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Just seeing the word “audit” can stimulate a gut wrenching reaction. Too often audits are imposed from the outside, painful, punitive, fear provoking and reactive.

But what if as a board you reframed audit as “Assessment Under Direction of Intelligent Terrestrials”?

Thirty-five percent of 900 wealthy people surveyed in a PhilanthropyNow/Luxury Institute study said they didn’t trust that nonprofits would use their money wisely. Twenty-two percent said they wanted to learn how to give directly to the end recipient.

Making accountability more than a mantra makes sense.

Christian Thomas Lee, international fundraising consultant (www.themercyfoundation.com) notes, “Growing donor suspicion of nonprofit credibility and ethics now demands self-auditing to build trust and transparency. Nonprofits must continually demonstrate their stewardship of donor dollars and their accountability for results. Getting better at what nonprofits do ... demands ongoing self-auditing and implementation of plans for improvement. Boards better understand that today’s donors aren’t writing charity cheques as much as they are making social investments.”

Ask for due diligence

But it’s not only fundraisers that care about accountability. Johnne Syverson, President of the nonprofit International Association of Advisors in Philanthropy (www.advisorsinphilanthropy.org), says, “again and again donor-centric financial advisers are being asked by wealthy clients to conduct due diligence on nonprofits before making major gifts. If nonprofits can’t answer core accountability questions, those dollars go to those who can.”

“Do a positivity audit,” says Drake Zimmerman, chartered adviser in philanthropy, member of several boards, including the International Association of Advisors In Philanthropy. “Focus on what you’re doing right. That builds trust and safety, both on the board and with staff. Fear drops away, opening the way to look at what you are doing and how. Areas to improve simply emerge. By focussing on the positive, you tap energy and enthusiasm, both of staff and the board. A focus on the positive gets you the oomph to make your visions reality, and deal with any issues that come up.”

Zimmerman adds that the lesson is not new, but a longstanding business principle. “The grandfather of modern management, Peter Drucker, was fond of saying, ‘feed your opportunities, starve your problems.’ In later years, Drucker pioneered applying management principles to nonprofits.”

He explains, “You get what you focus on. By addressing opportunities first, problems often shrink or disappear entirely. So start with: What does your nonprofit want to achieve? Find the strengths of the people and the institution.”

It’s about dancing with the data – not hiding from them. It’s about asking for feedback early – not waiting until it’s too late. It’s about engaging stakeholders as partners – not perpetrators of revolutions. It’s about welcoming feedback as key to turning “not-yet-successes” into learning opportunities – not failures to be buried.

Develop deep trust

Deep support for the work of nonprofits depends on deep trust between donors and nonprofits. Nonprofit self-audits can help build that trust. The self-audit referred to here goes beyond a traditional financial audit to one that addresses seven performance areas and involves feedback from board members, staff, major donors and other stakeholders. The seven areas and an example of a pithy question for each are drawn from the PhilanthropyNow Nonprofit 360 Degree Self-Audit Process:

1. Relationship/Connectedness. Sample question: This nonprofit has a donor and service recipient complaint resolution process and staff that quickly handles concerns.

2. Mission/Goals/Feedback. Sample question: This nonprofit is a legitimate nonprofit with appropriate tax status and is up-to-date with accurate filing of required status reports.

3. Current Project Assessment. Sample question: Each of this nonprofit’s current projects is doable and worth doing and will be evaluated for measurable results.

4. Effectiveness/Efficiency/Sustainability. Sample question: This nonprofit has honestly and fully documented fundraising and administrative expenses lower than ___% (you specify and justify).

5. Leadership. Sample question: This nonprofit has a stable, active, accountable board that focusses on the big picture and is more than just names on letterhead.

6. Volunteer Management. Sample question: This nonprofit monitors volunteer performance and coaches volunteers for accountability and growth.

7. Donor Direction of Gifts. Sample question: This nonprofit has and follows a written, easy to understand policy that explains how it makes decisions about allocating gifts.

Act of courage

To self-audit is an act of courage. There are many motivations, some proactive and some reactive, for self-auditing ... and some risks. Before taking this step, read each indicator and assess what’s possible and what’s at risk in doing or not doing an audit.

Place a check mark next to each of the indicators that address a factor of importance to your nonprofit and its stakeholders.

A self-audit of our nonprofit would likely:

• Create a breakthrough in trust and accountability with stakeholders
• Respond to a donor complaint or alleged wrongdoing
• Earn community respect by self-auditing without being asked
• Lift a veil of misunderstanding between donors and the nonprofit
• Proactively pinpoint our nonprofit’s “prouds” and “do betters”
• Help us sleep better knowing our house is in order
• Correct an error, integrity lapse or ethical lapse
• Make it easier to do our job effectively
• Ensure a check and balance between staff and board
• Put rigour and heart back into conscious nonprofit management
• Differentiate our nonprofit in the minds of donors and funding agencies
• Tap the savvy and bond board members and staff so they become part of the solution
• Make us a role model and “way-shower” for other organizations
• Build donor trust so they can open their minds, hearts and chequebooks
• Make it easier to attract and keep top board members
• Allow us to conduct our own due diligence before someone does it for us
• Deliver predictability and transparency so everyone knows where the money is going and how dollar allocation decisions are made

Can you follow up?

Caveat: If you can't afford to hear the answer ... don’t ask the question. Before conducting a self-audit, ask yourself, “can we afford to hear the answer and then will we commit the resources to make essential changes?” If not, you may want to delay self-auditing until a later date. Asking for feedback and not acting on any of it can irrevocably alienate those who complete the audit.

So what are the forces in your organization that would be drivers for a positive self-audit process? How will you mobilize the drivers? What are the blocks that you will need to honour and take into account? How will you mobilize the drivers and address and dissolve the blocks?

For example: A driver is that the self-audit is requested by the board. A block is a fear of loss of donors. A driver mobilizer is asking the board who else they want to invite to participate. A block remover entails involving key donors in the self-audit design and review of results.

The self-audit implementation steps should include a progress report that shows actions taken, by when and by whom, the current status, and the outcome.

For further information: Charles Bernard Maclean, Founder and Chief Committed Listener, PhilanthropyNow, 503/2997-1490, advocate@philanthropynow.com, www.philanthropynow.com; this article first appeared in Charity Channel’s Nonprofit Boards and Governance Review, www.charitychannel.com.