Why Even The Most Noble Core Values Need To Be Audited And Reviewed

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As a newcomer to the credit union movement it is heartening to see community service, volunteerism and social responsibility as prominent core values and part of the movement's DNA. Corporate America, where I spent much of the last 10 years, is just now starting to understand how important these values are-not just for the "halo effect" and image enhancement, but to meet the expectations of their varied and increasingly sophisticated stakeholders.

There is a growing body of research in the corporate/business world-both quantitative and qualitative-pointing to the bottom-line benefits of socially responsible performance. The post-Enron world accelerated pressure on corporations and indeed all institutions to behave ethically and responsibly. That acceleration included increased regulatory pressure in the form of the American Competitiveness and Corporate Accountability Act, or Sarbanes-Oxley. Although only applicable to publicly traded companies, the Act has cascaded into similar pressure on charitable institutions and organizations including those in the credit union movement.

Along those lines less than a month ago a report was issued by the Congressional Joint Committee on Taxation outlining a host of areas where charitable institutions are vulnerable and in need of oversight and reform. The environment is such that these recommendations and concepts could easily gain traction particularly if charitable organizations don't show evidence of voluntarily improving their internal controls, auditing procedures, and governance practice.

According to INDEPENDENT SECTOR and BoardSource, the report recommends numerous changes including but not limited to:

* A review of the exempt status of public charities and private foundations and an annual notice by organizations not required to file returns.

* More penalties under intermediate sanctions.

* An increase in the amount of excise taxes imposed for self-dealing.

* A tightening of rules on deductions for conservation and fa?ade easements.

* Limiting deductions of clothing and household items.

* Options for limiting deductions on donations of property; and

* Additional exemption standards for credit counseling organizations.

Many in the voluntary sector argue that this interest in new laws and increased oversight is an answer looking for a problem. But there is no denying that the misdeeds of some high-profile charities and individuals combined with a general and growing distrust by Americans in their previously trusted institutions has created the perception that charitable organizations are in need of additional oversight.

The charitable aspects of the credit union movement are a vibrant and growing part of our community-oriented, giving-back, cooperative culture. State credit union foundations are taking root and growing. Individual credit unions are establishing their own foundations and community relations programs. Many credit union executives serve on charitable boards.

But are we taking into consideration how these regulatory and related oversight trends impact the charitable and philanthropic aspects of the credit union movement? If not, we should be.

Here at the National Credit Union Foundation (www.ncuf.coop) we are tracking these issues and implications and working to get ahead of the curve. As suggested by IS and it's recently formed Panel on the Nonprofit Sector, we are voluntarily applying more stringent governance and operational standards where applicable.

I started by saying that institutional stakeholders-meaning all key constituents-are demanding socially responsible management of the institutions in which they engage. That includes charitable institutions and organizations. We are operating in an age where stakeholders' needs and expectations are changing. They are demanding transparency. They expect to be able to access information about how their resources are being used. And they want all this to happen seamlessly and quickly.

In order to prepare for and meet these new expectations IS and BoardSource created a checklist for foundations and nonprofits to consider using the provisions of Sarbanes-Oxley as a guide (see checklist, below). IS' web site (www.independentsector.org) is also a rich source of information on a broad range of issues related to philanthropy, from accountability to research to public policy to working with the media and more.

As the credit union movement expands its charitable and philanthropic efforts, the National Credit Union Foundation will continue providing information, tools, and resources necessary to help ensure compliance and maintain stakeholders' trust.

Steve Delfin is Executive Director of the National Credit Union Foundation, Washington.

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