Financial Transparency for Nonprofits is crucial for charities. Individual and large donors want to know how their money is being spent and if it is making an impact that truly benefits the intended recipients. Charitable Organizations are required to annually report & file as required by the IRS with 990 series forms. More transparency is needed for donors and other stakeholders for a nonprofit to thrive.
Filing information as well as reviews and other background information is available through organizations such as Guidestar.org and Charity Navigator.org. Charity Navigator’s rating system rates nonprofit’s organizations that file a Form 990 on the basis of their financial health, accountability, and transparency. This and other online tools can be used to assess a 501(c)(3) organization’s overall health and impact.
The main areas and reasons for financial transparency are:
Provide information for the grant process. Potential donors should be able to download gift letters, see other major sponsors, download current and past IRS 990 forms and view operating expenses. Having this information easily available will make it easy for donors to give.
Sharing data to prove that grants are making an impact. The benefits here are that nonprofits and other foundations can learn about other projects that are delivering a positive impact. Sharing can also start a conversation about the challenges facing society and what ideas are making a difference.
Impact. Stakeholders want to know if their donations of money or in-kind goods are reaching those in need. High or rising operating expenses can be an indicator of poor management.
Sharing best practices. Top organizations share ideas, successes and failures with other charities operating in their area of interest. Organizations can learn from each other’s mistakes.