There is a consensus on the need for governance principles that enhance nonprofits and strengthen public trust in nonprofits. In 2004, as recommended by the Leaders of the United States Senate Finance Committee, the nonprofit sector was convened by the independent sector to evaluate nonprofit good governance principles. The panel concerned itself with strengthening the governance, transparency and accountability mechanisms of foundations and charities. This panel produced 150 recommendations for Congress, the Internal Revenue Service (IRS) and nonprofits to consider in strengthening their governance and ethical conduct. After robust consultations and engagement with stakeholders, it brought about the development of the Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations. The principles highlighted 33 best practices designed to inform boards and leaders of nonprofits on how to embrace good governance and ethical standards. It provides a practical roadmap for nonprofit organizations to self-evaluate and strengthen their governance practices.

It’s against this backdrop that we, four graduate students of nonprofit studies taking a Nonprofit Law & Governance course at Auburn University, conducted a mock nonprofit audit on Accountability Lab. Accountability Lab’s mission is to work with young people to develop new ideas for accountability, transparency and open government. They are driven by a vision of a world in which citizens are active, leaders are responsible, and institutions are accountable. Thus, we were eager to understand the level of accountability of an organization that prides itself with institutional accountability. 

Principles for Good Governance and Ethical Practice

The Principles for Good Governance and Ethical Practice Guide is divided into four parts: Legal Compliance and Public Disclosure, Effective Governance, Strong Financial Oversight and Responsible Fundraising. We leveraged this guide to conduct a mock nonprofit audit on the governance practices of Accountability Lab. We chose two of the principles of each of the four pillars for the audit. Our decisions on the principles we reviewed were based on two factors: 1.) Most big organizations have experienced a lot of success and growth and, thus, may forget the weightier matters of the law, and 2.) The importance of compliance with statutory laws for a nonprofit organization’s legitimacy. 

Within the scope of the audit, we reviewed eight Accountability Lab policies using the Principle for Good Governance and Ethical Practice Guide. Under each of the sub-pillars, we reviewed the following policies outlined in the guide:

Legal Compliance and Public Disclosure

• The Conflict of Interest Policy states: “A charitable organization should adopt and implement policies and procedures to ensure that all conflicts of interest, or the appearance thereof, within the organization and the board are appropriately managed through disclosure, recusal, or other means.”
• The Whistleblower Policy states: “A charitable organization should establish and implement policies and procedures that enable individuals to come forward with information on illegal practices or violations of organizational policies. This “whistleblower” policy should specify that the organization will not retaliate against, and will protect the confidentiality of, individuals who make good-faith reports.”

Effective Governance

• The Board Diversity Policy states: “The board of a charitable organization should include members with the diverse background (including, but not limited to, ethnic, racial, and gender perspectives), experience, and organizational and financial skills necessary to advance the organization’s mission.”
• The Review of Missions and Goals Policy states: ” The board should establish and review regularly the organization’s mission and goals and should evaluate, no less frequently than every five years, the organization’s programs, goals, and activities to be sure they advance its mission and make prudent use of its resources.”

Strong Financial Oversight

• The Annual Budget, Financial Performance and Investments Policy states: “The board of a charitable organization must institute policies and procedures to ensure that the organization (and, if applicable, its subsidiaries) manages and invests its funds responsibly, in accordance with all legal requirements. The full board should review and approve the organization’s annual budget and should monitor actual performance against the budget.”
• The Resource Allocation for Programs and Administration Policy states that a “charitable organization should spend a significant percentage of its annual budget on programs that pursue its mission. The budget should also provide sufficient resources for effective administration of the organization, and, if it solicits contributions, for appropriate fundraising activities.”

Responsible Fundraising

• The Gift Acceptance Policy states: “A charitable organization should adopt clear policies, based on its specific exempt purpose, to determine whether accepting a gift would compromise its ethics, financial circumstances, program focus, or other interests.”
• The Oversight of Fundraising Policy states: “A charitable organization should provide appropriate training and supervision of the people soliciting funds on its behalf to ensure that they understand their responsibilities and applicable federal, state and local laws, and do not employ techniques that are coercive, intimidating, or intended to harass potential donors.”

Accountability Lab Governance Audit Findings

Legal Compliance and Public Disclosure

Accountability Lab’s Conflict of Interest and Whistleblower Policies are in line with Internal Revenue Service (IRS) requirements and best practices outlined by the Sarbanes-Oxley Act of 2002 (SOX), although SOX applies primarily to publicly traded companies. The policy mandates that responsible persons, including board members, officers, and key employees, disclose any relationships that might lead to conflicts, either financial or relational, and recuse themselves from decision-making related to the conflict. Annual disclosure forms ensure compliance with the IRS requirement for regular updates on potential conflicts, reinforcing transparency. For the later, SOX policy on whistleblower prohibits retaliation against individuals who report suspected illegal or unethical activities, provides a secure process for reporting misconduct, and outlines disciplinary measures for any retaliatory actions. To ensure that employees can report legitimate concerns without worrying about retaliation, Accountability Lab has implemented a Whistleblower Policy. This policy highlights the organization’s commitment to upholding ethical standards and safeguarding the interests of individuals who come forward as whistleblowers in good faith.

Effective Governance

Our findings show that Accountability Lab has an inclusive and diverse governance board that is reflective of its mission and values. This principle is consistent with the organization’s equality and diversity policy, which supports equal opportunity and inclusivity throughout the organization. The governance board regularly reviews the organization’s mission and goals to ensure effective resource use and alignment with its foundational purpose. 

Strong Financial Oversight

Board members of a nonprofit organization have fiduciary and legal duties as established in corporate law. These are the duty of care, duty of loyalty, and the duty of obedience. Accountability Lab is in compliance with the Principle for Good Governance and Ethical Practice Guide recommendations for an Annual Budget, Financial Performance and Investment and Resource Allocation for Program and Administration policy. Accountability Lab’s annual audited financial report from 2012 to 2023 is submitted to the board and published on their website. These financial reports relied on an independent financial auditor in compliance with IRS Form 990 requirements.

Responsible Fundraising

Accountability Lab’s alignment with gift acceptance suggests a robust governance model that protects its mission and ethical standards. Thus, their approach to gift acceptance and fundraising oversight involves both internal governance and external compliance. The Principle for Good Governance and Ethical Practice Guide outlines a set of core concepts, arguing that a gift acceptance policy can serve as a guide to accepting or refusing charitable contributions. Whenever the nonprofit is receiving (cash or non-cash) gift from donors, they should always consider where the boundary of accepting the gift lies, how receiving the gift benefits the nonprofit in fulfilling its mission, and what potential influence—positive or negative—the gift might entail. Accountability Lab’s gift acceptance policy aligns well with this principle and provides a structured approach to accepting contributions. The organization developed a set of Gift Acceptance Guidance to ensure the gift recipient is stick to the principles in three dimensions: 1. Mission-Aligned Gifts, 2. Ethical Standards and Donors Relationships, and 3. Risk Mitigation and Flexibility. They upholds transparency and high ethical standards in its funding relationships by disclosing all funding relationships on its websites and in public reports, ensuring that donors are treated with respect and transparency in how funds are utilized. 

On the other hand, Accountability Lab’s policy on oversight of fundraising highlights the duty of the board in implementing strong oversight on fundraisers. The organizations policy is in compliance with federal, state, and local laws regarding fundraising by engaging the board in overseeing ethical fundraising and avoiding coercive solicitation practices.

Final Assessment and Recommendations

The importance of a strong governance board of a nonprofit cannot be overemphasized. The Principles for Good Governance and Ethical Practice underscore the need to strengthen governance practices, transparency and accountability within nonprofits. Most nonprofits lose focus during growth or crisis periods. However, within the lifecycle of the governing board of nonprofits from organizing/founding board to the governance board and institutional board, the board of nonprofits has a responsibility to ensure strong oversight and compliance with statutory laws and organizational policies. Failure to comply can lead to penalties such as revocation of the tax-exempt certificate of the nonprofit. 

In conducting this audit, we concluded that Accountability Lab has demonstrated exceptional standards in compliance with good governance practices. We recommend that, as the organization continues to grow, the board should periodically use the Principles for Good Governance and Ethical Practice Guide to ensure they maintain compliance with good governance and best practices. Moreover, we recommend that other nonprofit organizations conduct periodic audits using the Principles for Good Governance and Ethical Practice Guide as a useful tool to ensure best practices and legal compliance of their organizations.

Chinonye Austin Ekwujuru