Financial transparency is an important topic of discussion in the nonprofit community. Technological advancements continue to raise donor expectations regarding this issue, as they not only want to ensure that their donations are used for the causes they care about, but they also want to ensure the organization’s credibility.

What is financial transparency?

According to Dave Manuel, "financial transparency" is about "making information available and accessible to the public as much as possible," and organizations should be "honest about their performance." It also relates to how willing your organization is to provide information to the public.

For greater transparency and credibility, an organization should voluntarily disclose its funding sources, employment programs, and strategies to the public. This requires your organization to adopt clear methods for auditing and record-keeping and to adhere to regulations governing nonprofits, while providing timely and effective reporting.

What is the importance of financial transparency?

Since the nonprofit institution aims to provide certain services to people, donors and the public wish to see your organization continue its mission and provide these services with the maximum possible benefit. In fact, adopting and maintaining financial transparency creates a positive perception of your organization within the community. In this context, Russell Leffingwell, a founding member of "The Foundation Center," stated in 1956 that "the foundation should have 'glass pockets' where anyone can easily look inside and understand its value in the community, instilling trust rather than doubt."

In this regard, "Glasspockets," a subset of "The Foundation Center," will work on promoting transparency and "credibility, increasing public trust, improving relationships between donors, building a shared community, and promoting better practices." As a website dedicated to media transparency, they understand the general interpretation of transparency better than others.

Transparency and Technology

The establishment of the internet has made communities globally interconnected. As a result, the exchange of financial data has become straightforward. In the book The Truth About Transparency by Paul D. Meyer, it states that "technology has created all the expectations and also produced tools for achieving transparency. The access to information through the internet has shifted the balance of power towards the client rather than the supplier."

Given the ease of use and global connectivity, and the fact that the internet has dominated our culture for nearly twenty years, donors are no longer accepting that your organization does not master how to present financial information on its official website. Not providing such information can lead the public to believe that you are reluctant to do so because you have something to hide from them.

Despite the implications associated with a lack of financial information, according to Blackbaud: recent studies indicate that over 97% of nonprofits are present online; however, more than 26% of respondents do not have a copy of the budget and statement of expenses and revenues available online.

According to Guidestar: this represents more than a quarter of the nonprofit sector that does not practice transparency with current and future donors; thus, this could lead to a loss of $15 billion in charitable donations.

The Path to Transparency

Step 1: Determine Your Transparency

As an advocate for transparency, Glasspockets has improved internal links and identified 23 components that extremely transparent organizations possess, including:

Contact information, names and bios of staff and board members with their photos, laws adopted within the organization, policies and procedures, conflict of interest policy, licensing statements, whistleblower procedures, granting mechanisms and priorities, goals, vision, and mission, mechanisms for public engagement and feedback, budget and fiscal planning, performance metrics, and accountant’s report.

Step 2: Address Your Mistakes

After using Glasspockets’ checklist, begin assessing areas where your organization can improve, and face mistakes by acknowledging and addressing them.

Step 3: Calculate Overhead Costs

Overhead refers to the calculation of expenses on management and fundraising against expenditures on programs and services. Nonprofits typically aim to keep their overhead costs below 30%. Although opinions vary on the significance of overhead for donors, high overhead often impacts donors' opinions. Additionally, high overhead can indicate that your organization spends substantial amounts on management and fundraising rather than on programs.

Find Inspiration

If you encounter challenges or need a bit of inspiration, look at the experience of "Charity Water," which is an example of transparency, as they took a bold stance and announced that 100 percent of donations will be spent on funding clean water initiatives, and they are willing to prove it. Their financial statements are available on their website.

Highlight Your Transparency

Once you ensure that your organization has financial transparency, announce it at a press conference and provide the evidence and documents to support this before your audience across various platforms.

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