments, organizations, including NPOs, or individuals. It has displaced the virtues identified above as important to our governments and civil society institutions.

What good is accountability if there is nothing significant for which an organization must account? Why should anyone care, donor, general public, government, volunteers, direct hires, or anyone else, about whether an NPO claims to be accountable if there is no sense that the work of that NPO reflects the choices made by that NPO that promote virtues, such as, fairness, justice, truthfulness, compassion, or some worthwhile public benefit goals if the communications cannot be trusted as truthful and are self-serving or self-justifying?

British journalist, Steve Turner, wrote some years ago in a satirical poem describing the nature and consequences of post-modernity:

We believe that man is essentially good.
It’s only his behavior that lets him down.
That is the fault of society.
Society is the fault of conditions.
Conditions are the fault of society.

We believe that each man must find the truth that is right for him.
Reality will adapt accordingly.
The universe will readjust.
History will alter.
We believe that there is no absolute truth
Except the truth that there is no absolute truth.

I think too often that this is what captures the nature of our culture, and this is why the use of the terms, transparency and accountability seem to mean so little.

As I wrote recently (http://www.RVanBroekhoven.blogspot.com/, Alexis de Tocqueville and Civil Society), a key feature of the civil society movement is its role in influencing and transforming culture. In some cases, that role is clear and unambiguous, as in the case of the advocacy non-government organizations and not-for-profit organizations. In other cases, such as charity, humanitarian, and mercy NPOs, the care for the poor, the sick, the needy, also provides a transformative role in society, not only by meeting real needs of people, but of modeling the moral dimensions of fairness, justice, truthfulness, and compassion for example. However, how an NPO raises funds, is governed, and truthfully discloses its choices to the government, to the public generally, to donors and potential donors, and to monitoring organizations, could demonstrate a transformative moral role model in transparency of its decisionmaking processes.

I noted previously in this blog that a number of studies in recent years regarding the third sector in the United States, especially those reporting funds raised, volunteers participating in charitable activities, and the economic power of the sector, generally had not included data and analysis of the role and work of religious charities. See for example, my papers: Engaging Donors' Trust, www.icfo.de, "ICFO Publications," and Engaging Public Trust and Donor Loyalty, www.icfo.de/agm-2009/van-Broekhoven.pdf.

What I noted in these papers was a criticism voiced in the United States regarding the understatement of the presence and influence of religious beliefs, institutions, and charities in American life. Fifteen years ago, Yale University law professor Stephen Carter wrote his book, The Culture of Disbelief: How American Law and Politics Trivialize Religious Devotion. This book was, and is important for a number of reasons.

One is that it included the consequences to a society that excludes religion and religious belief and dialogue from the public square. Thus, too often religion and religious beliefs have been viewed as arbitrary and unimportant, fads and hobbies, rather than fundamentals upon which the devout build their lives and a society builds communities in which all can seek and contribute to the public good and happiness, to use a quaint ancient philosophical expression.

Secondly, as Professor Carter pointed out, when Alexis de Tocqueville visited the United States in the early 19th Century and wrote his classic book, Democracy in America, he noted that the first thing that struck him was that religions provided Americans with the strong moral character without which a democracy cannot function, but that it also as importantly, filled in the vast space between the people and their government, a space the government might otherwise fill.

Most statistics regarding giving in the United States, and in other countries I have examined, tend to be less than somewhat precise. According to some studies, giving to charity in 2007 exceeded $314 billion. Giving dropped slightly in 2008 to $308 billion with the world-wide economic downturn or slump. The major exception to this reduction in giving was giving to religious charities and institutions. The statistics for 2007 and 2008 did not include more than $100 billion given to religious organizations, such as churches, foreign mission organizations, church operated food kitchen and homeless shelters, camps, and large religious institutions, such as the Salvation Army, the Roman Catholic Church, and the Church of Jesus Christ of the Latter Day Saints (Mormon Church).

More than 89 percent of all households in America gave to Charity, and more than 55 percent of all American adults volunteered services to charity, thus representing the equivalent of more than 9 million full time workers at a value of $239 billion. Aside from the sheer numbers, what I found interesting about one study was that it found that religious motivation was one of the strongest impulses for giving and volunteering service, and that religious organizations were the largest recipients for giving and providing charitable services. Indeed, as several studies reported, individuals who attended religious services frequently tended to give more to charity, whether or not the recipient charity as a religious organization or secular organization, and tended to be more active in volunteering services to charities. More about this in a future post.

But for now, I simply note that the verses quoted at the beginning of this post have been the guiding foundational principles for the founding and continued presence and influence of the Evangelical Council for Financial Accountability in charity monitoring in the United States.

The Evangelical Council for Financial Accountability (ECFA) in the United States was established in 1979 as the first accrediting organization devoted to monitoring the financial accountability of protestant evangelical charitable organizations in the United States. It first established Standards of Responsible Stewardship, and then monitored charities against those Standards granting a seal of approval to those organizations meeting all the requirements of the Standards.

The Standards were based on fundamental principles defining the boundaries against which NPOs could examine themselves to see whether or not they were operating with integrity. The assumption then, based on the Biblical passages quoted above, was that accountability to God is vital, but also in recognition that people form impressions of organizations by looking at the outward appearances. The Standards were developed from the founders’ understanding of Biblical teaching and were considered fundamental to how a religious organization was to operate with integrity.

For reasons beyond the scope of this paper, ECFA’s mission of establishing Standards of Responsible Stewardship and monitoring compliance against those standards was limited to protestant, evangelical nonprofit organizations. There had been a number of consumer protection laws and concerns that led to the American Congressional attention to fundraising within the nonprofit community, including unions and religious charities. It is sufficient to say that because of U.S. Constitutional considerations of separation of Church and State, the establishment of ECFA was thought to be an appropriate response to U.S. Congressional efforts to regulate the entire charitable sector, which would have included churches and religious charities and institutions.

But, recalling Tocqueville's observations, there is also a bigger issue. Namely, how Americans recognize the distinction between the government, individuals, and various social groups. At stake is not simply recognizing the Constitutional matter of the First Amendment's so-called separation of Church and State. Rather, at stake is the whole Constitutional framework for explaining social life in which the only active agents seem to be the individual and government. As one commentator wrote, "except for corporations, which the [U.S. Supreme] Court has recognized as persons and endowed with rights, groups and associations which stand between individuals and the State all too often meet with judicial incomprehension."

Nevertheless, as quoted above from the Bible, there was a religious dimension to both the motivation for establishing a system of accountability in the religious community and how it is to be administered as long as it is understood that accountability is about giving an account to human beings about the choices that were being made by the organization. It is interesting that even the Apostle Paul thought that it was important to disclose his activities with respect to his fundraising efforts and the management of the funds he received for his work.

Although we may be from different faith communities and cultures, or subscribe to no faith at all, the basic principles of integrity, transparency, and truthful disclosures of the decisionmaking activities and finances seem to be relevant to what we are all about when we talk about NPO accountability.

The initial thrust of ECFA and of many monitoring organizations was directed toward ethics in fundraising, proper accounting of funds, and appropriate disclosure of financial statements and conditions, all of which address financial matters of the NPOs being monitored. Indeed, the origin of use of the word, “accountability,” is in finance where accounting was telling the story of what had been done with the money entrusted to the government, the NPO, or to individuals.

However, as ECFA discovered, there is more to an organization’s integrity and accountability than merely meeting certain standards relating to financial statements and disclosures.

During the last three decades in the United States, and I suspect elsewhere, NPOs have been rocked with a series of scandals involving inappropriate expenditures, excessive executive compensation, self-dealing, corruption at various levels of NPO activities, and conflicts of interest. Is it possible for there to be corruption and moral failings without their exposure in well-prepared and audited financial statements, and that such failings may only have limited immediate financial impact on financial statement? Could it be that such corruption and moral failure would go to the very nature and viability of the NPO in performing its public purpose?

Immoral or unethical behavior in all areas of a nonprofit organization’s operations undermines public confidence in the work of the nonprofit sector and potentially threatens the success of its fundraising efforts. As a result of its findings and determinations in compliance reviews, ECFA revised its standards to include consideration of whether or not an organization’s conduct in all of its affairs was ethical and consistent with its affirmation of its Biblical beliefs.

Unique to ECFA in the United States is this theological basis for the beliefs and practices of those nonprofit organizations that seek to be monitored by ECFA. This theological framework and orthopraxis is the glue that holds all of ECFA accredited nonprofits together in a cohesive community of charities engaged in some form of Christian ministry. This is true whether it is humanitarian relief and development, disaster relief, meeting the needs of the sick, the homeless, and the poor, Bible translation, or planting churches among unreached people groups around the world, and primarily in the tw0-thirds world. The Canadian monitoring member of ICFO, The Canadian Council of Christian Charities (CCCC) has a similar theological framework and program.

It is also important to note that only those nonprofit organizations that join in this common basis of belief and seek accreditation are monitored. This leaves a large segment of the religiously based nonprofit sector without any required accountability to the donor public through compliance with simply stated Standards of Responsible Stewardship.

In the case of both religious and nonreligious NPOs, some of which are monitored by the BBB Wise Giving Alliance, and other state-based monitoring organizations, only a very small percentage of NPOs are monitored for governance, compliance with some Standards, and disclosure of financial information leaving the vast majority of NPOs without any requirements of accountability other than those minimal requirements prescribed by government tax laws. This does not mean that NPOs that have not sought accreditation through an external monitoring system are operating outside the boundaries of integrity and “accountability” to someone.

The idea of “accountability,” while not a moral virtue in and of itself, suggests an underlying ethical or moral concern. If accountability means that an individual or organization or even a government is liable or answerable to another, or is subject to the obligation to report, explain, or justify something, then there must be an underlying obligation to act or fail to act in a given area of one’s responsibility. Thus, if a nonprofit organization raises funds for a certain project or for its public benefit purpose, there are certain ethical standards that govern the way funds may be raised and that would proscribe certain means by which they may be raised. A disclosure requirement regarding the raising, management, and use or distribution of funds is a principal means of achieving some level of accountability.

Moreover, the concept of accountability addresses the subject of accountability and to whom that accountability is owed and this may be both its strength and its weakness. In other words: Accountability to whom? and "Accountability for what? Originally, accounting and accountability were related to finance, but involved telling the story of what had been done with the money entrusted to an individual or organization. The auditor certified that the accounts were true and fair.

But through the application of complex and somewhat arbitrary rules to evaluate the activities of individuals in an organization, accounting and accountability then no longer told an understandable story about what happened to the money and how decisions were made. Rather, accounting and accountability became the language used by experts to describe and evaluate the process of whether the money was treated in accordance with certain specific rules. In other words, the subject of accountability refers primarily as to whether the finances of an organization were disclosed as being in accordance with certain specific rules. Thus, if the only criteria to be disclosed with respect to whether an organization is accountable are the financial statements and tax returns or tax information, then a nonprofit organization may be accountable only with respect to those financial matters and whether or not they were reported in accordance with the specified standards and rules, and to nothing else. It seems to me that this is the essence of rating systems employed by some charity monitoring organizations.

If the government prescribes the rules of accounting, governance, fundraising, or some operations practice, then the individual or organization may be required to report, explain, or justify its actions to the government and to the public if the government prescribes laws that require that kind of public disclosure or availability of information. If the stakeholders, such as donors, beneficiaries, or public are the objects to whom accountability is owed, then the charity has the obligation to report, explain, or justify its actions to the stakeholders. If there is a monitoring organization that has issued standards of ethical practices, or as some would say, standards of responsible stewardship, then the accountability of the charity also would flow to the monitoring organization, not simply because it is a monitoring organization, but because it may represent the interests of the stakeholders.

It would seem, therefore, that the concept of “accountability” cannot exist alone and without some external reference or moral principle. If there is to be true accountability, then the individual or organization must be “transparent.” So, for example, when we think of something being transparent, we think of something having a property or quality so that rays of light can be transmitted through its substance and so the bodies beyond or behind it can be distinctly seen. When we think of this in terms of how a charity is administered and led, we think of that charity or individual as being open, frank, honest, and candid, so that what is behind the scene, whether agenda, decisionmaking, financial integrity, responsible governance, can be recognized and detected by those outside the immediate organization. In other words, that which is transparent allows objects to be clearly seen without distortion or being obscure.

But even then, transparency is not a virtue as such. What transparency does, however, is to point to one of the principle weaknesses of accountability. If accountability is about giving an account of one’s actions or failure to act to human beings, there is the possibility of spin or advocacy that can give a false impression of the true facts. Or, the human beings to whom one gives an account may not know all the relevant facts, or be defective in his or her judgments.

It seems appropriate to think also of accountability in connection with the idea of “stewardship.” I remember during the 50th Anniversary Annual General Meeting of ICFO in Berlin in 2008 that a number of the speakers referred to the term, "stewardship," in their presentations on accountability in the NPO sector and my thinking at the time that this analysis of the reason for and nature of accountability was so interesting.

The use of the term, “stewardship,” in third sector literature is interesting for several reasons. The Greek word translated as “stewardship” means the management of a household. It simply refers to the administration of duties or goods in one’s care. So, the requirement for stewards is faithfulness, and specifically, faithfulness in the administration of trust according to directions. While the modern understanding and emphasis on stewardship tends to direct our attention to possessions, which is certainly a significant factor, it can obscure the fact that stewardship also involves the use of one’s life as well as money.

Although the use of the word, “stewardship” has been primarily understood in religious literature and context, it is interesting that it is used so frequently in the literature regarding the nonprofit sector. First, it suggests that the funds, property, and assets we possess as individuals, ultimately belong to someone else and, therefore, we are responsible for the management of those funds consistent with fiduciary responsibilities. Secondly, it suggests that nonprofit organizations and institutions do not actually own the funds, property, or assets that come to their possession. Rather, they are held in trust, to be managed and used for the purposes for which the organization was established and consistent with the intent of the donors. Third, the concept of stewardship of necessity involves accountability and reporting to the master as to how that trust has been satisfied in the operation and management of that which was entrusted to the steward. Thus, the leadership of the NPO has an obligation to be accountable with respect to the management and operation of the NPO to the governments that give it authority to exist as an NPO with some specified tax status, to the public that donated goods, services, and funds to sustain it in its public benefit purpose, and to those organizations which have authority to oversee or monitor public benefit organizations.

Yet, even here the term “accountability” is ambiguous.

In the initial and original Standards established by ECFA at the time of its founding, the key Standard was one that required financial disclosure, where “every member shall provide a copy of the current financial statements upon written request and provide other disclosures as the law may require.” This is the current statement of that Standard and does not differ substantively from the original Standard issued in 1979.

Similarly, the BBB Wise Giving Alliance contains in its Standards of Charity Accountability, the requirement to “make available to all, on request, complete annual financial statements prepared in accordance with generally accepted accounting principles,” and then describes what must be contained in the financial statements. Its Standards also require certain information to be disclosed on the charities’ websites. It seems to me that without the principle of stewardship, there can be no real basis of accountability, either to government authorities or to the public and donors.

However, once again we see in the BBB Wise Giving Alliance Standard the idea that accountability addresses the accounting of financial information, gathered and reported in accordance with certain specific rules.

In the case of ECFA, the Standard requiring disclosure speaks in terms of financial disclosure but without reference to their preparation in accordance with certain accounting rules. What is also interesting about the ECFA Standard relating to disclosure is that it also requires "other disclosures as the law may require." What those other disclosures are, and what the law requires is not specified. But, the commentary for that Standard addresses the more important issue of integrity in all operations and activities of the organization, and the importance of transparency in the context of stewardship. Thus, the commentary states: "They [Christian ministries, Christian NPOs] must also conduct themselves and give an account to their respective constituencies in accordance with biblically informed practices of integrity and accountability." According to the commentary on this Standard, public disclosure of financial information protects the NPO from the danger of claiming ownership of these assets held in trust and from the temptation to regard the assets and acquisition thereof as our lasting companion and goal.

As Professor Ebrahim of Harvard University wrote, "at its core, accountability is about trust." However, if “accountability” is not really a virtue or a moral principle, then what does it have to do with NPO trust? If “accountability,” like accounting is a process that might lead us to truth, even though there is a risk of deception, spin, advocacy, fraud, or misunderstanding for example, how is it believed to serve the NPO sector building bridges of trust between the sector and the public. It seems to me that more is involved than simply accountability. There must be an underlying practice of integrity and morality in the choices made by the leadership of the NPO.

Assuming, therefore, that there is a requirement for ethical practices in the leadership of a nonprofit organization and that it is inherent in the concept of accountability, then our attention is of necessity directed to the subject of ethics. Indeed, how can there be any accountability and any real trust between donors (and the general public) and the nonprofit organization, and indeed the nonprofit sector without some ethical basis on which that trust must be based? This, then, brings up the subject of ethics and the role of ethics in society, particularly as it pertains to the relationship of the third sector to society.

This raises another interesting question. Although the United States Supreme Court has recognized the corporation as a "person" for purposes of Constitutional application, as I mentioned above, the legal understanding regarding associations, religious organizations, including churches, and organizations within the nonprofit sector is less clear. Groups, including families, the church, associations, foundations, and nonprofit organizations are virtually invisible in American legal and political discussions, except when they are recognized, mainly negatively, as interest groups. So the social importance and significance which these groups have on our social life and social well-being is not something that is readily recognized and understood.

While the State may have no trouble recognizing that certain rights and obligations belong to individuals, it has a far more difficult time recognizing that these groups, such as, families, the church, associations, foundations, and nonprofit organizations have any rights and obligations, other than those which are only derivative from the individual.

Therefore, when we speak of obligations to be transparent, accountable, and to act with integrity, are we really addressing the obligations of our public benefit organizations, or are we thinking that whatever obligations exist, they exist derivatively. I hope to explore the implications of this idea in my next post.

* Some of the substance of this post was presented in Taipei, Taiwan in December 2009 at the International Conference on NPO Accountability 2009 -- NPO Trust, sponsored by the Taiwan NPO Self-Regulation Alliance.