The Failure of Compliance in the Non-Profit World

Oxfam.  Save the Children.  Unicef.  What do they all have in common?  A grave failure of compliance and ethics.  Compliance and ethics programs are a rarity in non-profit and non-governmental organization sectors.  Why?  Three things…

1.     The Belief that All of their Employees and Volunteers Live the Mission

It’s hard to blame the managers of a charity for wanting to believe that all of their employees and volunteers live the mission of the organization and operate with the highest levels of integrity.  The people that work in such organizations often volunteer their time or take significantly lower salaries than they would attract in the corporate world.  Surely compliance and ethics are simply part of the culture, so there doesn’t need to be a system around them, right? 

Wrong.  People need processes and structure to help them to consistently do the right thing.  They need training on policies, and, at the very least, the capacity to access a whistle-blower hotline to report suspected wrongdoing.  There will always be bad apples and rogue employees, even in non-profit organizations.  Compliance programs help to weed these folks out and help to ensure that the mission of the organization is embedded into every process so that serious misconduct doesn’t happen.  So tragedies don’t happen.  Or if they do, that there is transparency in how the it is handled, so it doesn’t become a PR nightmare later.

2.     The Belief that Non-Profits Aren’t, or Can’t be, Prosecuted

Ask the average General Counsel of a non-profit why they need to perform a compliance-related risk assessment or create an anti-bribery policy, and they’ll tell you that they have no risk of prosecution.  And generally, they’ve been right. 

But the tide is turning.  With the public horrified by recent events, surely prosecutors are circling the recent compliance failures within the charity sector.  In fact, there are reports that the U.S. authorities have investigated several charitable organizations [1]in relation to bribery.  General Counsels and charity CEOs need to wake up to the need for compliance and ethics programs, which will provide them with a defence to many corporate crimes.  The UK Bribery Act’s strict liability offense of failing to prevent bribery can be mitigated if a compliance program providing adequate procedures to stop corporate bribery is in place, and the U.S. federal sentencing guidelines provide for mitigation or declination of prosecution if an organization has an effective compliance and ethics program.

3.     The Belief that a Compliance Program isn’t a Good use of Donor Money

Charities must use donor money effectively and efficiently.  Spending money on corporate compliance consultants, lawyers and processes for background checks and due diligence may seem like a poor use of cash.  After all, the mission of an organization may be to feed the homeless or save the environment, not to implement a compliance program. 

However, this misses the point.  Donor money spent on ensuring an organization has a culture of compliance is a critical starting point to ensuring that the organization is run with ethics and integrity.  At its best, compliance programs act to prevent misconduct, and then resolve misbehaviour in a consistent and transparent way.  Preventing a charitable organization from experiencing the appalling events at Oxfam and Save the Children is surely an appropriate use of donor money.

Compliance and ethics programs aren’t a cure-all.  There will always be bad actors, even in the charity sector.  However, the implementation of a compliance and ethics program will go a long way to stopping the nightmares that have occurred at charities recently.  And that will make donors very happy indeed.