Why Nonprofit Organizations Need a Code of Ethics

Ethics are an important consideration for nonprofits and accountants alike. From Enron and Arthur Andersen to tales of CEOs using charitable contributions to buy sports cars and expensive dinners, the threat of fraud is very real and damaging to an organization’s reputation. These stories of fraud make headlines around the world and cause people to wonder how anyone could do such a thing. It might be fascinating to discuss these stories around the water cooler, but they can also make the public think twice about donating to your nonprofit organization.

Everyone knows that stealing and lying is wrong. But it rarely starts out in such a black-and-white way. More often than not, it begins by someone doing something just a little bit grey. Maybe they fudge a few numbers or “borrow” some funds with the intention of returning them later. But before long, their actions become darker and darker, until suddenly you’re reading about them in the news.

A nonprofit code of ethics can help identify these grey areas and provide formal guidelines for staff, volunteers, and board members to make ethical choices. A code of ethics clearly states your organization’s values and ensures accountability. It also provides transparency to your donors, which can go a long way toward building trust.

If your organization already has a code of ethics, be sure to share it with your staff, volunteers, and community to make sure everyone is on the same page. Many organizations post their code of ethics on their website and include it in their employee handbook or other materials. If your organization does not yet have a formal, written code of ethics, it’s well worth the time to sit down and create one. You can ask others for their viewpoints on moral issues and identify the lines that should not be crossed.

Your code of ethics can be as long or short as you would like. The National Council of Nonprofit has a great list of resources and examples if you’re starting from scratch. But no matter what else you include, you’ll want to make sure your code of ethics has a statement of core values and how they relate to your nonprofit mission. Explain why these values are important to your organization, and describe how you’ll ensure your ongoing commitment to these values.

A code of ethics is not a magic bullet and will not prevent fraud or unethical activities on its own. But combined with strong internal controls, a code of ethics can help create an environment in which fraudulent behavior is clearly unacceptable and easier to spot if it occurs. It also shows donors that your organization is trustworthy and committed to ethical values. With a formal code of ethics, there are no grey areas to exploit – and nowhere for potential fraudsters to hide.