A Code of Ethics is more than limiting potential fraud losses. It also provides nonprofit organizations with an opportunity to document and disseminate its core values. Every two years, the Association of Certified Fraud Examiners releases its Report to the Nations, an occupational fraud study of for-profit, not-for-profit, and government organizations. As in previous editions, the 2022 study reports that most organizations require employees to read and sign a nonprofit code of ethics or conduct. This relatively simple control can result in a median 40% reduction in fraud losses, should fraud occur.
Putting Ideals Into Practice
Your organization probably already has a mission statement that explains its values and goals. So why would you also need a code of ethics? Think of it as a statement about how you practice ideals. A code not only guides your organization’s day-to-day operations but also the conduct of your employees and board members.
The first step in creating a code is determining your values. To that end, review your strategic plan and mission statement to identify the ideals specific to your organization. Then look at peer nonprofits to see which values you share, such as fairness, justice, and commitment to the community.
Topics to Address
Now you’re ready to document your expectations and the related policies for your staff and board members. Most nonprofits should address such general areas as mission, governance, legal compliance, and avoiding conflicts of interest. Depending on the type and size of your organization, also consider addressing:
- Responsible stewardship of funds,
- Openness and disclosure,
- Diversity, equity and inclusion,
- Program evaluation, and
- Professional integrity.
When the code is final, your board must formally approve it. To implement and communicate it to staffers, present hypothetical examples of situations that they might encounter and address real-life scenarios and how your organization handled them. To help ensure accountability, ask staffers and board members to sign the code of ethics. Instruct them to report any ethical concerns to a supervisor or HR.
Although your nonprofit code of ethics can go a long way toward defining your organization’s values and raising staff awareness, it’s really only the first step in preventing fraud. Other controls, including mandatory vacation policies, confidential hotlines and surprise audits, are associated with even greater reductions in fraud losses. Contact us for more information.