Subscribe to my Feed
« Do you have an apology question? | Home | Legal compliance: it’s not just a business decision »
A non-profit association is still a business
By Lauren | May 11, 2008
A friend who works for a non-profit association (and an awful lot of us in D.C. do) was absolutely shocked by the intensity with which his association’s audit firm reviewed his association’s books this year. “They had so many questions, it drove us all nuts,” he lamented. “They’ve never gone after us so aggressively before. We’re just a little not-for-profit. What’s the deal?”
What my friend didn’t realize is that non-profit organizations like charities, professional associations, trade associations and educational institutions are being held to a much higher standard of accountability than ever before. Sarbanes-Oxley, the federal law that imposes strict financial reporting requirements on publicly-traded companies, doesn’t apply to private companies or non-profits. However, the new auditing rules were based on Sarbanes-Oxley, so professional auditors are now reviewing little “Mom and Pop” associations with much the same rigor that they bring to multi-national Fortune 500 corporations.
And holding non-profits to a higher standard is probably not a bad thing. A non-profit organization is not organized to make money for its owners or shareholders, but it still has an important mission – so important, in fact, that non-profit organizations are exempted from federal income tax so that they can better fulfill their charitable, educational, or otherwise socially beneficial purposes. And, in some cases, non-profit organizations are required to responsibly manage huge amounts of other people’s money. Just think back to the public outcry when it turned out that a tiny percentage of the millions of dollars collected by the Red Cross for Hurricane Katrina relief victims had been stolen from the association, and you’ll see what I mean.
Non-profit organizations often have Boards of Directors made up of volunteers who are mad for the mission, but who don’t know much about management. If they have professional staff (and many of them don’t), those folks may be more passionate about serving their constituents than watching the bottom line. True fraud in non-profit associations is relatively rare, because the kind of people who work with and for non-profits are usually deeply devoted to the higher good; they may not be great managers, but they have great heart. Nonetheless, it behooves those folks, and particularly non-profit Board members, to understand their fiduciary responsibilities. Good intentions alone are no longer enough.
Topics: Business Ethics, Corporate Governance, corporate responsibility |