Background:
Ethical Issues in the Nonprofit Sector
These organizational dynamics play out in distinctive ways in the nonprofit sector. There are six areas in particular where ethical issues arise in the nonprofit sector: compensation; conflicts of interest: publications and solicitation: financial integrity: investment policies; and accountability and strategic management.
Compensation. Salaries that are modest by business standards can cause outrage in the nonprofit sector. particularly when the organization is struggling to address unmet societal needs.
Conflicts of Interest. Conflicts of interest arise frequently in the nonprofit sector. Related conflicts of interest arise when an organization offers preferential treatment to board members or their affiliated companies.
Publications and Solicitation. Similar concerns about public trust entail total candor and accuracy in nonprofit reports. The Red Cross learned that lesson the hard way after disclosures of how it used the record donations that came in the wake of the 9/11 terrorist attacks. Donors believed that their contributions would go to help victims and their families. The Red Cross, however, set aside more than half of the $564 million in funds raised for 9/11 for other operations and future reserves. As the Red Cross example demonstrates. nonprofits need to pay particular attention to transparency.
Financial Integrity. Nonprofit organizations also face ethical dilemmas in deciding whether to accept donations that have any unpalatable associations or conditions. Recently, many corporations have been attempting to "green" their image through affiliations with environmental organizations, and some of these groups have been entrepreneurial in capitalizing on such secrets.
Investment Policies. Advocates of socially responsible investing argue that nonprofit organizations should ensure that their financial portfolio is consistent with their values. Many profit leaders have resisted pressure to adopt socially responsible investing principles on the funds that maximizing the financial return on investment is the best way to further their organization's mission ,and that individual divestment decisions are unlikely to affect corporate polices.
Accountability and Strategic Management By definition. nonprofit organization arc not subject to the checks of market forces or nonprofit
control. this independence has come under increasing scruth in the wake of institutional growth.
Q1. Critically analyze the professional and ethical standards expected of those in the accounting profession of non-profit organization accounting.
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