A Nonprofit’s Practical Guide to Resolving Ethical Questions

Abstract

IntroductionMrs. B, a veteran nonprofit executive director of a large non profit social services agency in a major U.S. city, faced a difficult decision. A fraudulent diversion of emergency housing funds for indigent families had been uncovered just as her agency was emerging from a two-year probationary period imposed by their funding source because of a previous theft. The attention she had given to strengthening accounting controls had not been successful. Given the county government's hostility toward the agency and the even tougher sanctions it would face for a second serious failure - the existence of the agency, or at the least its ability to raise funds, was threatened. Times were hard for those in need and sympathy for them limited. In spite of the harm the poor would suffer and the loss of her employees' jobs should the agency be decertified, her obligation to both the federal funding programs and the county government was clear. Any fraud or misuse of funds was to be reported immediately and the county district attorney was to be notified of any possible criminal activity. This incident, though significant, was not likley to be detected unless the agency itself reported it. The evidence was limited to temporary requisitions that could be shredded before the next audit. The offending employee, Mr. L, a gifted young man who had shown great potential, could be fired quietly. If Mrs. ? decided to conceal the fraud, however, she would not be able to warn future employers of his misdeeds when they requested a reference. She could not risk information about Mr. L's activities getting back to one of her funding agencies. Stewardship obligations over current and future grant funding, she was confident, could be handled by further tightening signature requirements. As she pondered the situation, Mrs. ? considered whom she should involve in making this decision and what standards to apply to decide what would be the right thing to do.After discussing the situation with two trusted staff members1, Mrs. ? decided to fire Mr. L quietly without notifying the board, the funding agencies, or the county's district attorney of the fraud. After the passage of 20 years, the authors have no indication that the fraud or the concealment of it was ever detected. A conversation four years after the event with a staff member aware of what had happened indicated that additional controls had not been put in place to prevent a reoccurrence nor had any effort been made to change the culture of the organization.Mrs. B's decision not to involve the board seems contrary to the reasons to have a board in a nonprofit organization (hereafter NPO). Concealing the fraud seems contrary to the law, the organization's mission, and ethics. A simple explanation for these decisions is that Mrs. ? is an unethical or weak person who ignored board responsibility and abandoned ethics and respect for the law in the face of pressure. The discussion that follows offers a more complex look at why Mrs. ? may have made the decision she did and whether involving the board would have produced a different outcome. Recent findings from neuroscience and social psychology show limitations in the ways people make ethical judgments under the pressure of a crisis and that these limitations apply to single and multiple decision makers. We examine the strengths and limitations of the law and an organization's mission as decision criteria and discuss the inclusion of ethics standards as tests that executives and board members can use to determine the right thing to do. Four ethics tests based in traditional ethical theory but couched in language that fits comfortably into business and professional settings are described as an example of how ethics can be applied to the case. Future research is suggested on whether multiple decision makers, including board members, should be involved rather than a single decision maker. We offer suggestions for future research on organizational processes and training for actual nonprofits. …