International Review of Public Administration 2013, Vol. 18, No. 3 1 NONPROFIT ACCOUNTABILITY: TO WHOM AND FOR WHAT? AN INTRODUCTION TO THE SPECIAL ISSUE ALICIA SCHATTEMAN Northern Illinois University, USA Nonprofit organizations perform some of the most important functions in society that support and strengthen communities. They have broad missions and touch nearly every aspect of our lives. Donors, funders, and the general public have escalated their demand for information regarding nonprofit performance, and thus demand for nonprofit accountability has also increased. While the academic study of nonprofit organizations is a relatively recent phenomenon, the explosive growth in the number and variety of nonprofits around the world, the expansion of nonprofit regulation, and the increased financial pressures necessitate our understanding this complicated accountability environment. The term accountability does not have a universally accepted definition; these four articles examine this concept from different viewpoints and in different contexts. Key words: Nonprofits, Accountability This special issue of International Review of Public Administration is committed to the study of accountability in nonprofit organizations. Accountability is a term used broadly but with little agreement on its definition. Lawry defines accountability as a willingness to endure public scrutiny, even an invitation for the public to scrutinize the behaviors of the organization s leadership (1995: 175). The articles in this issue, however, will draw on different definitions and contexts, adding to our understanding of the field. The audience for this special issue will likely be scholars of the nonprofit field who are interested in knowing how the term accountability is being applied in different contexts. We introduce the articles in this special issue and how they relate to the broader theme of nonprofit accountability.
2 Nonprofit Accountability: To Whom and For What? Vol. 18, No. 3 An Introduction to the Special Issue - Alicia Schatteman Nonprofit organizations perform some of the most important functions in society, which support and strengthen communities. They have broad missions and touch nearly every aspect of our lives. They are funded from a variety of sources including government (contracts and grants), private foundations, public foundations, and individuals. Those funders, including individuals, have escalated their information needs regarding financial and programmatic performance, yet there are few studies that examine voluntary reporting by nonprofit organizations (Christensen & Mohr 2003) and how this relates to the broader issue of nonprofit accountability. The relationship between nonprofits and government is complicated and increasingly under scrutiny in light of the public's interest in accountability and tight government budgets. Public goods and services are provided more and more by the other sectors (private and nonprofit), which complicates this relationship. For instance, nonprofit organizations provide over half of all government-funded social services (Salamon 2002). Nonprofits are, in many cases, both dependent and independent of government. They work in partnership with government to provide public services, but are also regulated by government. Beyond funding, we could argue that there is an expectation for fiscal, ethical, and performance accountability by all nonprofits. To monitor their accountability, there is procedural accountability, as well as legal and regulatory mechanisms. Procedural accountability means that the organizations must comply with certain guidelines to operate. Regulatory and legal accountability for nonprofits require that they register as a charitable organization with the IRS so that they are tax exempt, and register with their state attorney general s office. Nonprofit organizations (with some exceptions) of a certain size disclose certain information in audited financial statements and on IRS Form 990, which is the primary disclosure document for nonprofit organizations. It contains information on financial performance as well as some disclosure of accountability policies and procedures through a checklist. Watchdog groups also play an increasing role in nonprofit accountability. In addition to mandatory financial statements and IRS Form 990, Keating and Frumkin (2003) call for a new framework of nonprofit accountability that includes financial disclosure (IRS Form 990, financial statements) on the organization s website as well as release of more relevant information to stakeholders, including program outcomes. Therefore, regulation of nonprofits by requiring that they submit IRS Form 990 is disclosure, but not necessarily accountability. Without mandatory accountability, there is interest in transparency, which can be less threatening than accountability (Keating & Frumkin 2003). Transparency is voluntary disclosure of information, which may include both financial and program performance. Performance measurement and performance management are not new terms, but what is new is how they are being applied to the nonprofit sector, which varies a great deal across different types of nonprofits. Furthermore, it is still unclear how accountability for performance can actually be accomplished. With many questions still unanswered, the articles in this special issue attempt to further our
December 2013 Symposium : Nonprofit Accountability 3 understanding of the complicated context of accountability. UNDERSTANDING NONPROFIT ACCOUNTABILITY Accountability in nonprofit organizations is different from other sectors. Hale s article compares the transparency and accountability of nonprofit organizations and public sector agencies. There are federal and state policies aimed at nonprofit transparency and accountability, but we do not know if these actually increase trust. To a great extent, accountability of nonprofit organizations takes the form of procedural accountability; providing information about how money was collected, how it was spent, and what services were funded by it. Regulators believe this disclosure of information (transparency) builds trust in the organization. In this issue, Hale s article outlines the history of transparency regulation in government and how these regulations have influenced the accountability of nonprofit organizations. Furthermore, the article expands our understanding of transparency from the perspective of the corporate form commonly used by for-profit enterprises. IRS Form 990 has become a vehicle for transparency, according to Hale, but has limitations. But by itself, IRS Form 990 may not be the best instrument to ensure accountability to all of a nonprofit s stakeholders. This article provides context for other forms of accountability discussed in this special issue, including online disclosure (see article by Dumont) and voluntary accreditation (see article by Carman and Fredericks). TRANSPARENCY OR ACCOUNTABILITY? THE PURPOSE OF ONLINE TECHNOLOGIES FOR NONPROFITS Online technologies, including websites, are increasingly seen as a way for nonprofit organizations to build support and communicate with stakeholders efficiently and effectively. Nonprofit accountability goes beyond the board of directors or employees (internal stakeholders). Dumont argues that transparency speaks to how much an organization shares externally, which supports accountability. One way to share information easily is through the use of information communication technologies (ICTs). Nonprofit organizations have a broad range and number of stakeholders, beyond their internal staff and board. Although they may not be required by regulation to do so, an increase in transparency may build support for nonprofit organizations. ICTs can help communicate information and therefore improve accountability. Dumont outlines the use of virtual accountability and its role in nonprofit accountability.
4 Nonprofit Accountability: To Whom and For What? Vol. 18, No. 3 An Introduction to the Special Issue - Alicia Schatteman NONPROFITS AND ACCREDITATION: EXPLORING THE IMPLICATIONS FOR ACCOUNTABILITY Accreditation is an accountability tool, a signal to stakeholders that the organization is voluntarily opening itself up to scrutiny. There is a history of nonprofit accreditation, particularly in the healthcare sector. It is a way to assess the quality of service delivery and promote best practices in the sector. By participating in a voluntary external review process, the organization participates in an accountability process. The product then becomes how the organization institutionalizes the process of gathering information about its service delivery, and then uses that information to guide decisions. Accreditation is used in many nonprofit subsectors and is being required more often by nonprofit funders such as government and foundations. Despite this, we do not know if or how accreditation changes the way these organizations actually operate and why they undertook accreditation in the first place. This article helps to fill this knowledge gap. Not unexpectedly, this study shows that accreditation and the increasing need to improve quality and efficiency challenged the capacity of most organizations. Capacity included staffing as well as training for staff. With regard to performance measurement, the highest standard of measuring and reporting outcomes was a challenge for most organizations. Accreditation was certainly time and labor intensive, especially going through the process for the first time. However most organizations agreed it was worth it. Although some organizations pursued accreditation independently and others complied due to external funding mandates, accreditation seemed to help all of them focus more on the priorities, to be clear on what they were measuring and why, and to create systems to track their progress over time. This article clearly demonstrates the potential of one accountability tool to drive service quality and discipline in the nonprofit sector. ACCOUNTABILITY AND TRANSPARENCY IN THE GERMAN NONPROFIT SECTOR: A PARADOX? Nonprofit accountability is a topic not only in the American system. This article explores the notion of accountability in the German context. Specifically, accountability and transparency standards are significantly lower for German nonprofit organizations than they are for U.S. nonprofits. Surprisingly, this is despite the impact of the sector on Germany s overall economy and the high employment by the sector. Similar to the United States, this sector also delivers most of Germany s social services on behalf of the state. Yet accountability for nonprofit organizations in Germany is still based on tax requirements to the state. In Germany, because of the nature of the nonprofit regulation to date, accountability and transparency only exist in one direction (to the state from the nonprofit) and to one
December 2013 Symposium : Nonprofit Accountability 5 stakeholder (the state). Other constituents are not part of the current system. We may not know whether stakeholders are not articulating demands for more accountability or nonprofit organization do not see a need to improve access to information. With limited research to date, this exploratory work offers possible explanations. There are larger questions of nonprofit accountability that remain and need to be addressed by nonprofit scholars, such as how performance measurement in the nonprofit sector contributes to or supports nonprofit accountability to the various stakeholders. Moxham and Boaden (2007) in their empirical case study identified several contextual and processual barriers to measuring the efficiency and effectiveness of nonprofit organizations. Financial measures may effectively capture the key risk and return measures of for-profit organizations. However, the contribution of nonprofits is not measured by the dollars spent on program services, but by the reach of its programs (Keating & Frumkin 2003: 12). This special issue begins to examine the broader concepts of accountability and transparency in different contexts. Nonprofit organizations need to answer for themselves the questions of accountability to whom and for what? It is not a linear concept, but rather multi-faceted and intertwined, which makes it difficult to study but at the same time incredibly powerful. Our understanding of accountability continues to morph and evolve as the demands for accountability broaden and deepen, both likely to continue in the future. For the most part, the sector has moved beyond just doing good work, to letting everyone know why the organizations do what they do, what results they achieve, and how well they are managed in pursuit of these results. Whether a nonprofit organization responds only to mandates and regulation or is proactive and participates in voluntary accreditation programs will separate the good from the great in the accountability realm. REFERENCES Christensen, A. and R. Mohr. 2003. Not-for-Profit Annual Reports: What do Museum Managers Communicate? Financial Accountability & Management 19(2): 139 158. Keating, E. and P. Frumkin. 2003. Reengineering Nonprofit Financial Accountability: Toward a More Reliable Foundation for Regulation. Public Administration Review 63(1): 3 15. Lawry, R. 1995. Accountability and Nonprofit Organizations: An Ethical Perspective. Nonprofit Management & Leadership 6(2): 171 180. Moxham, C. and R. Boaden. 2007. The Impact of Performance Measurement in the Voluntary Sector: Identification of Contextual and Processual Factors. International Journal of Operations & Production Management 27(8): 826 845.
6 Nonprofit Accountability: To Whom and For What? Vol. 18, No. 3 An Introduction to the Special Issue - Alicia Schatteman Salamon, L., (Ed.) 2002. The Tools of Government: A Guide to the New Governance. New York: Oxford University Press. Alicia Schatteman, PhD, is an assistant professor in the Division of Public Administration and the Center for NGO Leadership and Development (NGOLD) at Northern Illinois University. Her research interests address issues of financial and performance management of nonprofit organizations. Email: aschatteman@niu.edu