Scandal is not an occurrence that is isolated to the government or businesses; the nonprofit sector is privy to it as well. When situations like these occurs, they not only affect the organization involved, but they also place every organization under scrutiny, and if not addressed, a rift between nonprofits and their donors, clients and stakeholders can form.

Trust is something that should never be broken. Tory Martin says that without trust, nonprofits cannot survive. It is imperative that stakeholders’ trust is not compromised when an incident occurs – organizations need to have a plan to respond.

Nonprofits may be more susceptible to scandal due to a lack of internal controls. These controls ensure that one person does not hold too much power in an organization. For example, instead of having one person responsible for writing, documenting and depositing a check, split the responsibility among multiple people. The lack of a vetting process which requires thorough background checks can cause scandals as well. While it is difficult to recruit potential employees, the process should not turn into desperation and overlook their background. Unfortunately, a lot of nonprofits fall into this category and sow the seeds of scandal.

In order to gain a real-life perspective on this topic, I interviewed a local nonprofit leader. Mr. Anthony Shelton, Sr., who is the CEO and founder of The Village of Fine and Applied Arts Advocacy Association, was gracious enough to spend his time discussing his opinion and experiences. The interview provided revelations about internal controls and trust. Mr. Shelton did not know what internal controls were; however, he agreed that it is something that he needs to integrate into his nonprofit’s operations. This affirms research findings regarding scandal, but The Village of Fine and Applied Arts Advocacy Association will be in a much better position. Mr. Shelton was adamant about being transparent with stakeholders – a great element of nonprofit leadership. Researchers have discussed the importance of transparency and trust within the nonprofit sector.

There are a few recommendations to be applied which can aid in preventing stakeholder trust to be compromised.

The first is to make the topic of internal controls well known to all nonprofit leaders. Following the interview, Mr. Shelton acknowledged that he never came across the topic during his self-taught nonprofit studies. He read many books about starting a nonprofit, raising money and recruiting volunteers, but was unaware of internal controls. This could mean other, smaller organizations that do not have access to individuals specializing in nonprofit leadership and management, may not be aware of this concept.

While the literature is being updated to discuss the importance of internal controls, nonprofits can be proactive about addressing scandal after it happens. Leaders must inform the board of directors about the incident as well as stakeholders. Once done, perform an analysis on the lack of internal controls that allowed the organization to be shed in a negative spotlight. This will help later when an organization does its internal audit, looking for potential gaps in internal controls. Informing stakeholders that your organization recognizes the flaws continues to build on the established trust.

Showing that there is a plan in place to address these weaknesses affirms that the organization takes their stakeholders’ trust seriously. After these changes have been made, leaders will follow up with its board and stakeholders to inform them of any progress.

The community, donors, and stakeholders need to trust in nonprofit organizations, though scandals within the sector can disrupt that. It is up to organizational leaders to ensure that this trust is not compromised and prepare a plan for future incidents – it is much better to be over-prepared than to deal with the fallout later.

Imani Mitnaul is a 2022 graduate of the Master of Nonprofit Leadership and Management program at Arizona State University. She currently resides in Statesboro, Georgia, and serves as the chief operating officer for The Village of Fine and Applied Arts Advocacy Association, whose mission is to ensure that youth who want to learn music can.

Learn more about internal controls

Enroll today in the Nonprofit Management Institute's online course Effective Financial Management Principles to learn the importance of internal controls to protect the assets of your organization, basic accounting principles, and how to interpret and manage financial statements for a nonprofit organization.

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