Financial transparency is an important subject of discussion in the non-profit community. Technological advancements continue to raise donors’ expectations on this matter; they not only want to ensure that their donations are being used for the causes they care about, but they also want to verify the credibility of the organization.

What is financial transparency?

According to Dave Manuel, “financial transparency” is defined as “making information available and accessible to everyone as much as possible,” and that 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 inform the public about its funding sources, employment programs, and strategies. This requires your organization to adopt clear methods of auditing and record-keeping, to adhere to the regulations governing non-profits, and to report in a timely and effective manner.

What is the importance of financial transparency?

Since a non-profit organization aims to provide certain services to people, donors and the public would like your organization to continue its mission and provide these services with the greatest possible benefit. In fact, adopting and maintaining financial transparency gives your organization a positive image in the community. In this context, Russell Leffingwell stated in 1956, as a founding member of “The Foundation Center,” that “the organization should have ‘glass pockets,’ where anyone can easily look at the foundations and understand their value in the community, which fosters trust instead of suspicion.”

In this regard, “Glasspockets,” a subsidiary of “The Foundation Center,” aims to promote transparency, “credibility, increase public trust, improve relations between donors, build a shared community, and better practices.” As a site dedicated to media transparency, they understand the public interpretation of transparency better than others.

Transparency and Technology

The creation of the internet has made communities globally connected. As a result, the exchange of financial data has become simple. In his book The Truth About Transparency, author Paul D. Meyer states that “technology has created all expectations, and has also produced tools for achieving transparency. Access to information through the internet has shifted the balance of power toward the client instead of 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 willing to accept that your organization does not know how to display financial information on its official website. Failing to provide 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 more than 97% of non-profit organizations are present online, but more than 26% of respondents do not have a copy of the budget and statement of expenses and revenues available online.

According to Guidestar, these represent over a quarter of the non-profit community that does not practice transparency with current and future donors, leading to a potential loss of $15 billion in philanthropic donations.

The Road to Transparency

Step 1: Define Your Transparency

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

Contact information, names and bios of staff and board members and their photos, bylaws in force within the organization, policies and procedures, conflict of interest policy, licensing information, whistleblower reporting procedures, grant priorities and mechanisms, goals, vision, and mission, mechanisms for dealing with public feedback, budget and financial plans, performance metrics, audit report.

Step 2: Address Your Mistakes

After using the Glass Pockets checklist, start assessing areas where your organization can improve, face your mistakes, and overcome them by acknowledging and addressing them.

Step 3: Calculate Overhead Costs

Overhead costs refer to the spending on administration and fundraising versus spending on programs and services. Non-profit organizations typically want to keep their overhead costs below 30%. Although opinions vary on the importance of overhead costs to donors, high overhead costs often influence donor perceptions. Moreover, high overhead costs can indicate that your organization is spending substantial amounts on administration and fundraising instead of on programs.

Find Inspiration

If you face a challenge or need some inspiration, look at the experience of “Charity Water,” which is an example of transparency, where they took a bold stance and announced that 100% of donations will be spent to fund clean water initiatives, and they are willing to prove it. You can access their financial data available on their website.

Highlight Your Transparency

Once you ensure that your organization has achieved financial transparency, announce it at a press conference and provide evidence and documentation to support this in front of your audience across various platforms.

Location: Jitasa Group