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What Should Board Members Understand About Accountability and Transparency?

Adapted from Boards Members Rule: How to Be a Strategic Advocate for Your Nonprofit.

"Accountability" and "transparency" are the key buzzwords for nonprofits in the 21st century and woe to those who ignore these critical responsibilities. In the last ten years, there has been an increase in the level of scrutiny of the sector by government and foundation sources. Also, Millennials and Generation Xers are tech savvy users who look for this information, and even baby boomers (who are poised to give $8 trillion in donations) are scrutinizing organizations before giving or volunteering.


Groups such as Guidestar make nonprofit fiscal and governance information 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 leave you alone if you provide poor services. 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 for this type of attention.

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. While recently there has been a strong push by many of the charitable rating groups to rely less on overhead expense (see ZimNotes Overhead, Overturned), this reliance still exists. Sadly, a 2014 science study showed informing potential donors that overhead costs are covered elsewhere significantly increases the donation rate by 80%. 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 10% to 40%. 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 (some legitimate factors account for these variances) but it does mean that it should be reviewed closely.

All nonprofits provide some community benefit; that is why you get the advantage of being a nonprofit entity. Accountability also includes ensuring that you are effectively providing this benefit service (be it feeding the homeless, protecting the environment, preventing domestic violence, 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 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. Most (non-religious) nonprofit organizations must file this return and inconsistencies in how these forms are filled out are all too common. Approximately seven years ago these forms were changed and now include questions about board governance, practices and policies (e.g., executive compensation approval process and do you have a conflict of interest, document retention and whistleblower policy?). [ZimNotes is curious how many of you have all of these policies, email us and let us know

The IRS Form 990 returns are also the major source of information that rating groups use to compare organizations (e.g., Charity Navigator, BBB Wise Giving, etc.). 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 savvy nonprofits that wish to be transparent also put their 990s on their websites.

Another more comprehensive way to be transparent is to produce an annual or biannual 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).

The more you can assure your organization is accountable and transparent the more trustworthy you will be viewed by the public, donors, constituents and regulators!

Copyright 2015 Zimmerman Lehman.

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Copyright © 2005, Zimmerman Lehman