Npos

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International Bulletin of Business Administration
ISSN: 1451-243X Issue 13 (2012)
© EuroJournals, Inc. 2012
http://www.eurojournals.com/IBBA.htm

Practical Challenges in Managing Non-Profit Organizations
(NPO): Tales from Two Neighboring Countries
Radiah Othman
Accounting Research Institute & Faculty of Accountancy
Universiti Teknologi Mara, Malaysia
E-mail:radiahothman@gmail.com
Te: +60-3-5544- 4925; Fax: +60-3-5544-4921
Norli Ali
Accounting Research Institute & Faculty of Accountancy
Universiti Teknologi Mara, Malaysia
Normah Omar
Accounting Research Institute & Faculty of Accountancy
Universiti Teknologi Mara, Malaysia
Rashidah Abdul Rahman
Accounting Research Institute & Faculty of Accountancy
Universiti Teknologi Mara, Malaysia
Abstract
Non-profit organizations (NPO) are not excluded from cases of fraud, embezzlement and abuse perpetrated by their own managers and employees. Problems such as lack of resources and accountability have been cited as the main contributors to these cases in NPOs. Research in more-developed countries has provided evidence and suggestions to improve the situation but the problems still persist. This paper explores the internal functioning problems in 17 NPOs in Malaysia through face-to-face interviews and focus-group discussions with 33 individuals directly and indirectly involved with managing NPOs. Problems concerning personnel, governance, accounting and financial practices, funding and regulatory systems were not uncommon in the literature. However, these problems were not evident in the neighboring country, Singapore, and that has prompted researchers to find out how Singapore’s Charity Commission has tackled these same issues. The biggest lesson was that having the NPOs design and formulate their own Code of Governance had significantly improved their operation. The Singaporean government’s initiatives in facilitating rather than punishing NPOs have paid off. This paper provides valuable information and lessons learnt from this visit, not only for Malaysia but also for other NPOs in other developing countries.

Keywords: Nonprofit, Organization, managing, challenges

6

1. Introduction
An NPO has been defined as an organization that has “predominantly non-business characteristics that heavily influence the operations of the organization” (FASB, 1980). NPOs do not have shareholders with possibly unclear goals, and their interests vary, but their aim is generally to create social value rather than generate profit. Morris, Kuratko, and Covin (2008) define an NPO as a type of organization which can be of any size, the main objective of which is to serve a social mission or deliver public benefit, and there is no distribution of profits to shareholders of the organization. An NPO’s management team is often not as experienced or skilled as those of organizations with a commercial purpose (Morris et al., 2008, p.108), which strive towards financial and technical efficiency in a way that NPOs do not. According to Abraham (2006), in an organization that values informal relationships, voluntary participation and “niceness,” the idea of explicit accountability may be somewhat alien due to the non-profit-oriented nature of its culture.

Such cultures place less emphasis on management accounting and control practices as long as the NPO achieves its mission. Inadequacy and lack of accounting information have caused NPOs to lose out on the benefits of financial health enhancement and expansion, as well as the skills to predict failures and implement better financial planning and control. Some quarters have argued that this is due to lack of available resources and funding, but few NPOs realize that the concept of accountability holds regardless of the nature of the organization, as every organization has to consider its own stakeholders. Notable cases of mismanagement and employee fraud stemming from deficiencies in internal controls in NPOs have shaken the trust and...
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