February 16, 2010

Accountability & Control

Questions to think about…What role do ethics play in fiscal management and budgeting?

What values tie mission to accountability?

What are the elements of a management control system?

What other factors affect organizational accountability?

Definition of Accountability (wikipedia)a concept in ethics and governance with several meanings. It is often used synonymously with such concepts as responsibility,[1] answerability, blameworthiness, liability, and other terms associated with the expectation of account-giving. As an aspect of governance, it has been central to discussions related to problems in the public sector, nonprofit and private (corporate) worlds. In leadership roles, accountability is the acknowledgment and assumption of responsibility for actions, products, decisions, and policies including the administration, governance, and implementation within the scope of the role or employment position and encompassing the obligation to report, explain and be answerable for resulting consequences.

Accountability in nonprofits– United Way

For the nonprofit sector, trust is the universal currency. To earn that trust, non-profits need to demonstrate more clearly than ever how we deliver on our mission, while operating in an efficient and transparent manner. Those organizations that deliver on these expectations will strengthen their reputations and increase their competitive standing. Those that fail to do so risk their very existence. The non-profit sector needs to become more market drive and more responsive to the needs of community investors, in addition to maintaining higher standards of accountability and transparency.

Types of AccountabilityPolitical accountability: accountability

of the government, civil servants and politicians to the public and to legislative bodies such as congress or parliament. In parliamentary systems, the government relies on the support or parliament, which gives parliament power to hold the government to account. For example, some parliaments can pass a vote of no confidence in the government.

Ethical accountability:

the practice of improving overall personal and organizational performance by developing and promoting responsible tools and professional expertise, and by advocating an effective enabling environment for people and organizations to embrace a culture of sustainable development. Ethical accountability may include the individual, as well as small and large businesses, not-for-profit organizations, research institutions and academics, and government. One scholarly paper has posited that "it is unethical to plan an action for social change without excavating the knowledge and wisdom of the people who are responsible for implementing the plans of action and the people whose lives will be affected.”

Administrative Accountability

Internal rules and norms as well as some independent commission are mechanisms to hold civil servants within the administration of government accountable. Nonetheless, there are independent “watchdog” units to scrutinize and hold departments accountable; legitimacy of these commissions is built upon their independence, as it avoids any conflicts of interest. Apart from internal checks, some “watchdog” units accept complaints from citizens, bridging government and society to hold civil servants accountable to citizens, but not merely governmental departments.

Market accountabilityUnder voices for decentralization and privatization of the government, services provided are nowadays more “customer-driven” and should aim to provide convenience and various choices to citizens; with this perspective, there are comparisons and competition between public and private services and this, ideally, improves quality of service. As mentioned by Bruce Stone, the standard of assessment for accountability is therefore “responsiveness of service providers to a body of ‘sovereign’ customers and produce quality service. Outsourcing service is one means to adopt market accountability. Government can choose among a shortlist of companies for outsourced service; within the contracting period, government can hold the company by rewriting contracts or by choosing another company.

Management Control Systems

Policies and procedures that keep operations moving forward by detecting variations and allowing for corrective action.Measure performance

Internal Control SystemsEfficiency and effectiveness

Protection of resourcesReliability of reportingCompliance

Problems Falsification of organization’s financial records and reports

Embezzlement and theft of assets

Unauthorized spending in excess of budgeted amounts

Basic Internal ControlsTwo persons receive cash and non-cash resources

(mail, website, etc). They persons should be periodically rotated.

Issue numbered receipts for all donationsDeposits made in timely mannerExpenses paid by check with supporting

documentationTwo signatures required on all checksA staff person other than accountant should receive

and reconcile bank statements and approve write-offs

Excess cash should be in an interest-bearing accountAnnual inventory of fixed assets

Variance Analysis

To discover differences between planned and actual results. Variance analysis focuses on material differences. It can help control results in current year, evaluate performance, and prepare future budgets.

Mechanics of Variance Analysis

January 2010Actual Budget Variance$7,640 $7,500 $140 (U)Year to DateActual Budget Variance$31,672 $38,000 $6328

(F)

Sarbanes-OxleyPublic Company Accounting

Reform and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley, Sarbox or SOX.

New standards for all boardsAffected smaller nonprofits

Sarbanes-Oxley & Nonprofit Practices Having an external audit Having an independent audit committeeRotating audit firms and/or lead partners

every five yearsHaving a written conflict of interest policyHaving formal process for employees to

report complaints without retaliation (whistleblower policy)

Having a document destruction and retention policy

Sarbanes-Oxley CompliancePositive AttributesHave audit with

external requirements

Board Ethnic and racial diversity as well as size

Reliance on government funding

Professionalization and organization age

Negative AttributesCEO as voting

board memberSmall organizationsHomogenous and

small boardsPrivate funding

How to be accountable1. Develop a culture of accountability and transparency.2. Adopt a Statement of Values and Code of Ethics.3. Adopt a Conflict of Interest Policy.4. Ensure that the board of directors understands and

can fulfill its financial responsibilities.5. Conduct independent financial reviews, particularly

audits.6. Ensure the accuracy of and make public your

organization’s Form 990.7. Be transparent.8. Establish and support a policy on reporting

suspected misconductor malfeasance, also known as Whistleblower Protection

Policy.9. Remain current with the law.