It’s an Open Book: How Nonprofits Can Achieve Financial Transparency
All charities differ in their missions, but all are alike in one important way—to succeed, they must practice financial transparency and accountability.
Charity Navigator defines transparency as “an obligation or willingness by a charity to publish and make available critical data about the organization.” Transparency creates an environment of trust and openness, which is essential to nonprofits that rely on gifts from donors and that are subject to scrutiny from regulators.
In evaluating a nonprofit’s accountability and transparency, Charity Navigator asks two questions:
- Does the charity follow good governance and ethical best practices?
- Does the charity make it easy for donors to find critical information about the organization?
To answer these questions, Charity Navigator examines a nonprofit’s IRS Form 990 and its website, specifically looking for information such as:
- The presence of an independent board with members’ names published
- Audited financial statements
- Conflict of interest, whistleblower, and records retention and destruction policies
- CEO’s name and compensation
Building trust through greater financial transparency
The National Council of Nonprofits lists several ways you can demonstrate financial transparency to your donors, regulators, and others:
- If requested, provide copies of the three most recently filed annual information returns (Form 990) and your organization’s application for tax-exemption. These can be posted on your website.
- Be honest in your solicitation materials and in communications with donors about how their gifts will be or have been used.
- Adopt a conflict of interest policy with a disclosure statement that your board and staff review annually.
- Create an executive compensation policy that ensures the board is aware of, and approves, the salary and benefits of your executive director or CEO.
- Have the board of directors review important financial reports as well as review the IRS Form 990 before filing.
- Adhere to sound financial management policies, including internal controls.
- Adopt an expense reimbursement policy that requires prior approval and limits expenditures to a reasonable limit.
- On your website, publish information about your nonprofit’s tax-exempt status, who’s on your board of directors, and financial information—a copy of your most recent Form 990, audited financial statements, and annual reports.
Get financial control and transparency with cloud software
Financial transparency can be challenging if you’re relying on spreadsheets. Manual processes leave room for error and no time to prepare insightful reports. Even worse, the information is outdated, so you’re not getting a real-time view into your nonprofit’s financial performance—and neither is anyone else.
Cloud-based fund accounting software from Sage Intacct changes all that. You get predefined or custom dimensions that capture the business context of your transactions, the ability to track both financial and operational data, and visual, real-time reporting. Key stakeholders like the board of directors have instant, actionable insight to make smart decisions about your nonprofit’s future. And you’ll demonstrate greater financial transparency, for a strong bond of trust between you and the people who make your nonprofit a reality.