This post is the second installment of a series on Financial Transparency, inspired by a lecture I gave on “Successfully Transmitting Financial Transparency.” 

The message being thrust at today’s charities is the need for transparency.  In conversations with organizations, however, I still sometimes hear doubts about the need for openness.  For decades, financial data has always been a closely guarded secret , available only to a charity’s priviledged inner circle – why change now?

In this post we will examine the reasons — both selfish and altruistic — why organizations should proactively pursue Financial Transparency and post relevant Financial Reports on their websites.

1. THE PRIMARY REASON FOR FINANCIAL TRANSPARENCY

Why be transparent? Why freely share your organization’s financial data?

Because your financial reports are already out there!

It’s the law.  Most modern countries have declared a minimum requirement of data that a nonprofit organizations must make accessible to the public.

Third party websites like Guidestar, exist in almost every modern country and post on the internet copies of financial reports that charities have submitted to the various government agencies.  For example, Guidestar-USA posts the 990 and Guidestar-Israel posts the audited Financial & Narrative Reports (דוחות כספיים ודוח מילולי) that Israeli charities need to submit.

In short, there is no sense in withholding that which is already divulged.

2. CONTROL THE ENVIRONMENT

In my experience, the best advocate of an organization is the charity itself.  Nonprofits shouldn’t let third-parties like Guidestar or Charity Navigator control the conversation about their financial health.

Nor should a charity post information only after an issue becomes public – in today’s social media age, after-the-fact is already too late.

A nonprofit expert, lawyer Gene Takagi, expressed as much in a recent phone conversation. He mentioned that the main interest of many organizations in Financial Transparency is to “mitigate against public criticism.”

So too, The Charities Review Council of Minnesota in their best practices for Financial Transparency writes that a charity should never give the public a chance to pass judgment; narratives should be posted along with Financial Reports.

By proactively posting Financial Reports and Narratives, the nonprofit has the opportunity to frame the information in both a truthful and positive way.  Furthermore, because the data is on the organization’s own site, it can add media, such as videos and graphs, to enrich its explanations, making Financial Transparency that much more digestible to its constituents.

Of course, if goes without saying, that the goal is then to have these “seekers of truth” become stakeholders of the organization.

Keeping your donors within your site is key to keeping them engaged with your organization. – First Giving

When a charity is proactively Financially Transparent, a donor isn’t forced to visit other websites.  Moreover, a strategically placed “donate now” or “subscribe to our newsletter” button(s) among financial data — which is limited if not impossible on third-party sites — allows would-be donors to convert their new-found trust into dollars for the nonprofit.

3. THE SECTOR MUST POLICE ITSELF

The previous two points looked at Financial Transparency as a tool for individual charities. In contrast, this next point sees Financial Transparency as integral for the nonprofit sector as a whole.

As stewards of public charity and as beneficiaries of government tax-breaks, the nonprofit sector is always under scrutiny.  More-so in today’s climate of changing business models and governments desperate to shrink their deficits, charities need to demonstrate that their budgets are being well-spent.

The key ingredient for proving that nonprofit organizations are worthy recipients of the public’s trust and money, is the Financial Transparency that radiates from an individual nonprofit.  A thriving sector brimming with healthy, efficient, and open organizations creates a stronger nonprofit sector, one in which all charities benefit.

So much so, that should a scandal erupt, the public will see it as the exception it is and not as the norm.

Unfortunately, we are not yet at this level, as author and researcher Professor Joel Fleishman succinctly notes:

“The greatest threat to the not-for-profit sector is the betrayal of public trust, the disappointment of public confidence. Virtually all knowledgeable observers of the not-for-profit scene believe that an overwhelming proportion of not-for-profits are honorably run…that admirable context, however, does not provide much protection to the sector when a sequence of highly publicized disgraceful not-for-profit misdeeds occurs.”

Advocate Alon Bachar, Director of Israel’s Corporations Authority, which oversees the Registrar of Charities, indirectly answered Professor Fleishman’s concerns in a speech he made at June’s Guidestar Israel conference.  In a previous post, I summarized Bachar’s words:

“Bachar, was quick to declare that transparency is the foundation of Israel’s nonprofit sector. Scandals, he continued, harm the sector as a whole. Thus, he concluded self interest dictates that the nonprofit sector should police itself.”

Thus, it falls to the members of the nonprofit sector themselves, those that have the most to lose and gain, to rise to the challenge and lay the foundations for trust.

While this Financial Transparency evolution will not be easy, the current trends point to one inevitable Darwinian conclusion: adapt or else.

Tizku Lemitzvot,

Shuey

The lecture was part of a seminar for Israeli nonprofits entitled, “Adjusting to the New Normal: Putting Transparency into Practice.” (Click here for a list of all the great content from the seminar, including slides and video clips.)

Disclaimer:  This blog houses my personal opinions and is for informational purposes only — not advice. As charity laws can be quite complex and ever-changing, please refer all questions to qualified and licensed professionals. Read the full disclaimer.

Photo Credit: “British Money & Magnifying Glass” by Images_of_Money (Flickr)

As was mentioned in my previous post, Israel’s OFFLINE Overhaul of its Nonprofit Sector (Guidestar Conference, Part 1), the June 26th Conference Organized by Guidestar Israel tantalized the attendants with many planned improvements within the government offices tasked with overseeing Isael’s nonprofit sector.

Even more monumental, though, are the changes that are taking place online.  Here we are seeing not only an upgrade in software, but in approach and analysis as well, whose rippling effects will be felt far beyond Israel’s shores.   

AN ONLINE TOOL FOR ISRAELI CHARITIES

Avi Shapira, CEO of NP Tech, the Public Benefit Company that develops and oversees Guidestar Israel and Techsoup Israel, stressed that his organization is aware of Guidestar’s important role in Israel’s nonprofit sector. Evidence of its increasingly crucial role, he said, is seen from the growing number of views of the site from abroad — even though the current version of Guidestar Israel is primarily available in Hebrew.

Shapira believes that Guidestar sits at a unique crossroads because it is a joint project between private and government entities. As such, he wishes that organizations would proactively use Guidestar as a Transparency tool. In this vein, Shapira believes that it is only natural that Guidestar should be the address to aggregate all available Government grants — a feature he believes will be integrated in approximately four months time. (Wow!)

Following up Mr. Shapira, was Benny Shlesinger, of NPTech, who is Guidestar Israel’s project manager. Benny opened that the new site can already be previewed at http://preview.guidestar.org.il.

ROBUST SEARCH FOR THE DONOR

The current site is available in English but only in a limited capacity. The new site, however, will exist in full in English and will incorporate English in its search functions, a feature that will allow international donors to more easily find organizations of interest. Additionally, increased search capabilities will also include the ability to search by organization type, a feature geared for the potential donor with a specific charitable goal in mind but is unaware of the players in that particular field.

In the new site, Shlesinger continued, nonprofits can add even more details to their profile, including links to their social media personalities on the various networks. (Links to donation portals already exist in the current version). This enhanced profile brings with it improved navigation and color designation to make it easier to discern if the information shown originates from certified Government sources or from the charity itself.

STREAMLINED DATA OUTPUT & TIMELIER ANALYSIS

Thanks to recent efforts to bring Israel’s nonprofit online, important data on Israel’s nonprofit sector is available faster than it was in the past.

Additionally, the available data incorporates internationally recognized definitions and categories (see pgs 18-22) to enable the data to be used beyond Israel’s borders, giving the local sector a better understanding of how it fares in the global market and vice versa.

Utilizing this shorter turnaround, Prof. Nisan Limor, Chairman of NP Tech and one of Israel’s leading researchers into its nonprofit sector, presented findings from 2010.

While not the focus of this article, it is interesting to note some of the points that Prof. Limor stressed:

The whole notion of tax-deductible status is very problematic in Israel. The data shows that only 4,280 out of Israel’s approximately 35 thousand charities actually have tax-deductible status, known here in Israel as Sei’f 46a status. Limor pointed out that no other OECD country has charities appealing to parliament to get tax-deductible status. (I shared my own opinions regarding Se’if 46 in a previous piece.)

Tracking “ownership” of nonprofits is still difficult if not impossible. There are invariably charities that are managed by local municipalities, making them extensions of local government and not really charities for the sake of sector analysis. Who these are and how many is very much a mystery.

With all the outcries against “high” salaries in Israel’s nonprofit sector, the numbers show that being a nonprofit manager is no sure ticket to riches. By law, each organization must list its five highest paid employees (assuming they even have five staff members). The average of the five highest paid employees across the entire sector amounts to 8,777 NIS a month, which Limor notes is Israel’s average monthly salary. Even the average of all highest paid employees only amounted to a monthly salary of 12,593 NIS — and all this is before taxes. (No wonder so many directors leave to enter the private sector.) Again, certainly not the point of this piece, but worthy to note.

TAKE-AWAYS FROM THE OFFLINE & ONLINE IMMENENT CHANGES

Both the global and local nonprofit sectors are changing and the word Transparency seems to be an integral part of this metamorphosis.

While it is true that most of points mentioned in the Guidestar-Israel articles are predictions for the future as opposed to hard analysis of the past — and we all know what happens when you “assume” — we should consider ourselves lucky that at last week’s conference the various Government oversight bodies were kind enough to specify the application of Transparency. The exact date these changes will come into effect is of less importance that the fact that they eventually will. Case in Point: Guidestar Israel took six years but did eventually get off the ground.

Israel charities should consider implementing soon the suggestions “offered” at the Guidestar Israel Conference in order to be among the leaders of this change instead of lagging behind.

Tizku Lemitzvot,

Shuey

In case you missed: Israel’s OFFLINE Overhaul of its Nonprofit Sector (Guidestar Conference, Part 1)

Disclaimer: This blog houses my personal opinions and is for informational purposes only — not advice. As charity laws can be quite complex and ever-changing, please refer all questions to qualified and licensed professionals. Read the full disclaimer.