Non-profit organizations have played a key role in social development. They hold great influence in mobilizing people, facilitating and initiating policy reforms, and effecting change on both levels of community and government. For countries such as the United States, non-profit organizations can even have a bearing on foreign policy behaviors (Kim, 2011). If media is dubbed as the “fourth estate”, non-profit organizations are claimed by some to be the “fifth estate”. They enjoy equal prominence, trust and catalytic characteristics that their impact permeate beyond communities — in fact, even into first there estates of executive (how policies are carried out), legislative (how policies are formulated) and judiciary (how laws are interpreted within the purview of social justice). Non-profit organizations can spark public consciousness on issues by reverberating to and through the fourth estate (media) their advocacy and the “voice of the people” against the traditional backdrop of insufficient government support or (Coalition for the International Criminal Court, 2003).
Nelson (2007) cited a report by the Johns Hopkins Cooperative NonProfit Sector project conducted in 26 countries over a ten-year period in 26 countries. If the non-profit organizations were to be lumped to form one country, its total expenditure of US$ 1.2 trillion would make it the eight largest in the world. In terms of employment, the same non-profit organizations involved in the project registered an employee base of 31 million (7% of the world’s total employed statistics), of which close to 20 million were paid regular full-time staff and the rest full-time volunteers.
The non-profit organizations have grown in number, scope, and influence and power that they are a necessary force to reckon with in any governance structure (Nelson, 2007). Along with these though are increasing concerns on their sustainability. Aside from the usual concern of financing or funding, non-profit organizations are confronted with their own issues of irregularities, corruption, and procedural lapses indicative of weak internal controls and vulnerability to manipulation and abuse (Maxwell, et.a., 2008). In the same way that non-profit organizations clamor for clean governance and equitable appropriation of resources across marginalized sectors, they, too, have to be exemplars of fiduciary responsibility.
The financial aspect of managing social services poses a challenge then not only in generating resources but in ensuring accountability and transparency. These two go hand in hand — accountability and transparency. As the the Institute of Fundraising of the UK (n.d) defines each term in layman’s words: accountability is the responsibility for one’s actions to someone, while transparency is the not merely being open and frank but achieving timeliness and clarity, and understanding from the people that you work with. One can be accountable but may not necessarily be transparent by how disclosure clothes details with excessive technicality and cumbersome documentation that complicate instead of demystify data.
The Concept of Accountability and Transparency
Accountability and transparency are imperatives built on stakeholdership. Ocampo (2013) argues that civil society organizations are expected to contribute to transparency and accountability, which are key principles underlying good governance. They are usually demanded from pubic officials and government institutions as mechanisms that protect, preserve and sustain public trust in the processes that government carries out for the people. In the business context, accountability and transparency involve corporate governance and citizenship, due diligence, and acknowledgement of responsibility entitled shareholders on whose capitalization the business organization thrives. Equally, the same concepts and principles behind accountability and transparency are reposed on non-profit organizations where some hold reluctance in disclosing information in the public eye (Burger & Owen, 2010).
In the cycle of managing social services, where what keeps service going is the genuine passion to serve and benefit others, accountability and transparency may more likely be viewed from a defensive. Using funds for one’s personal gains may be an issue hardly distinguishable as irregular. But managing social services transcend mere passion; it involves as much proficiency in financial management towards eventual self-sufficiency, which is one of four pillars of financial sustainability for conservation organizations outlined by Leon (2001). While intentions are pure and fund appropriations in order, non-profit organizations contend with evolving demands for professionalization that necessitates accountability and transparency.
Used interchangeably, accountability and transparency two different yet complementary and supplementary concepts that highlight the value community engagement through feedback mechanisms (Pasha, 2004). Accountability hinges non-profit organizations to at least three stakeholders: beneficiaries (direct recipient of social services), external constituencies (donors and benefactors, civil society and professional networks, government agencies), and internal constituencies (management, rank-and-file employees, and volunteers). Conscious of how these key stakeholders operate within the management cycle, non-profit organizations have to continually articulate and manifest their accountability through both communication and promotional materials, and in the social services they administer. But as Sangco (2006) puts it across, non-profit organizations must aim not merely for “short-term functional accountability” but “strategic accountability” as well where the goal is sustainability.
Accountability can, however, be constrained to inner circles of management, especially when there is high dependence on non-profit organizations and they enjoy high trust ratings. Consequently, perceived demand for accountability may be low, and this can potentially compromise both direct services to beneficiaries and operations, eventually threatening the sustainability of non-profit organizations. The complacency of non-profit organizations to build into them strong financial reporting mechanisms has created a series of issues that ended up in some non-profit organizations folding up. As evidenced in cases in developing countries in Asia and Africa, and even in developed countries like the United States, top management have found a way to go around internal financial controls in advancing their personal interests. The usual culprits are hefty compensation packages (Songco, 2006), excessive expenses for travels and hosting, nepotism and sexual favors (Maxwell, et. al., 2008), and other perks that do not redound to the organization. Some non-profit organizations have also fallen into the trap of politics, existing for purposes of promoting political interests, advancing ulterior motives, and making a milking cow of multilateral funding agencies and governments. In poorer Asian countries where corruption is systemic in government, some non-profit organizations have managed to legitimize transactions that funnel government funds to politicians through social projects that exist merely in proposal papers.
It is in this light that transparency has become synonymous with accountability. Transparency is an instrument through which accountability is articulated. It breaks down asymmetries in non-profit organization work and fills gaps between donor expectations and actual work (Burger & Owen, 2010). Transparency is an accountability in itself. Transparency grants wider access to information that would otherwise have been limited to non-profit organizations. They subject themselves for scrutiny and review by relevant external constituencies. As well, transparency inspires greater public cooperation and participation, and promotes an enabling environment where the public is able to locate themselves in the solution equation.
Understandably, not all non-profit organizations have the capacity to perform sound financial management. Preparing financial documents and reports, ensuring proper disbursements, putting in place accounting and audit standards and protocols are usually work done by professionals trained in another field (Zakrevska & Kotov, 2009). Most non-profit organizations are run by individuals or professionals with specialization in social work and other related fields in the social sciences. And this aspect of financial management can add burden on non-profit organizations, as they will be required to capacitate staff, displacing them from other key service-oriented functions, or employ professionals adept in financial management (Trivonovic, 2011), in turn allocate resources away from other key components of the organization’s operations.
Much as the concepts and principles underlying financial management are traditionally more essential to government and the business sector, they gradually become inherent and organic to non-profit organizations in managing social services. On one hand, non-profit organizations rely on material resources from individuals, organizations, governments and funding agencies; and on the other, they need to mobilize domestic support, especially if they seek to impact policies (Kim, 2011). In ensuring a steady stream of resources, they may not only need to comply with documentary requirements but win over public sympathy. When non-profit organizations are able to convince the larger public of both authenticity of purpose, credibility and competence in undertaking social services, and financial viability, they build a social fence around themselves where they have the larger community indirectly lobbying for support for them.
Keulder and Benz (2011) released a “A Practical Guide to the Financial Management of NGOs” from preparing budgets, financial report to compliance with government regulations. But there are varying procedures government financial management of social services and espousing accountability and transparency. These procedures are oftentimes depending on government regulation, accreditation, tax-exempt requirements, or standard operating procedures of funding agencies. These usually come with an end-of-fiscal year financial statement prepared by an accountant. In big non-profit organizations, these financial statements go through external auditing to further determine the veracity of entries. But the requirements for financial statements vary as well. In well established non-profit organizations which have accumulated fixed assets, depreciation costs are factored in; for financial reporting involving donor funds, there are provisions on caps per entry, particularly for administrative costs, and restrictions to application of depreciation costs and certain purchases. What is crucial though is for non-profit organizations to ascertain judicious administration of resources and register a bottomline (ideally a surplus, if not breakeven) that is plowed back into the organization. Any surplus or profits of non-profit organizations have to go towards ensuring their sustainability, certainly not for distribution or sharing among the individuals comprising it.
Sound financial management in non-profit organizations is important for sustainability purposes. A good number of non-profit organizations were established by individuals of fame and popularity, or as ADB (2007) termed them: “visionary fathers”. They are movers and influencers who have a considerable amount of contacts from whom they can source seed capital to start a non-profit organization. Some non-profit organizations run on proceeds from substantial endowment funds endorsed by a rich donor, while others survive on membership dues. The ability to manage finances efficiently — and allow for the same financial management to uphold accountability and transparency practices — increases the chances of non-profit organizations to weather the storm of uncertainties, including death of patrons and donors, inflation and rising costs, and related regulatory changes that might impact the expense side of their operations. Doing sound financial management also involves foresight, a strategic understanding of future conditions under best and worst of circumstances.
The Philippine Experience
Although non-profit organizations, or the civil society community in general, are aware of the need for accountability and transparency, attendant issues usually arise from the extent to which these non-profit organizations are formally organized or not, whether they are legally recognized, or if they have achieved some level of accreditation. In countries such as the Philippines where civil society is at its freest, non-profit organizations are not required to register. Registration becomes imperative though when you want to receive donations and have juridical identity (some legal recognition that entitles you to sue and be sued as an organization).
The case of non-profit organizations in the Philippines is interesting. In 2007, the Asian Development Bank (ADB) published an “Overview of the NGOs and Civil Society in the Philippines”. According to that report, a colony of Spain for over 300 years, the Philippines experienced the idea of welfare and social services from the Spaniards, particularly from the Catholic church. Church welfare organizations established schools and hospitals, although many of them were for exclusive use by the local elites. This concept of welfare developed more formally under American colonial rule from 1898 when Spain ceded the Philippines to the United States. The period of American occupation brought in Western practices of charity and spurred the development of non-government organizations in the Philippines, including the branching out into the Philippines of the Red Cross. It delineated boundaries involving charity, welfare, and the functions of non-profit organizations (ADB, 2007).
A strongly democratic state, the Philippines promotes civil society participation in running the affairs of the country. The recognition of civil society, particularly non-government organizations or non-profit organizations, and their role are even cemented in the Philippine Corporation Law (as early as 1906) and the Philippine Constitution. This paved the way for the legitimate involvement of non-profit organizations in anti-poverty campaigns of Philippine presidents, including that of the late dictator Ferdinand Marcos (ADB, 2007). But while their number was ideally good for the country, the quality of the services were questionable and the purpose dubious. In the same way that cronyism crept into the private sector, non-profit organizations where also manipulated to siphon off resources from government, become legal channels to divert resources from funding agencies. The same civil society movement in the Philippines also toppled down the Marcos dictatorship. More and more were formed informally, hidden from government sight, mobilizing support against the dictatorship. It in the same spirit of activism and the desire for change that non-profit organizations continued to thrive in the administration of the late president Corazon Aquino, who led the People Power Revolution. Under the term of her successor, Fidel Ramos, it was when non-profit organizations gained a more solid and formal ground. Civil society was vibrant and flourishing, their significance reinforced through the call of the then president for multi-stakeholder participation, particularly in addressing poverty and the security crisis in Mindanao. It was also over this time of economic and political rehabilitation of the Philippines when the international community poured great sums of development assistance to the Philippines.
As of 2007, the ADB estimated non-government organizations in the Philippines to be around 500,000, with only a fraction registered as non-stock and non-government institutions wit the Securities and Exchange Commission (SEC). Some some 3,000 to 5,000 of them were described as “development-oriented”. Non-registration does not necessarily mean profit-making operations; registration is not mandatory for non-profit organizations. But registered non-profit organizations with SEC are entitled to open a bank account, enjoy some legal or juridical personality, and can receive donations and grants (ADB, 2007). For those engaged in social services, however, operations do not stop with the SEC; they need to secure endorsement and accreditation by the Department of Social Welfare and Development (for health-related services, the Department of Health). Those interested in receiving tax-deductible donations go through another process — accreditation by the Philippine Council for NGO Certification (PCNC), one of few government-recognized NGO accreditation systems in the world. But while accreditation has its benefits, a considerable number of non-profit organizations do not go through the process. The stringent review process and documentary requirements and the accreditation fee of around Php20,000 create roadblocks. Non-profit organizations accredited with the PCNC are also to reflect administrative costs not exceeding 30% of total expenditures.
In Songco’s paper (2008), SEC pegged the total expenditures declared by civil society organizations between Php6.2 billion to Php64.9 billion, with a mean of Php36.5 billion; for non-profit organizations, the estimates were around Php40.8 billion. This is a huge amount of money in the care of non-government organizations. A huge amount of money that continues to grow with funding agencies shifting partnerships towards non-profit organizations and governments promoting more multi-sectoral collaboration for the deeper penetration that non-profit organizations have with desired community recipients.
Accreditation, which involves evaluation, is a good approach to professionalizing non-profit organizations (Ocampo, 2013), but it surfaces some sensitivity as regards an attempt by government to regulate. What is needed is a comprehensive central database of non-profit organizations in the Philippines, clustered according to the nature of their services — from youth, children and women, elderly, persons with disability to indigenous peoples. This central database grants public access to a listing of all non-profit organizations, registered and unregistered.
A central database is beneficial from a trisector perspective: from the point of government, this facilities distribution of resources and opportunities; from the point of non-profit organizations, this empowers them to roll out more programs and activities, in order to generate greater public interest and maintain an active record in the database; and from the point of the public, it does not only enable them to peruse the profiles but their performance. For those in communities where the listed non-profit organizations operate, they can serve as vanguards, empowered to report any mismatch between information posted and actual activities on the ground. The same database contains the financial performance of each non-profit organization, and flags up those that have been delinquent in submitting the same.
This centralized database can be a venue for selection and vetting processes, in the same way that it provides a “whistleblower” mechanism. It lends itself as a one-stop-shop where benefactors, funding agencies and even governments can turn to for a more thorough and comprehensive review of potential partners or co-implementors. This database may not necessarily be condemning of non-profit organizations registered with SEC, but it must not also be remiss in reinforcing the value of legal representation. This central database also addresses issues regarding superiority of some non-profit organizations, unfairness in the distribution of opportunities, and lack of a platform where equally strong but relative fresh and small non-profit organizations can more healthily compete over limited resources from the donor community. For non-performing non-profit organizations, the database can also initiate external review and investigation.
A centralized database is also consistent with the Open Government Partnership espoused by the Philippine government and similar Open Government Initiatives by other countries, including the United States. It is incumbent upon organizations and institutions that thrive on and enjoy public trust, and were created for marginalized sectors, to make available data within social contract framework.
(Term essay submitted as a requirement in the course ‘Management of Social Services’ under the Master of Public Policy and Governance program of The Education University of Hong Kong. [For full list of references, e-mail: firstname.lastname@example.org].)