Institutional Accountability: Justifying every dollar donated to every dollar spent
by Robert I. Evans & Avrum D. Lapin
Until recently, “financial oversight” was a term that few Jewish non-profits embraced aggressively. Jewish donors – like donors of all persuasions – rarely asked many questions, especially in good times. But the times have changed quickly and new pressures face us all.
The current recession has prompted questions about what constitutes appropriate financial reporting. With non-profits receiving challenges on so many levels to create and exude a “zone of comfort,” avoiding any association with future calamity (and ensuring a strong revenue stream), requires new approaches immediately.
Prompted by the “Madoff Mess,” the non-profit world, especially Jewish non-profits, has seen and experienced its share of increased scrutiny from the media and the general public. Now U.S. lawmakers will institute a new round of efforts designed to formalize good behavior and facilitate increased reporting, oversight and regulation for the 1.3 million U.S. Non-profits. Among the changes that are coming will be an expectation of more in-depth reporting on IRS Form 990, a tax return required annually of almost all non-profits conducting fundraising activities in the U.S.
While the U.S. government has required the 990’s for several years, we believe the new effort is a result of inattention as well as donors scrambling for legitimate information about projects they support. The requested data for the new 990’s should more effectively demonstrate positive organizational behaviors and offer more fundamental levels of confidence to donors that their charitable dollars are being spent well and that there is proper monitoring of both endowments and day-to-day operations.
In a recent post, eJewishPhilanthropy noted a report issued by GuideStar about non-profits and disclosure practices. GuideStar suggested five important (standard) actions and noted that most non-profits were not complying with suggested “best practices.” Included were simple steps such as updating websites with current programs, listing board members and key staff with titles and biographic information, issuing annual reports and posting them to their websites, and providing audited financial statements on the web.
In mid 2008, we, at EHL Consulting, examined 990 reports and other data from 80 Israel-focused non-profits conducting fundraising efforts in the US. Some of the results about their housekeeping were truly shocking but attest to the need to change habits. For example, our study showed that:
- 34% of the U.S. friends organizations did not even have a website;
- One major charity would not share their most recent 990 with us, even though the deadlines had long since passed for its filing;
- 25% of the U.S. non-profits did not have any updated details on their websites about volunteer and professional leadership;
- Only two of the 80 agencies allowed for their 990’s to be examined via their websites.
With the Jewish donor pool becoming increasingly competitive and challenges to non-profit leaders mounting, Jewish organizations must devote more time and resources to understand the mindset of current and prospective donors. No organization can afford to take any donor for granted nor can they neglect the importance of sharing basic institutional information.
Institutions must also go out of their way to communicate more regularly with their donors. Instilling confidence among donors is paramount in these uncertain times. Go the extra step, make the extra call, send out a substantial summary of a board meeting; do what it takes to provide assurances to donors, let donors and friends know that you value and need them and that every gift makes a difference.
What we are seeing now is a reaction to a historic lackluster record of responsiveness and good reporting brought on by a shock to the system. We are witnessing a new paradigm during which non-profits are changing their thinking and functioning differently in many ways. Those that keep their data “close to the vest” will foster suspicion, causing donors to ask questions and ultimately look elsewhere. But those that are open and confident will ultimately attract more philanthropic support.
Robert I. Evans, Managing Director, and Avrum D. Lapin, Director, are principals of The EHL Consulting Group, of suburban Philadelphia, and are frequent contributors to eJewishphilanthropy.com. EHL Consulting works with dozens of non-profits on fundraising, strategic planning, and non-profit business practices.