Control Mechanisms and Accountability Challenges in Nonprofit Organizations

By Baapogmah, Fabian A.; Mayer, Roger W. et al. | Global Journal of Business Research, January 1, 2015 | Go to article overview

Control Mechanisms and Accountability Challenges in Nonprofit Organizations


Baapogmah, Fabian A., Mayer, Roger W., Chien, Wen-Wen, Afolabi, Abolasade, Global Journal of Business Research


ABSTRACT

Nonprofit Organizations (NPOs) face numerous challenges in maintaining accountability. The lack of financial accountability creates risks in goal achievement. An environment of accountability positively contributes to the effectiveness and efficiency of operations. We interviewed 22 participants from 6 NPOs in the State of Delaware in our qualitative phenomenological study. We identified themes defining accountability, control mechanisms, and ethics. The greatest challenges affecting control mechanisms include expenditures controls and transparency. The results suggest that while most managers have a high awareness of controls and accountability, smaller NPOs struggle because they lack sufficient resources. The study adds to the understanding of best practices, which could benefit communities in which NPOs operate and encourage accountability to beneficiaries and other stakeholders.

JEL: M10, M40

KEYWORDS: Nonprofit, Accountability, Control Mechanism, Transparency, Ethics

INTRODUCTION

The number of Nonprofit Organizations (NPOs) in the United States increased from 1.16 million in 1998 to 1.51 million in 2008, representing a 31% increase (Wing, Roeger, & Poliak, 2012). NPOs are involved in almost all areas of the economy, including education, health, religious, charitable, scientific, and human services (Kistruck, Qureshi, & Beamish, 2013). Thus, NPOs play an important role in the socioeconomic development of the economy. In tins research, we used a qualitative phenomenological design to explore the process of accountability in U.S. based NPOs. The purpose of this study was to gain an understanding of NPO financial accountability, operational controls and efficiency, and management challenges over accountability. We interviewed 22 participants from six NPOs in the State of Delaware. NPO manager comments obtained through face-to-face interviews form the basis of data used for analysis. We identified themes defining accountability, control mechanisms, and ethics. The greatest challenges affecting operational controls include controls over expenditures and transparency. The results suggest that while most managers have a high awareness of controls and accountability, smaller NPOs struggle because of the lack of resources. The results of this study could benefit NPO operations and the communities in which NPOs operate by encouraging accountability to all stakeholders. The remainder of the paper is organized as follows. The next section describes the literature review. Next, we present the methodology used in this paper. The results are reported in the following section. The final section contains conclusions and recommendations for future research.

LITERATURE REVIEW

NPOs traditionally provide social services and advocacy functions to underserved populations. These organizations experienced rapid changes during the recent economic downturn. The economic situation created a need for additional public services (Williams, 2010). The typical role of NPOs is to provide services when the market or governments fail to meet social services, health, and economic development needs of citizens (Moulton & Eckerd, 2012). The critical nature of public services offered by NPOs increases the need to improve governance. Baur and Schmitz (2012) indicated that the ability to adapt is related to the strength of accountability.

Accountability

Accountability represents an obligation to perform and to account for the organization's performance (Oakes & Young, 2008). Organizations achieve a level of accountability when individual managers agree to execute their duties within an environment of trust and high ethical standards (Fowler, 2008). Costa, Ramus, and Andreaus (2011) suggested that accountability involves three elements: (a) financial sustainability, (b) social responsibility, and (c) value creation. Argandoña (2009) operationalized accountability by focusing on three activities including (a) measuring and reporting on performance, (b) developing a process to handle complaints, and (c) measuring client satisfaction. …

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