3 Reasons Why Nonprofits Should Proactively Pursue Financial Transparency
[This post is the second installment of a series on Financial Transparency, inspired by a lecture I gave on “Successfully Transmitting Financial Transparency.” The lecture was part of a seminar for Israeli nonprofits entitled, “Adjusting to the New Normal: Putting Transparency into Practice.”]
by Shuey Fogel
The message being thrust at today’s charities is the need for transparency. In conversations with organizations, however, I still sometimes hear doubts about the need for openness. For decades, financial data has always been a closely guarded secret, available only to a charity’s privileged inner circle – why change now?
In this post we will examine the reasons – both selfish and altruistic – why organizations should proactively pursue Financial Transparency and post relevant Financial Reports on their websites.
1. The Primary Reason for Financial Transparency
Why be transparent? Why freely share your organization’s financial data?
Because your financial reports are already out there!
It’s the law. Most modern countries have declared a minimum requirement of data that a nonprofit organizations must make accessible to the public.
Third party websites like Guidestar, exist in almost every modern country and post on the internet copies of financial reports that charities have submitted to the various government agencies. For example, Guidestar-USA posts the 990 and Guidestar-Israel posts the audited Financial & Narrative Reports that Israeli charities need to submit.
In short, there is no sense in withholding that which is already divulged.
2. Control the Environment
In my experience, the best advocate of an organization is the charity itself. Nonprofits shouldn’t let third-parties like Guidestar or Charity Navigator control the conversation about their financial health.
Nor should a charity post information only after an issue becomes public – in today’s social media age, after-the-fact is already too late.
A nonprofit expert, lawyer Gene Takagi, expressed as much in a recent phone conversation. He mentioned that the main interest of many organizations in Financial Transparency is to “mitigate against public criticism.”
So too, The Charities Review Council of Minnesota in their best practices for Financial Transparency writes that a charity should never give the public a chance to pass judgment; narratives should be posted along with Financial Reports.
By proactively posting Financial Reports and Narratives, the nonprofit has the opportunity to frame the information in both a truthful and positive way. Furthermore, because the data is on the organization’s own site, it can add media, such as videos and graphs, to enrich its explanations, making Financial Transparency that much more digestible to its constituents.
Of course, if goes without saying, that the goal is then to have these “seekers of truth” become stakeholders of the organization.
Keeping your donors within your site is key to keeping them engaged with your organization. – First Giving
When a charity is proactively Financially Transparent, a donor isn’t forced to visit other websites. Moreover, a strategically placed “donate now” or “subscribe to our newsletter” button(s) among financial data – which is limited if not impossible on third-party sites – allows would-be donors to convert their new-found trust into dollars for the nonprofit.
3. The Sector Must Police Itself
The previous two points looked at Financial Transparency as a tool for individual charities. In contrast, this next point sees Financial Transparency as integral for the nonprofit sector as a whole.
As stewards of public charity and as beneficiaries of government tax-breaks, the nonprofit sector is always under scrutiny. More-so in today’s climate of changing business models and governments desperate to shrink their deficits, charities need to demonstrate that their budgets are being well-spent.
The key ingredient for proving that nonprofit organizations are worthy recipients of the public’s trust and money, is the Financial Transparency that radiates from an individual nonprofit. A thriving sector brimming with healthy, efficient, and open organizations creates a stronger nonprofit sector, one in which all charities benefit.
So much so, that should a scandal erupt, the public will see it as the exception it is and not as the norm.
Unfortunately, we are not yet at this level, as author and researcher Professor Joel Fleishman succinctly notes:
“The greatest threat to the not-for-profit sector is the betrayal of public trust, the disappointment of public confidence. Virtually all knowledgeable observers of the not-for-profit scene believe that an overwhelming proportion of not-for-profits are honorably run … that admirable context, however, does not provide much protection to the sector when a sequence of highly publicized disgraceful not-for-profit misdeeds occurs.”
Advocate Alon Bachar, Director of Israel’s Corporations Authority, which oversees the Registrar of Charities, indirectly answered Professor Fleishman’s concerns in a speech he made at June’s Guidestar Israel conference. In a previous post, I summarized Bachar’s words:
“Bachar, was quick to declare that transparency is the foundation of Israel’s nonprofit sector. Scandals, he continued, harm the sector as a whole. Thus, he concluded self interest dictates that the nonprofit sector should police itself.”
Thus, it falls to the members of the nonprofit sector themselves, those that have the most to lose and gain, to rise to the challenge and lay the foundations for trust.
While this Financial Transparency evolution will not be easy, the current trends point to one inevitable Darwinian conclusion: adapt or else.
Disclaimer: This blog houses my personal opinions and is for informational purposes only – not advice. As charity laws can be quite complex and ever-changing, please refer all questions to qualified and licensed professionals. Read the full disclaimer.
Shuey Fogel is a nonprofit professional turned banking specialist. He is currently Director of Nonprofit Services for an Israeli bank. Shuey shares relevant conversations, articles, and experiences on his blog, nonprofitbanker.com.