| |
|
•
NEWS
|
|
|
Accountability
and Transparency for Nonprofits:
What Do They Mean?
Adapted
from Boards
Members Rule: How to Be a Strategic Advocate for Your Nonprofit.
"Accountability" and "transparency" are the key buzzwords for the nonprofit
sector in this first decade of the 21st Century. This is ZimNotes' second
look this year at these terms with the intent to better define what they
mean.
_________________________________________________________________________
Groups such as Guidestar make these IRS Form 990s easily available over
the Internet. It is the savvy nonprofit that sees this as an opportunity
to market your services and programs.
_________________________________________________________________________
For
better or worse, the government will generally leave you alone if you
provide poor service. And donors will usually forgive you for being inefficient.
However, they will take you to task if you spend client money inappropriately,
pay your officers too much, or forget to pay taxes correctly or on time.
Media headlines about financial irregularities, overpaid executives, and
outright fraud appear regularly. While in reality a very small percentage
of nonprofits suffer from these problems, all pay the price of this type
of attention. In the past five years an increased level of scrutiny by
government has been applied to the nonprofit sector, creating new regulations
and increasing the cost of compliance.
Accountability
Having financial problems has always been the most likely place that nonprofits
get into trouble with the law. Today it is also a place that public and
donors look to measure an organization's trustworthiness. Prudent financial
accountability ensures fiscal controls are in place. The current trend
for funders and donors (exacerbated by the media) is to examine carefully
overhead expenses [the ratio of spending on programs (services) versus
spending on administration (management) and fundraising]. There are wide
discrepancies in how this information is reported; some agencies even
reporting no fundraising costs (duh?…it's the rare nonprofit that can
successfully operate with no fundraising costs). Percentage amounts customarily
can range from 15% to 45%. Being accountable means ensuring these figures
are reported accurately. When overhead percentages are low or high it
doesn't necessarily mean that anything is wrong (a number of legitimate
factors account for these variances) but it does mean that it should be
reviewed closely.
All nonprofits provide some type of community benefit; that is why you
get the advantage of being a nonprofit entity. Accountability includes
ensuring that you are effectively providing this benefit service (be it
feeding the homeless, protecting the environment, offering a cultural
endeavor, etc). Organizations need to evaluate their services impartially
and perform a needs assessment of their client/constituency population,
making changes if needed. This often happens as part of a strategic planning
process and is a critical part of being an accountable organization.
Transparency
Transparency involves how much you tell the public about your agency,
and how honestly and quickly you reveal this information. One common way
to make public your organization's financial records, principal programmatic
activities and officer's compensation package is through the completion
of the required IRS
Federal Form 990, called the annual return. It is akin to a tax
return, but not exactly the same thing. Most (non-religious) nonprofit
organizations must file this return and major inconsistencies
in how these forms are filled out are all too common.
The IRS Form 990 returns are also the major source of information that
ratings groups use to compare organizations. While some
have questioned the reliability of these ratings systems (with good reason),
they exist to help donors evaluate the performance of the nonprofit. It
is critical that your organization can vouch for its accuracy. This
means hiring staff and recruiting board members who are more than "good
with numbers;" each must have the requisite skills to get the job done
right. Groups such as Guidestar
make these IRS Form 990s easily available over the Internet. It is the
savvy nonprofit that sees this as an opportunity to market your services
and programs. Many sophisticated nonprofits that wish to be transparent
also put their 990s on their own websites.
Another more comprehensive way to be transparent is to produce an annual
or bi-annual report that goes beyond the financial focus of the 990s.
You can lay out in a more compelling document your highlights of achievements,
services and financial records with photos and graphics (and make these
readily available to the public by posting it on your website). This,
however, can be a costly administrative expense for a smaller nonprofit.
The
more you can assure your own organization is accountable and transparent
the more trustworthy you will be viewed by the public, donors,
constituents and regulators!
For a look at what the Federal government is considering to ensure all
nonprofits are accountable see our previous article "NONPROFIT
ACCOUNTABILITY: AT WHAT PRICE?".
Copyright
2007 Zimmerman Lehman.
This information
is the property of Zimmerman
Lehman. If you would like to reprint this information,
please see our reprint
and copyright policy.
| |
|
