How are nonprofits monitored, regulated and governed?
The overwhelming majority of nonprofits in the United States operate in an ethical and accountable manner. However, nonprofits are not immune to damage that can be caused by unscrupulous and fraudulent solicitors, financial improprieties, and executives and board members who place personal gain above the organization's mission.
Because nonprofits are held to such high standards, they have created many lines of defense against fraud and corruption:
Boards- All nonprofits are governed by a board of directors or trustees (there's no real difference), a group of volunteers that is legally responsible for making sure the organization remains true to its mission, safeguards its assets, and operates in the public interest.
Private Watchdog Groups - Several private groups (who are themselves nonprofits) monitor the behavior and performance of other nonprofits.
State Charity Regulators - The attorney general's office or some other part of the state government maintains a list of registered nonprofits and investigates complaints of fraud and abuse.
Internal Revenue Service - A division of the IRS (the Tax Exempt/Government Entities division) is charged with ensuring that nonprofits are complying with the requirements for eligibility for tax-exempt status. As a result of the thousands of audit investigations, a handful have their tax-exempt status revoked; others pay fines and taxes.
Donors & Members - Some of the most powerful safeguards of nonprofit integrity are individual donors and members. By withholding their financial support, donors can strongly encourage nonprofits to reappraise their operations.
Media - Many nonprofit leaders may feel misunderstood or even maligned by negative media coverage, however, this media watchdog role has resulted in increased awareness and accountability throughout the sector.
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Why do nonprofits have boards, and what do boards do?
Most nonprofits are corporations, which means that they are legal entities distinct from the individuals who founded them. Like their for-profit counterparts, nonprofit corporations are governed by boards of directors with legal and ethical responsibilities that cannot be delegated. The board's responsibilities fall into the following broad categories:
Legal & Fiduciary- The board is responsible for ensuring that the organization meets legal requirements and that it is operating in accordance with its mission. It is also responsible for protecting the organization's assets.
Oversight- The board is responsible for ensuring that the organization is well run. It moderates the power of management and has the power to hire and remove the chief executive, usually called the executive director or president.
Fundraising- Board members raise money, make personal financial contributions, and serve as advocates for the organization to potential donors as a part of their responsibility to ensure the financial viability of the organization.
Representation of Constituents and Viewpoints- Often, board members are chosen to bring the experience or perspective of the organization's constituents to the board. By doing so, nonprofits better serve their communities.
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