The objective of Compliance Management is to ensure that a nonprofit organization meets its obligations whether
- They are based on contracts, laws, regulations or industry practice or
- Self-imposed internal guidelines, rules and procedures.
Graphic 1: Sources of compliance requirements
Importance of Compliance Management for NGOs
Compliance Management is a process that contributes significantly to organizational sustainability.
The process helps to avoid that
- Present earned income gets lost due to cancelled customer contracts.
- The organization looses future earned income due to bad reputation.
- Donations and grants have to be partly or fully paid back because grant conditions are not met.
- The organization has problems to receive grants and donations in future due to bad reputation.
- The organization becomes less competitive because being non-compliant with process related guidelines and procedures increases material prices and lowers productivity.
- Fines have to be paid because legal obligations are not met.
- The organization has to stop working temporarily or permanently.
Building capacity in Compliance Management
There are a number of steps an organization could take:
- Appointing a compliance officer (or a few staff members who share compliance management tasks).
- Providing training to senior management (incl. directors) in compliance management.
- Informing staff members about compliance topics that are important to the organization and their work.
- Providing training to staff members how to apply guidelines, rules and procedures in their day-to-day work.
- Learning from compliance reviews, audits and assessment.
Examples of compliance requirements
National/international laws and regulations
Labor laws, environmental laws, tax laws, consumer protection laws and regulations related to all these laws will include a number of requirements that any type of organization will have to meet.
They might include for example legal obligations concerning
- Minimum wages
- Working conditions
- Pollution levels
- Product liability
- Consumer safety
National and international accounting standards
They include requirements concerning:
- How to record business transactions
- How to prepare financial statements
- What to disclose about the reporting organization
Grant makers will include at least some of these requirements in the agreement
- Eligible project costs.
- Type of fixed assets that will be funded.
- Reallocation of funds to activities those were not included in the approved budget.
- Keeping of financial records.
- Financial reporting.
- Program reporting
- Conducting audits.
- Conditions that have to be met before funds are released.
- How to conduct project related purchasing activities.
- Internal controls that should be in place.
Customers of products and services
- Product quality
- Delivery schedule
Sector specific practices
- WANGO Code of Ethics and Conduct
- HAP Standard in Accountability and Quality Management
- NGO Microfinance Standards
- Sustainability reporting guidelines for NGOs
Self-imposed internal guidelines and procedures
- Approval of investments
- Purchasing of goods and services
- Volunteers Management
- Financial Control
- Quality Control
The operational side of Compliance Management
Compliance Management will be normally in the hands of
- The Compliance Officer and
- Senior Management
In small organizations or organizations with limited compliance requirements, compliance related tasks would be probably distributed among a number of staff members.
Role of the Compliance officer
The compliance officer is in charge of the administration of the compliance program. He/she must have the authority to work across departmental borders and to initiate change where corrective action is needed.
Main tasks are
- Keeping up-to-date with the compliance requirements of the organization.
- Developing internal guidelines, rules and procedures to ensure compliance.
- Updating internal guidelines, rules and procedures (e.g. when laws and regulations have changed).
- Informing/training staff members on all levels of the organization.
- Initiating corrective actions.
- Coordinating the response to complaints of external stakeholders when compliance issues occur.
- Reporting to senior management/board of directors about progress in compliance.
Role of Senior Management
Senior management (incl. directors) provides leadership in compliance issues by:
- Demonstrating to everybody that meeting obligations is of highest priority.
- Adopting policy statements concerning compliance topics.
- Appointing a compliance officer or create a compliance committee.
- Initiating compliance reviews and audits.
- Keeping informed about the progress towards compliance.
Sources / Guide to further reading (available online)
The free dictionary, Thesaurus: Compliance, at: http://www.thefreedictionary.com/compliance
- Alternative definitions of compliance
The business dictionary, Compliance, at: http://www.thefreedictionary.com/compliance
- Definition of compliance in the context of a business
H.Flood, Essentials of Grant Management, at: http://www.tgci.com/magazine/Essentials%20of%20Grants%20Management.pdf
- The document describes in detail actions to be taken concerning grant administration and compliance management.
The Federal Deposit Insurance Corporation, Compliance Management System, at: http://www.fdic.gov/news/news/financial/2006/2cep_compliance.pdf
- The article focuses on compliance management in financial institutions. The basic approach to compliance management presented should be applicable to any type of organization.
American Institute of CPAs, What is the difference between a compilation, a review and an audit, at: http://www.aicpa.org/interestareas/privatecompaniespracticesection/resources/keepingup/pages/comparativeoverviewwhatisthedifferencebetweenacompilation,areviewandanaudit.aspx
- A comparative overview of compilations, reviews and audits of financial statements
K.Abshire, Practical tips for Grant Compliance http://www.vgfoa.org/Regional_Events/A-133_Audit_Overview_Abshire1.pdf
- The detailed presentation about grant audits and how to become compliant as an organization
A.Kayman, Grant compliance: How to keep your grants and win successive awards, at: http://www.njslom.org/documents/GrantCompliance.pdf
- The short document intends to provide some practical tips about ensuring compliance and receiving grants also in future
Mango, Grant agreement sample, at: http://www.mango.org.uk/Guide/GrantAgreementSample
- An example of a grant agreement which describes in detail conditions that have to be met by grant takers