Nonprofit Performance 360 Issue 12

KARL SCHILLING

Unintended Consequences for Nonprofit Organizations

Donors are basically investors. Of course, they are not seeking financial gain, but they are seeking psychic gain (feel-good emotions) and prestige. Large donors can’t afford the reputational damage that would be incurred from donating to a nonprofit that ended up in the news due to financial irresponsibility or, worse yet, being labeled a scam or fraud. Thus, a nonprofit is not only responsible for protecting its own reputation, but also the reputations of every donor to the organization. That is a powerful responsibility which is overlooked by many nonprofits. It’s not intentionally overlooked or avoided; it is simply a consideration that’s missed. The last solution is common sense. The nonprofit leadership, such as the CEO, Chairman of the Board, and CFO should all be insulated for full accountability.With the right checks and balances in place, all leadership can ensure that there is never the opportunity for public misperception. Reputation is earned over a long period of time and is lost in an instant. Chasing from behind is never productive, so the most important consideration is always to protect your reputation. This is possibly more important than the actual raising of capital, because it is the pipeline through which all capital must flow.

Nonprofit organizations are a vital staple of the American society. These groups are the free market counterpart to the US government. The people served through the work of nonprofits are the remnant of those left behind due to gaps in government programs. As such, these organizations must rely on donors and government grants. The most important asset these organizations possess is often overlooked within the organization itself. That asset is the nonprofit’s reputation. Are there scams and fraud in the nonprofit arena? Far too many. And the excellent organizations are impacted negatively by the small percentage of bad players in the nonprofit sector. First, the negative news spreads way faster and further than the good work and acknowledgement of the organizations. The media are always on the hunt for negative news; like they say, “If it bleeds, it leads.” The reputation of a nonprofit is far more valuable than that of any for-profit corporation. A nonprofit is the fiduciary of the money flowing through donors and grants. Due to the nature of fundraising, every nonprofit is judged upon several factors: Full transparency

Due diligence (includes full disclosure, complete compliance,and full transparency) Compliant governance (board of directors, independent oversight) Many of these organizations are woefully lacking in these areas. Those mistakes can dramatically impact their fundraising abilities. There are several simple solutions that can inoculate a nonprofit organization against the perception of scam or fraud. An easy fix that provides an exceptional public perception is for the organization to have an employee become a certified fraud examiner (investigate the Association for Certified Fraud Examiners, www. ACFE.com ). This designation provides two services for the nonprofit: it provides a positive transparency and creates an objective non-biased individual for the governance oversight of the organization. A certified fraud examiner can be positioned to provide financial oversight for the governing board.The expense to the organization can be minimal. An existing employee could be sponsored and gain the certification through a mandate from the board of directors. This person would report directly to the governing body of the nonprofit.

SynerVision Leadership .org I 17 continued on page 42