FINANCIAL ACCOUNTABILITY

Working in the community requires a significant amount of public trust. Whether large or small, not-for-profit organizations must demonstrate a commitment to accountability and transparency in order to maintain their reputation, preserve public trust, and avoid any legal repercussions. A lack of public trust can ruin an organization. 

 

Transparency

 

Each organization must make decisions early on about how much information can be shared with those interested in the operation of the organization. While there may be valid reasons to restrict information under certain circumstances, it is generally considered a poor decision to withhold information. Even multimillion dollar organizations have lost support and fundraising opportunities if it is revealed that they were not honest about the actions or intentions of the organization.

 

One of the best ways to ensure transparency is for the organization to remain consistent in its approach to issues. Consistency is often aided through the development of policies and bylaws; these will help the organization handle predictable or serious situations. Bylaws and policies must also be reviewed regularly to ensure they remain sensible and current. 

 

In today’s world of fast paced social media coverage of topics, organizations must ensure that no one is ignored, and no one is given the ability to simply do as they please.

 

Accountability¹

 

Financial accountability requires that all decisions must be accountable and all spending supported through documentation. A regular audit allows financial records and finances to be reviewed for accuracy and authenticity. These audits can be handled within the organization or by someone with accounting or bookkeeping experience. Depending on the size of the organization², an external auditor should be brought in on an annual basis or on another agreed-upon schedule. This external audit will allow an impartial review of the organization and show the public if the organization is being both careful and truthful. 

 

Below are some things to keep in mind to help keep your organization accountable:

 

  • Document all transactions. Whether purchasing a $5 toy or $500 of pet food, always record where money is being spent.

  • Have a chart of accounts that tracks all of your expenses and income. It should be multipurpose and have enough information for your day-to-day tracking, but also good enough that an auditor can use it. You can break it down by: 

    • Programs, representing the costs or revenue from specific programs.

    • Grants or contracts.

    • If donations have restrictions on their use, such as collected to be used for specific purpose, they should be counted separately from other income.

  • Create a Statement of Activities to show all monies coming in or going out, where they came from, and what or where they are going to. This also helps to show if the organization is spending more than it takes in based on the timeline selected for the document. This should be accompanied by a Statement of Position which shows the assets and holdings of the organization versus debts, or simply, what is it worth and what is owed.

  • Ensure that internal audits review real spending as well as planned spending. The board is responsible for ensuring that someone reviews and addresses the internal audits. While one person should be responsible for the finances on the board, that does not mean that they alone should handle all financial matters. Members of the board have a responsibility to the organization to know its financial position. This helps to ensure accountable and ethical decisions are made about money.

  • Do not loan money inside the organization, no matter the case. There are plenty of stories of an employee or volunteer using funds from the organization to make change, borrow a couple of dollars, lend to family, or use as their personal ATM. As long as the cash is returned, some people see no problem with this. The problem occurs when these amounts grow, or undocumented withdrawals end up equaling a large sum of money.

 

Overall, transparency and accountability are simply a matter of remaining truthful to the messaging that you put out in your community. While fairly easy to do right, the implications for getting it wrong could mean the end of the organization. These concepts should be discussed with the board to ensure that these matters are comfortably handled.

¹ Generally Accepted Accounting Principles for Small Non-Profit Organizations – COCO

² Depending on the size of the organization, a third party audit is not always required. The Non Profit Corporations Act – section 150 – states that 2/3 of the members can vote not to have an audit.

 

Non Profit Corporations Act

Dispensing with auditor – membership corporation 

150(1) The members of a membership corporation may resolve not to appoint an auditor. 
(2) A resolution pursuant to subsection (1) is valid only until the next annual meeting of members. 
(3) Repealed. 2005, c.22, s.13. 
(4) Where the members of a membership corporation pass a resolution pursuant to subsection (1), they shall appoint a person who meets the qualifications prescribed in the regulations to conduct a review of the financial statements of the corporation. 
(4.1) The members of a membership corporation may resolve not to appoint a person to conduct a review of the financial statements of the corporation. 
(4.2) A resolution pursuant to subsection (1) or (4.1) is not valid unless it is consented to by a majority of not less than two-thirds of the members, including those not otherwise entitled to vote, who vote on the resolution. 

(5) Notice of a resolution to be passed pursuant to this section is to be sent to all members, including members not otherwise entitled to vote, in accordance with section 125.
 

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