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Accountability in Nonprofit
Organizations (NGOs)
Kevin P. Kearns
Graduate School of Public and International Affairs
University of Pittsburgh
March 10, 2009
Research Questions
• What does it mean to be “accountable” and what
types of accountability requirements face
nonprofits?
• How does the diversity of the U.S. nonprofit
sector affect discourse on accountability?
• Can the quality of the public discourse on
nonprofit accountability be improved by using
“life cycle” analysis as a framework for
accountability?
Recent Trends and
Controversies
• Growth of nonprofit sector in the U.S. - no longer
invisible
– 1.5 million organizations
– 8% of GDP
• Nonprofit scandals: United Way, Foundation for New Era
Philanthropy, American Red Cross, Universities
• Some regulatory initiatives: IRS Reporting Requirements
(new 990 Forms), Watchdog agencies, Senate Hearings,
Recommendations from Independent Sector
Context of Scandals
• Organizational complexity: more difficult for
volunteer governing boards to understand
details of the organization
• Court of popular opinion: Media scrutiny and
“talk show” politics.
• Competition for competent leaders: High pay
and benefits for nonprofit executives become an
issue
• Increased entrepreneurial activities: Unfair
competition and loss of charitable values
Impacts
• Loss of community confidence
• Erosion of donor support
• Low morale among staff and volunteers
• Distraction from mission - damage control
consumes the agency
A Narrow Definition of
Accountability
The extent to which one must answer to a
higher authority - legal or organizational -
for one’s actions” 2) “An obligation for
keeping accurate records” (Shafritz, 1986).
Essential Components of an
Accountability System
• There must be a rule, law, regulation, internally sanctioned procedure or
organizational policy that is accepted by all stakeholders as a valid and legitimate
standard of performance.
• There must be some type of overseeing authority that is recognized by all
stakeholders as legitimate and qualified to judge compliance or performance.
• The oversight body must have sufficient internal capacity, including resources and
management expertise, to effectively and fairly monitor compliance.
• All stakeholders must embrace the same or substantially similar measurement
systems as well as reporting procedures.
• There should be appropriate sanctions for non-compliance and rewards for
compliance.
• Ideally, there should be a feedback loop that gives organizations the opportunity to
learn from their mistakes and to improve their future performance.
Compliance: The “Easy” Part of
Accountability
• Accountability for Legal Requirements
– Incorporation
– Governance (Duties of Care, Loyalty, Obedience)
– Commercialization, non-distribution constraint
• Accountability for Financial Probity
– Financial Accounting (external oversight)
– Managerial Accounting (internal oversight)
– Financial Policy Statements
Performance: The “Difficult” Part of
Accountability
• Accountability for Performance
– Mission adherence, mission accomplishment
– Program performance
– Performance relative to industry standards
– Performance relative to “best practices”
• A Broader Definition of Accountability:
– “Accountability involves the means by which
[nonprofit] agencies and their workers manage the
diverse expectations generated within and outside the
organization.” (Romzek and Dubnick, 1986)
Why the Broader Definition of Accountability
is Superior to the Narrow Definition
• Captures “compliance” expectations but goes further
• Implies that diverse stakeholders also have expectations
(donors, employees, volunteers, partner agencies,
media, etc…)
• Implies that accountability is a dynamic (changing)
construct, not static
• Notes that employees can “manage” (influence)
expectations by their actions or inactions
• Makes accountability a strategic (versus tactical) issue
for NGOs
Discussions about accountability typically
emanate from three fundamental questions
• Accountability for what?
• Accountability to whom?
• Accountability through what mechanisms?
• These three questions are complicated by
the fact that many people don’t know
WHAT constitutes the “nonprofit sector”
What’s In a Name?
• Nonprofit Sector
• Voluntary Sector
• Charitable Sector
• Third Sector
• All are accurate, but only partially so
Diversity of the Nonprofit Sector
• 26 categories of tax exempt
organizations in section 501 of
Internal Revenue Code
• Wide diversity of Missions (National
Taxonomy of Exempt Organizations)
• Nearly 400 discrete categories of
nonprofit organizations in America!
A Simple Classification of
Nonprofits
• Public-serving Nonprofits • Member-serving
(501c3) Nonprofits
– Human services – Advocacy organizations
– Health (501c4)
– Education – Social clubs (501c7)
– Animal protection – Business leagues (501c6)
– Crime prevention – Labor unions (501c14)
– Community development – Mutual insurance
– Food and nutrition companies (501c15)
– Housing – Etc …
– Etc …
The Nonprofit Sector is Big and
Growing
• In 2006 the nonprofit sector contributed $666.1 billion to
the U.S. economy and received $1 trillion in total
revenue, an increase of 5.7% over 2005.
• The U.S. nonprofit sector consists of roughly 1.4 million
organizations, up from 1.1 million in 1998.
• The private nonprofit sector accounts for 5% of the gross
domestic product in the U.S., 8.1 % of the country’s
wages, and 9.7% of the jobs.
• Total nonprofit employment jumped over 16% between
1998 and 2006.
The Nonprofit Sector is
Astonishing in its Asymmetry
• Over 70% of nonprofit organizations in the U.S.
spend less than $500,000 per year.
• Only 30% of the organizations in the sector,
primarily hospitals and universities, account for
97% of all nonprofit expenditures.
• Healthcare and education organizations account
for over 36% of all nonprofit assets and nearly
63% of all nonprofit employees.
Dangers of “One Size”
Approach to Accountability
• Example: Better Business Bureau Wise
Giving Alliance
• Organizational size has impact on
organizational capacity
• Mission is related to expectations
• Unintended negative consequences of
simplistic measures
What “Expectations” Should be
Managed and How?
• Throughout history, NGOs have been
influenced by competing forces
(“impulses” – Salamon, 2009) that affect:
– Roles and objectives of NGOs
– The strategy and style of operation of NGOs
– The principle reference groups (stakeholders)
– The funding and resource base
Organizational Life Cycle of
Nonprofits
• Birth and Start-up Stage: In this stage the founder(s) of the organization sense that there is an
unmet need for a good or service, and they develop a vision for an organization to meet that need.
Typically, they must enlist the support of others to support the vision.
• Growth and Development Stage: Typically at this stage of development we see the organization
evolving toward more formal management and governance structures to handle the increased
demand and the higher community expectations that accompany growth.
• Maturity Stage: At this stage in the life cycle, the organization has become well-established in its
particular field of service. Typically mature organizations have a relatively sophisticated
management infrastructure and governance systems. Often mature organizations have a strong
culture, and sophisticated internal compliance systems to ensure that the culture tolerates no
deviation from an ethical code of conduct.
• Decline (and Renewal) Stage: During this challenging stage in the life cycle, the leaders of the
organization may need to confront the fact that demand for the organization’s products or services
is falling, either because of poor performance or simply because of changing community needs
and market forces. The challenge is to respond to this by deciding if the organization can renew
itself or if it should responsibly divest itself and downsize or terminate operations.
Birth and Start-up Growth and Maturity Decline and Renewal
Development
Accountability for Legal compliance in Compliance plus Compliance plus Compliance plus responsible
what? organizational responsible growth responsiveness to divestment management
(corporate) design management; changing community
and operational demonstrated progress needs and demands;
compliance with the on mission Significant progress
prospectus and accomplishment toward mission
business plan accomplishment;
corporate social
responsibility; industry-
wide best practices
Accountability to Initial investors; An increasing large and Multiple and increasingly Clients; funders; contractors;
whom? volunteers; board diverse group of clients, diverse stakeholders in creditors; regulators;
members; founding funders, regulators, the community and employees; volunteers
employees; clients volunteers, and potentially in the industry
employees.
Accreditation agencies.
The media. Partner
organizations. Vendors.
Mechanisms of Articles of Strategic plan; more Strategic plan; Valuation of organizational
enforcement incorporation; sophisticated internal sophisticated internal assets for dissolution or
business plan; accountability controls compliance mechanisms; distribution to other comparable
marketing materials; including financial self-designed standards of organizations
logic model; initial audits; contract performance that meet or
internal financial and management exceed industry
operational controls mechanisms; and standards;
performance quality control; crisis
management management plan; risk
management plan
Accountability Matrix
Kearns, 1996
Explicit Implicit
Standard of Standard of
Performance Performance
Tactical Legal Negotiated
Response from Accountability Accountability
the Agency (compliance) (responsive)
Strategic Anticipatory Discretionary
Response from Accountability Accountability
the Agency (advocacy) (judgement)
Four Impulses Shaping the Future of NGOs
Lester M. Salamon, 2009
The Johns Hopkins Center for Civil Society Studies
Voluntarism Professionalism
Nonprofit
America
Civic Commercialism
Activism
Each “Impulse” Has A Unique
and Significant Impact on
Accountability
The Voluntarism Impulse
Accountable To Whom? Accountable for What?
• Accountable to “value driven” • Accountable for providing “outlet” for
stakeholders who bring passion and expression of values (including
conviction to the mission spiritual values) in the civic space
• Accountable to volunteers who provide • Accountable for “value-based”
significant human capital explanations of and solutions to social
• Accountable to donors and members problems and issues (e.g., Jubilee
who voluntarily support the 2000, Alcoholics Anonymous)
organization and who embrace the • Accountable for transforming lives of
values of the organization individuals via application of value-
• Accountable to clients who embrace based interventions and treatments
value driven service model • Accountable for maintaining tradition
• Success or failure usually illustrated
with personal stories or anecdotes, not
aggregate empirical data
The Professionalism Impulse
Accountable to Whom? Accountable for What?
• Accountable to professional • Accountable for mission
staff who bring skills and accomplishment via theory-
professional standards of based (versus value-based)
performance to the mission logic model
• Accountable to professional • Accountable for demonstrating
associations results and outcomes that can
• Accountable to informed be empirically verified and
clients who expect tested
professional treatment • Accountable for continuous
• Accountable to funders and learning and improvement
donors who understand the • Accountable for meeting
“logic model” of the professional (“guild”) standards
organization of performance and quality
• Accountable for “best
practices”
The Commercialism Impulse
Accountable to Whom? Accountable for What?
• Accountable to “the market” • Accountable for market based
(need and demand) measures of performance such
• Accountable to partners, as market share, Social Return
venture philanthropists, on Investment, Cost-Benefit
“investor” philanthropists, Ratios, Various Financial
social entrepreneurs Ratios of sustainability
• Accountable to clients who • Accountable for exploiting
expect to be treated like “comparative advantages” to
“customers” capture niche markets
• Accountable for catalyzing
entrepreneurial culture via
franchising, replication, and
other growth strategies
The Civic Activism Impulse
Accountable to Whom? Accountable for What?
• Accountable to • Accountable for changing
supporters who view the allocation of valued
NGOs as vehicles for goods in society or the
social change rules by which those
• Accountable to coalitions goods are allocated
and partner organizations • Accountable for future
• Accountable to outcomes that can’t be
beneficiaries, including accurately measured in
future generations the present time frame
The Most Significant Challenges of Accountability
Arise from Tensions Between the Impulses
• Voluntarism vs. Professionalism
• Voluntarism vs. Commercialism
• Professionalism vs. Commercialism
Thank You!
Questions / Discussion?
