CharityVillage® Research: Accountability --- the new hot issue for nonprofits

Resources & Library

Path: Main Street : Resources & Library : Research Articles : Feature Article

Accountability --- the new hot issue for nonprofits
March 25, 1998; Canadian FundRaiser

The appointment last October of former federal NDP Leader Ed Broadbent to chair a national panel to examine "accountability and governance in the Canadian voluntary sector" was greeted enthusiastically by the sector, but it was still only one of the latest in a series of significant developments in this field for Canadian nonprofits.
"Accountability" is the latest buzz-word in the Canadian nonprofit sector, and when applied to charities the word is loaded with many meanings. At one level it suggests a need to justify what we're doing and its impact(s) on those around us. At another it implies a verification of the results of the activity. It sounds simple, but in both contexts many nonprofits are looking more carefully than ever not only at the services they provide and how well they are delivered but also at the many ancillary activities or by-products of their central mandate, including fundraising.
Under increasing pressure
Everyone knows that nonprofits are increasingly under the gun to become much more effective and pro-active in raising money to support their mission. When governments cut back their support, the need remains - in fact not only maintains but often accelerates its growth rate because of the cutbacks! The resulting scramble to maintain service levels and balance the books has found both governments and the nonprofit sector cutting costs furiously and turning increasingly to ever more marginal sources of income, and to all forms of fundraising, from telemarketing and direct mail to special events and charitable gaming.
The gaming flag dropped three decades ago, when the federal government allowed Quebec to launch a provincially-owned lottery to fund Expo 67. Ever since, the race to find new, faster and easier gaming schemes to extract money from public pockets - other than by direct taxation - has preoccupied a growing number of governments and nonprofits. Today, with multi-million dollar lotteries well entrenched as an acceptable way to raise money for healthcare facilities, the voices of those who object on the grounds that the ends do not necessarily justify the means and that we are in fact accountable for the negative impacts of this activity are generally - albeit politely - ignored.
Interestingly, the dissenters are often highly-respected members of our society. Gordon Durnan, for example, one of the leading healthcare fundraisers in Canada and the Managing Director of the South Muskoka Hospital Foundation, argues that if we attempt to justify gaming on the basis of its value as a form of fundraising, we will fail, because, he argues, totally aside from its negative social costs, gaming is an inefficient way to raise funds. Using Ontario government statistics, he points out that only 18% of bingo income and 28% of lottery income actually gets to the charities. "I hope we can learn to explain to our volunteer boards, communities and charities," he says, "that while it all helps, gaming activities have nothing to do with philanthropy, which provides significantly more money to charities at much lower cost."

Funding the public good by corrupting the citizen?
A leading Canadian philosopher, John Ralston Saul, agrees that the question revolves around accountability. He considers state-sponsored gambling (under the guise of charity fundraising) one of the most important philosophical questions of our day. "Governments say [that] people have a choice," he says, "… [that] they don't have to spend their money on gambling. But governments are spending enormous sums on advertising to encourage you to gamble and to corrupt the citizenry." He goes on to conclude that "With their sponsorship of gambling, our governments have abandoned the idea that they represent the maintenance of a public good." The fundamental problem, as Saul sees it, is the state as organizer of, and profiteer from, gambling: "the state funding the public good by corrupting the citizen." The trouble is that it is individual citizens, not the governments, that are paying the price for this questionable exchange.
In a late-1996 Compas survey commissioned by Revenue Canada, 71% of the respondents saw a need for greater nonprofit accountability. In fact a broad range of accountability issues are now on the table - for governments, individuals, and nonprofits. The public is demanding that in return for the tax and other advantages it enjoys, all aspects of a charity's existence - from its fundamental mission to the efficiency of its operation, how it treats its employees and the routes it take to achieve its goals - be subject to intense and continual scrutiny. Volunteers and donors, members and staff, clients and partners, governments and the general public all want to know that these organizations are responsive to clients, well- and ethically managed, and accountable.
Federal government unable to monitor the field
This growing public concern reveals itself daily in many forums. John Bryden, the Liberal MP for Wentworth-Burlington, has been calling for reforms of the charitable sector for several years, citing both real and imagined inefficiencies, loose and antiquated laws and regulations, dubious practices, inefficient fundraising, involvement in partisan politics, high executive salaries, and an almost total failure and/or inability of the federal government to monitor the field. As the Ottawa newspaper columnist Douglas Fisher puts it, "Here we have a system of registered charities that is in a shambles, with hundreds of groups on the list very dubious as charities and ineffective in carrying out their purposes and with scores engaged in partisan activity through resources raised through posing and being accepted as a religious or educational organization."
But if Bryden is well established as a not-overly-threatening thorn in the side of the nonprofit sector, it was the highly-respected author Walter Stewart who raised the temperature well past the boiling point. In 1996, he wrote the ultimate anti-charity polemic, The Charity Game, which carried the sub-title "Greed, waste and fraud in Canada's $86 billion-a-year compassion industry." Stewart's attack on the sector was broad and brutal, and took few prisoners, and although it was quickly discredited (a series of lawsuits pointing out flagrant factual errors resulted in all copies being recalled by the publisher), the sector realized that its public credibility was on the line. Not much later in the year, Maclean's Magazine got into the act with an inaccurate article (for which it subsequently had to run apologies) critical of the use of charitable funds by about 20 agencies. And it didn't help at all when around the same time the Multiple Sclerosis Society of Canada (one of the organizations in the Maclean's article) was forced to fire all 12 members of its Calgary board in the wake of allegations that they exceeded their powers and interfered in day-to-day operations.
More sectoral research/knowledge needed
The challenges and concerns are coming from all points of the compass. The Ontario Law Reform Commission, in a long-awaited 600-page review of charities law in Canada released late last year, joined a growing number of legal experts such as Ottawa-based Arthur Drache, and Blake Bromley, a charitable foundation specialist in Vancouver, in calling for change. Among other things, the suggestions include the creation of a new provincial agency, the Nonprofit Organizations Commission, and for research into the legal definition of the term "charity"(a question which was before the Supreme Court of Canada just last month, in the form of the long-awaited appeal of the Vancouver Society of Immigrant and Visible Minority Women against Revenue Canada's refusal to register it as a charity, and into the possibility of creating a national Charities Commission to oversee and monitor the sector. Even major donors are getting into the act, Toronto arts patron Joan Chalmers for example demanding that more of the $300,000+ that she gives the Ontario Arts Council for an annual awards program go the artists, and less to hoopla such as awards shows.
Much other sectoral research is needed as well. In The Emerging Sector: In Search of a Framework, published by the Ottawa-based Canadian Policy Research Networks, editor Ronald Hirshhorn points out that while nonprofit activities "are essential to the healthy functioning of both society and economy … Canadians have barely enough information to create an X-ray of the bare bones of the nonprofit sector." While all of the stakeholders will have to invest in an improved understanding of the sector, he adds, "The sector itself needs to take on more responsibility for its own future, whether that is regulation, standard setting, governance or disclosure."
The United Way of Greater Toronto has announced that it will from now on spend more time and money researching its donors. The Canadian Policy Research Networks' studies, for example, are being funded by the Calgary-based Kahanoff Foundation as just one part of its recently-launched multi-pronged Nonprofit Sector Research Initiative, which, led by Dr. Keith Banting at the Queen's University School of Policy Studies, is now involving researchers in a number of Canadian universities, Statistics Canada, and the Canada West Foundation.
In fact, the nonprofit sector was working on accountability on many fronts long before Bryden and Stewart, but the rate of progress since has been accelerated by an order of magnitude. And to keep the pressure on, starting this year, the Charities Division of Revenue Canada will be spending up to $5 million more per year on 60 new auditors whose role will be to help ensure that charities comply with the provisions of the Income Tax Act.
Standards and codes being revised, updated...
Already existing codes are being reviewed in light of changing circumstances, and fundraising is in the forefront. The National Society of Fund Raising Executives, with seven chapters in Canada, has just updated its Code of Ethical Principles and Standards of Professional Practice, which among other things bans any form of percentage-based compensation. One of the first concerns of the founders of the now 700-member Canadian Association of Gift Planners five years ago was the development of a no-nonsense professional code of practice. Alberta, after extensive consultation with provincial fundraising professionals, has this year built a set of Standards of Practice for Professional Fundraisers into its Charitable Fund Raising Act. The Canadian Council for International Co-operation, with 100 member organizations involved in development programs around the globe, subscribes to a tough 13-point set of Development Principles. And for almost a year, the Canadian Centre for Philanthropy and Revenue Canada have been consulting with communities and charities across Canada on a Draft Model Code on Fundraising designed to complement the existing professional codes of ethics. The final draft of their code, which includes a complaints mechanism, is now in circulation.
In addition to contemporary fundraising codes of conduct, the need for more consistent information on charities is also now widely recognized. Increasingly, the charity that fails to make a comprehensive annual report widely available on demand is considered out of line. All of the Canadian United Ways are moving towards a set of common reporting standards, and the Canadian Institute of Chartered Accountants has been working for years towards the same goal, except for the entire nonprofit sector.
Accountable for what?
The bottom line, however, is that whatever efforts have been made to date, they're not enough. Charities are given special status and access to tax-advantaged funds based on their commitment to a specific mission which itself has passed a series of pre-determined tests. The cost of these advantages is increasingly a willingness to be held accountable for:

establishing mission and/or policy priorities and ensuring their relevance;
the proper fiscal management of donated funds;
organizational governance; and
the quality and range of their programs and services.
The need has become apparent, and the concerns many and varied. The key question now has become how to satisfy these multiple accountabilities to the many stakeholders. Fundamentally, Ed Broadbent wants to find out "To whom are [nonprofit] organizations accountable, for what, and by what means?"
While the measure(s) of success in the many-faceted attack on the problem already underway will thus extend well beyond the content of the Broadbent panel's report, his mandate is nonetheless wide and his role important. He will review current accountability practices in Canada and beyond, explore issues ranging from the role and responsibilities of the volunteer to fundraising practices and fiscal management, examine external regulation of the sector by governments, develop proposed guidelines and practices to promote and enhance accountability, and lead a broad consultation within the sector on its proposals.
No time to lose
And the time-frame is tight. With only a few months to familiarize themselves with the field, Broadbent and his associates on the panel - Arthur Kroeger, a former senior public servant and university chancellor; Dale Godsoe, vice president of Dalhousie University; Robert Brown, immediate past chair of the Canadian Institute of Chartered Accountants; former federal cabinet minister Monique Vézina; and Angela Kan, a former citizenship court judge and active volunteer - will consult with the sector and its external stakeholders and release a discussion paper in this spring, and deliver a final report by the end of the year.
There are already a variety of standard internal and external tools in use to monitor and regulate the activity of nonprofits. They include such wide-ranging techniques as the legal liability of governing boards, government regulations and reviews of charitable status, financial statements, staff professional standards and codes, and staff and institutional accreditation procedures. We obviously need more of them, however, and a better understanding and more effective use of those already available.
During the next six months, nonprofits will have a number of opportunities to participate in the Broadbent panel's consultations. Busy CEOs who feel that their facility is already well-managed may well feel they can leave it to others to get involved, but they will do so at their peril. The regulators are hovering and the Canadian public is in no mood for half-measures.