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Transparency

Financial Transparency for Nonprofits

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Financial Transparency for Nonprofits
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.

Financial documents for your nonprofit’s website

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Financial documentation is an important part of any nonprofit’s existence. Your nonprofit is of course incorporated in it’s home state, has an Employee Identification Number (EIN) and your Letter of Determination from the IRS, plus tax filings for each year of existence. Making sure your tax and other paperwork is filed on time and correctly is essential to staying in good graces with the IRS but also for attracting and retaining donors.

Financial-documents-for-your-nonprofits-website

Financial material should be conveyed clearly on your website, in brochures and in a grant package that is sent out to potential donors. Materials should clearly communicate the comprehensive information relevant to an informed funder or stakeholder.

Donors may want to know:

  • where does your money come from? Nonprofits can generate revenue from a variety of sources
  • What percent of monies collected goes toward covering administrative expenses and other overhead
  • What other major donors are giving to your organization? a bust donor may not have the time to thoroughly read through your information

Financial information any nonprofit should have easily available:

  • Sources of donations broken down by type: grants from foundations, donations from individuals, fees, income from an endowment, interest etc…
  • IRS Letter of Determination
  • Last 2 or 3 IRS Form 990
  • A chart of annual revenue and expenses
  • Annual Revenue and Expense data reported
  • EIN
  • Links to your reports on GuideStar, Charity Navigator and the Foundation Center

Other documentation you should have:

  • Mission Statement
  • Board of Directors’ Bios

Donors want to know if you are effectively reaching your intended target. All of this data demonstrates a high degree of worthiness of funders’ support. In a busy world, a donor could be dicing between you and another organization. If they ahave to ask a lot of questions and wait for answers, it may be easier to write a check to someone else!