A Publication of WTVP

Look beyond mere procedures and checklists to the attitudes behind them.

Nonprofit organizations are duty-bound to a host of internal controls that help protect reputations, safeguard stakeholders’ investments and keep employees honest. While your organization has specific mechanisms and protocols in place to help your people toe the line, it’s often that intangible control environment that transforms automated processes into conscientious ethics—a world of difference that empowers your people to be vigilant about doing the right thing.

The control environment is the overarching culture and structure that impact all the internal processes and controls. It encompasses everyone within the organization: management, staff and those charged with governance. A strong control environment ultimately helps enforce awareness, discourage toxic rationalization, and deter human error and fraud.

Evaluating your organization’s control environment is not a new concept, but it’s one that is often overlooked and undervalued. When was the last time you considered if your organization is really setting the right tone at every level… and with each individual? You can start by checking up on culture, accountability and governance.

Organizations with healthy control environments perpetuate a culture of teamwork, awareness of the rules and appreciation for the spirit behind them. This type of culture lives or dies by management that models it or fails to do so. Consider the difference between a leadership team that regards an audit finding as a mere “ding” against the organization and one that is mindful and appreciative of the recommendations that accompany that finding. The culture that is receptive to opportunities to progress and comply will trickle down to all individuals and their care of the internal controls entrusted to them. Leaders who foster teamwork and genuinely enlist the input of their people for process improvement tend to develop a more engaged and aware workforce—which is critical to honesty and ethics.

You can evaluate your organization’s culture with confidential surveys and other measurement tools, but even a basic “gut check” (with rationalization checked at the door) on your management team’s attitude toward controls can be telling. Whatever the state of your culture, it’s essential to remember that even healthy environments need constant care and attention.

Personal Accountability
The natural outgrowth of a strong culture is personal accountability. Whether individuals are charged with developing organizational policies, administering a grant program or handling cash, each must clearly understand their responsibilities and the standards to which they are unequivocally held.

Nobody is perfect—people make mistakes—so communicating any deviations from clearly defined expectations doesn’t have to (and shouldn’t) be a negative situation. When standards aren’t met, don’t ignore or merely correct the violation, but instead enforce accountability. Touch base with the individual involved and find out what happened and why. Most importantly, ask if specific internal controls could have been implemented differently or added onto existing protocols. Such two-way conversations nurture accountability, build trust and heighten the control environment by underscoring ethics and integrity.

Robust oversight from your organization’s board is critical to an effective control environment. Boards generally have committees that make sweeping approvals of such things as monthly expenditures, but true control goes deeper, with detailed scrutiny of your organization’s activities, decisions and expenses. Ideally, your board members should take a hands-on approach to administration and supervision and have open lines of communication with all your people.

One way to ensure that your staff can alert management of organizational misdeeds they might not otherwise be able to report is to set up a formal (or informal) “fraud hotline”—a confidential, secure way of reporting fraud, theft and other ethics violations. Engage your board in establishing whistleblower policies and protections, and make sure your people understand them. These protocols help convey the appropriate rigor and attention that are owed to ethical management from the top down.

Each organization is different in how it builds its culture and interacts with its staff and governing boards, but there’s no question that ethics and accountability are incubated in strong control environments. Leadership teams are wise to look beyond mere procedures and checklists to the attitudes behind them and be unflagging in their support of what’s honest and right. iBi

Adam Pulley is a principal with CliftonLarsonAllen. He can be reached at (309) 495-8767 or [email protected].