By Linda J. Kramer, CPA, MBA
Accounting & Auditing Director
Nonprofits rely on their organizations’ mission statements to communicate to external stakeholders what they are all about. Donors want to understand what their contributions are supporting. State and federal government agencies, such as the IRS, want to ensure that a cogent mission statement supports an organization’s tax-exempt status. And the public benefits from knowing the resources that a nonprofit organization brings to the community.
But another type of statement also expresses the values of a nonprofit organization, this one used more for internal operations – the code of ethics. While your mission statement explains the values and goals of your organization, a code of ethics guides day-to-day operations, as well as your employees’ and board members’ conduct. Ideally, the code of ethics is written to align with the values stated in your mission statement, whether they be oriented toward social justice, education, civil rights or other values.
According to the Association of Certified Fraud Examiners, establishing and enforcing an ethical code is associated with 50% lower fraud losses. Codes of conduct aren’t just about fraud prevention, though. Holding staffers and board members to an ethical code helps your nonprofit communicate its values to the public and reassures supporters.
Relate the code to your mission
The first step in creating a code is determining your values. To that end, review your strategic plan and mission statement to identify the ideals specific to your organization. Then look at peer nonprofits to see which values you share, such as fairness, justice and commitment to the community. Also consider ethical and successful behaviors in your industry. For example, if your staff must be licensed, you may want to incorporate those requirements into your written code.
Now you’re ready to document your expectations and the related policies for your staff and board members. Most nonprofits should address such general areas as mission, governance, legal compliance and conflicts of interest.
But depending on the type and size of your organization, you may also want to address the responsible stewardship of funds; openness and disclosure; inclusiveness and diversity; program evaluation; and professional integrity. For each topic, discuss how your nonprofit will abide by the law, be accountable to the public and responsibly handle resources.
Communicating the code
When the code of ethics is final, your board must formally approve it. To implement and communicate it to staffers, present hypothetical examples of situations that they might encounter. For example, what should an employee do if a board member exerts pressure to use his or her company as a vendor? Also address real-life scenarios and how your organization handled them.
To help ensure accountability, ask staffers and board members to sign the code of ethical conduct. Instruct them to report any suspicions or concerns to a supervisor or HR or via a confidential reporting mechanism, such as a fraud hotline.
Contact us with questions or if you need assistance to create an ethical culture.
