CPA INSIDER

What does it mean to be transparent?

Not-for-profit organizations should follow these 7 tips to build trust and tell their story to stakeholders.
By Alyssa Federico, CPA

Today's not-for-profit organizations (NFPs) face unprecedented scrutiny from many sources. Donors are more savvy online researchers, and they look to obtain data about an organization before giving time or money. External rating agencies, such as Charity Navigator and the Better Business Bureau's Wise Giving Alliance, compel organizations to follow best practices in governance and information sharing. Government regulators are responsible for ensuring legal compliance, and bad publicity from mainstream or social media can harm the reputation of noncompliant organizations.

What does it mean for an NFP to be transparent? Charity Navigator defines transparency as "an obligation or willingness by a charity to publish and make available critical data about the organization." Transparent organizations provide donors and the public with timely and accurate information about their finances and activities. The goal of transparency is to establish and maintain the trust of the organization's key stakeholders.

An organization can be transparent in many ways. Below are seven tips to get started:

  1. Make documents that are open to public inspection easy to access. All organizations that file IRS Form 990, Return of Organization Exempt From Income Tax, are required to make the return available to the public. Although filed Forms 990 are eventually made available on GuideStar, the largest online NFP database, there is a delay before the most recent information is available. As a best practice, organizations can post IRS documents on their website as soon as they are filed.
  2. Review and update governance practices and board-approved policies. Not-for-profit managers can periodically log in to GuideStar and update the organization's profile for accuracy. Respond to optional questions that allow stakeholders to learn more about the commitment to oversight practices. Some topics include board orientation, CEO oversight by the board, and practices regarding ethics and reporting of conflicts of interest.
  3. List board members and staff on your organization's website. This information helps the donating public, many of whom are researching your organization and visiting your website, to understand who is leading the organization. Many NFPs strive to recruit a diverse board with complementary skill sets, such as local business leaders, community volunteers, and experts in your organization's program focus. Try to include biographical information, which can give your organization greater credibility and demonstrate a commitment to diversity. Plus, your volunteers will appreciate the recognition.
  4. Post important information on the organization's website. Form 990 asks how an organization makes its governing documents, conflicts-of-interest policy, and financial statements available to the public. Posting items such as an organization's IRS determination letter and audited financial statements helps provide additional transparency.
  5. Tell the organization's story. Posting an annual report and regularly updating an organization's website provides the public with information beyond the disclosures required by law. Examples of information included in the annual report that may not be available elsewhere include program results, community impact, and an overview of the board's strategic priorities. For example, sharing the number of children who were tutored or given books as part of a literacy program would help tell an NFP's story.
  6. Use social media to its fullest. Increasingly, social media is a primary source of information for many supporters of NFPs. Information is quickly accessed, giving organizations the opportunity to be transparent in real time about mission, programs, and results. Make sure this messaging is consistent with the materials on the website, annual report, fundraising appeals, and marketing information.
  7. Pay attention to Part VI, "Governance, Management, and Disclosure," of Form 990. Although many items asked about in the policies section of Form 990, Part VI, are not required by law, transparent organizations have policies in place that go beyond what is legally required. Policies addressing whistleblower protection, document retention, and executive compensation indicate an organization strives to act in an open and ethical manner. The AICPA Not-for-Profit Section has sample policies here.

NFPs have great stories to tell. Sharing information and data about the organization's activities, governance, leadership, and mission in as many ways as possible is a great way to build a solid reputation and attract more supporters to your organization's mission.

Alyssa Federico, CPA, is vice president for finance at Foundation For The Carolinas. She serves as a member of the AICPA Not-for-Profit Advisory Council and volunteers on several NFP boards. To comment on this article, email senior editor Neil Amato.

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