New nonprofits: becoming accountable

Introduction

The primary goal of a nonprofit organization is to serve its mission. However in the present day – the job of a nonprofit organization does not end there.

Situations are such that, if a nonprofit organization keeps serving its mission but fails to document them properly, it may sooner or later find itself strangled of financial support and may even attract the wrath of Government agencies like canceling of income tax exemption recognition or in worst cases total lack of recognition or penal consequences for the defaulting members of the organization.

Therefore the need for maintaining proper records to remain transparent and accountable to its donor’s, to the government and to the general public at large is increasingly becoming important for nonprofit organizations.

Remaining accountable

There is a systematic process laid down for this. A nonprofit organization can claim to be accountable if it carefully follows these two vital processes:

a) Complying to the reporting requirements of state and federal authorities

b) Maintaining the books of account as per generally accepted accounting principles (GAAP).

Remaining transparent

Transparency has two components –

a) Providing certain key documents for inspection to the general public on demand.

b) Subjecting the books of accounts to external audit.

The problem with accountability

While being transparent and accountable sounds simple at the first go, organizations worldwide are being criticized for neglecting these key components.

The main problem why organizations fail to prove accountability lies in the fact that it requires a basic knowledge of accounting or book keeping which is a vast discipline in itself.

Not many start-up organizations can afford to keep full time accountants and those that manage to keep one find themselves blindly relying on their services. Leaders of many nonprofit organization struggle to make a sense out of the financial statements and the numbers reported therein.

The section titled ‘accounting and audit‘ on this website aims to equip nonprofit leaders with a basic understanding of this aspect of keeping their organizations accountable in the eyes of law.