QUESTION FOUR (20 Marks)
Non- profit organizations (NPO) do not earn profit for their owners. All the money earned by or donated to non-profit-organizations is used in pursuing the organization’s objectives. NPOs do not distribute profits to its owners and many NPOs have much in common”
In light of the above statement:
4.1 State and describe the characteristics of non-profit organization (10)
• Mission-driven: Non-profit organizations are driven by a specific mission or purpose, which guides all of their activities and decision-making.
• Lack of ownership: NPOs do not have owners or shareholders who benefit financially from the organization's activities. Instead, they are typically governed by a board of directors or trustees.
• Non-distribution constraint: Non-profit organizations are prohibited from distributing profits to individuals or organizations. Any surplus or excess revenue generated must be reinvested back into the organization to further its mission.
• Public benefit or community-oriented: NPOs exist to provide a service or benefit to the public or a specific community. They are usually established to address a social, cultural, educational, environmental, or charitable need.
• Volunteer involvement: NPOs often rely on the support and involvement of volunteers who contribute their time and skills to further the organization's goals. These volunteers may serve on the board, participate in fundraising efforts, or assist with program delivery.
• Tax-exempt status: Non-profit organizations are typically granted tax-exempt status by the government, meaning they are not required to pay income tax on their earnings. Donors may also be eligible for tax deductions when they contribute to NPOs.
• Transparency and accountability: NPOs have a responsibility to be transparent about their activities and finances. They must report to government agencies, provide financial statements to donors, and adhere to ethical and legal standards.
• Restricted assets: Non-profit organizations often receive donations and grants with specific restrictions on how the funds can be used. These restrictions ensure that the money is utilized in accordance with the organization's mission and the donor's intentions.
• Sustainability: While NPOs may not aim to generate profit, they still need to operate in a financially sustainable manner to ensure their long-term viability. This involves effective financial management, diversifying revenue streams, and building strong relationships with donors and stakeholders.
• Independence: Non-profit organizations strive to maintain independence from government, business, or political influences. This allows them to focus on their mission and act in the best interest of their beneficiaries without undue external pressures.