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.

The June 26th Conference Organized by Guidestar Israel — a collaborative project of the Justice Department, Registrar of Corporations, Guidestar International, NP Tech, Joint Distribution Committee (JDC), and Yad Hanadiv (a.k.a. The Rothchild Foundation) — was June’s best prediction for “The Tomorrow of Jewish Philanthropy.”

In the global nonprofit sector there is much talk of cooperation and the need to combine forces to increase efficiency and cut costs, yet this synergy is hard to find. Guidestar Israel, in contrast, is actually doing it. Local charities, international organizations, private funds and government resources have all cooperated to bring the Guidestar Israel project into fruition. (And yes, it took over six years for the parties agree and get things off the ground, but we’ll choose not to focus on that for right now.)

Like many conferences, there was the good and the less good, but for those paid attention, there was also the surprising — announcements foretelling actual progress.

THE SECTOR MUST POLICE ITSELF

Advocate Alon Bachar, Director of Israel’s Corporations Authority, which oversees the Registrar of Charities and the Registrar of Companies, 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 – and this is where things got interesting – self interest dictates that the nonprofit sector should police itself. (It would appear from his words that he considers himself and the Government office he represents to be card-carrying members of Israel’s nonprofit sector.)

Furthermore, Bachar blames the local nonprofit sector’s lack of transparency for Israel’s lack-luster standing in philanthropy as compared to other modern countries. This is a bold statement considering other experts have pointed fingers at lax Government tax incentives as the root of the problem or Israeli charities overall lack of strategic engagement with their constituents (my personal belief, which I elaborated in a previous post, “The Real Reason Israelis Don’t Donate to Charity“).

Bachar didn’t leave much to the imagination for those that were looking to understand the criterion upon which the Registrar inspects nonprofits. Bachar stressed that organizations should pay close attention to the Nihul Takin, as it explains “our priorities and how we evaluate charities.”

INFRASTUCTURE CHANGES IN THE REGISTRAR OF CHARITIES

The part of his speech that had the most practical application was Bachar’s announcement that the Registrar of Charities is adding services to increase its own transparency. In the past, Bachar explained, Israeli charities essentially had five addresses within the Registrar of Charities — including accounting, legal, managerial and compliance — where they could address their problems, seek answers, or submit reports. Two years of analysis determined this method to be less than effective and a decision was made to revamp the entire system.

As part of the Registrar’s overhaul, multidisciplinary staffs will be created to combine the five different needs into one address. Instead of five addresses, each charity will be assigned a team that will handle any and all of their requests. Furthermore, this new type of team will allow the Registrar to further specialize its staffs by discipline — whether it be sports, education, welfare, health, environment, religious etc — to better cater to nuance, experience, and trends of the different types of causes.

In a similar vein, Bachar’s Deputy Director, Advocate Avital Shreiber, announced that charities will soon also be labeled by size.  Shreiber acknowledged the difficulty of smaller organizations — many of whom function with no paid staff — to adequately file the multitude of government initiated paperwork.  Much like a system that has existed in the United States for a few years, “smaller” organizations will face scaleddown reports.  Shreiber added that it is even conceivable for their to be specialized reporting for the different philanthropic disciplines.

Transparency, as Bachar defines it for the Registrar of Charities, is uploading information quicker so that it can be utilized in a timelier manner. Toward this end, he said, the Registrar is turning totally digital, with every form and appeal to be handled online. He also announced that the Nihul Takin will be updated soon and would probably only be released on the internet.

USE GUIDESTAR OR ELSE…

Bachar also encouraged amutot to take advantage of Guidestar Israel and upload as much information as possible — even more than is necessary — so as to increase transparency of the organization and the sector as a whole. While some might see this recommendation of Guidestar as mere self-promotion, it should be taken much more seriously considering these two statements:

Bachar’s claim that the Registrar of Charities will be increasing cooperation with various Government agencies, specifically the Tax Authority & Anti Money Laundering Compliance, so as to decrease overlap.

This declaration was preceded by statements from Dr. Guy Rotkopf, CEO of the Justice Ministry which overseas Bachar’s Registrar of Corporations, in which he boldly claimed that Israeli charities that choose not to participate in Guidestar Israel have something to hide.

Definitely hints of trends to come.

Tizku Lemitzvot,

Shuey

Don’t Miss the Next & Final Post in the Series: Israel’s ONLINE Overhaul of its Nonprofit Sector (Guidestar Conference, Part 2)

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.

Links to the articles I’ve reviewed and posted to Twitter between December 5 – December 11, 2011. This week’s topics include: Governance & Strategy • Transparency • Management & Corporate Culture • Funding & Fundraising • Marketing

You can stay up-to-date with these articles and more by following me on Twitter or subscribing to receive The Nonprofit Banker by email.

Tizku Lemitzvot,

Shuey
@nonprofitbanker

GOVERNANCE & STRATEGY

3 challenges affecting small nonprofit organizations & 5 ways to mitigate them, by Npmaven ow.ly/1BE1oS via EmilyChan

Why taking over a nonprofit instead of opening new 1 doesn’t save time or $$, by Charitylawyer ow.ly/1BGWfy

Maybe there’s a reason people don’t play nice: 8 Dangers of Collaboration, by Nilofer ow.ly/7TjY9 in HarvardBiz via GTak

NAFund & ToscanoAdvisors: 10 Things Every Nonprofit Board Member Should Know ow.ly/1BQnsF

Oy vey! Lessons from a donation bequeathed to a nonprofit but under incorrect name ow.ly/1BE0uM on eJPhil

Programs pairing MBAs with nonprofit organizations give students opp as Board member @ younger age ow.ly/1BGqNs via LawForChange

Get some popcorn & a pencil >> NAFund: Watch our 15 min VID how to manage Restricted Funds ow.ly/7CXZZ

TRANSPARENCY

Opendata: Not because your donors want it but because the nonprofit sector needs it (by p2173) ow.ly/1BvZSf via tkb

An increasingly important topic >> GTak: Finding the Right Transparency, by Emilychan ow.ly/1BQvDl

Gr8 debate re: end-goals of transparency. Kanter summarizes recent articles & forums bit.ly/tEHRBN via GTak

FUNDING & FUNDRAISING

Is a nonprofit about to go bust? BrokersWorld offers some ways to find out ow.ly/1BxolV on WSJ via GTak

5 ways to ensure your nonprofit gets that government funding ow.ly/7PBMx on BridgespanGroup

Making the case for donating to Overhead. A discussion with Tom Tierney of BridgespanGroup ow.ly/1BAbD1 on WSJ

Very sound advice >> ProGrantWriter: What new nonprofits need before hiring a grantwriter ow.ly/7pPX5

MARKETING

YNPNDetroit: VIDEO how to drastically improve your nonprofit’s mission statement ow.ly/7JZ5i via KatyaN4G

MANAGEMENT & CORPORATE CULTURE

Awesome! >> 9 Things That Motivate Employees More Than Money, by IlyaNeverSleeps ow.ly/1BxrOZ on IncMagazine

The Pen Is Mightier than the App: A Case For Writing Things Out, by Kevinpurdy ow.ly/7PX2M on FastCompany

Patrick Swayze: He was awesome. With that said, can nonprofit organizations benefit from the wisdom of his awesomeness? Absolutely. For starters, if nonprofit execs would have his dance moves, I think that they would find fundraising a much easier task. For ideas on how to apply said moves, I would suggest his classic Saturday Night Live “Chippendale” skit with Chris Farley. Lacking Patrick’s groove thang, there is still what to gain.

Patrick Swayze earned his fame from “Dirty Dancing” in 1987. From there he went on to star in “Roadhouse” in 1989 (a cult classic, though not a main stream favorite), “Ghost” in 1990, and opposite Keanu Reeves in “Point Break” in 1991. Life was very good for Mr. Swayze; he was at the top of his game. And then he just fell of the face of the well-respected-film earth, starring in films that never really made it big. Ten years later, in 2001, Swayze had his second-coming, stunning the cinematic world in a dramatic role as a motivational speaker who was a secret pedophile in “Donny Darko.” Certainly, not an easy role to play. But, man, did he play it well. The audiences were thinking, “Hey, this guy still has it in him.” While Swayze then downgraded to other small things in years to come (because of his bout with cancer and other reasons), the impression he left after that latest role in “Donny Darko” was that he was still in the game.

How does this relate to you, the nonprofit organization? Have you been having a hard couple of years? Feeling like you’re no longer the talk of the town? Is the average age of your membership approaching retirement? Don’t fret. You were once THE charity of choice for a reason. It’s time to rekindle the fire and show the world what you’ve got. If Patrick Swayze can do it, then so can you.

Some ideas that I have seen other nonprofits adopt that might help you along:

Education — Don’t just take, give! Recently, I have been seeing organizations that are seeing their model, methodology, information, or services as a valuable tool in-of-itself. Realizing this, they are turning to groups and schools to either volunteer/sell their expertise. It’s a great way to increase funds and get good PR.

Volunteering — Offer donors a chance to “get their hands dirty.” The trend is that donors are looking to make more than just a financial commitment. Offering alternative ways to “donate” to your organization allows more people to get involved and can create a more holistic connection between the donor and your organization.

Multi-Faceted — Realize that your important work touches people in different ways. Develop these diverse views of your organization to allow your cause to appeal to a wider audience.

Transparency — Foundations, donors, and pretty much everyone wants to see transparency in their charities, both with regards to funding and programs.  Not being forthcoming will probably make people suspicious and drive them off.  Transparency, like everything else, should have a strategy and be done responsibly.

Board of Directors — Open the Board up to a person or two who are different from your average board member. Could be of a different age, gender, political or religious affiliation etc. Just so long as this person believes in your work, he or she could bring a fresh new look to a fresh new audience.

But, please, don’t just re-brand or re-image without truly enacting some sort of change in your organization. Donors and others will see this as a waste of resources and just another attempt by a charity to dupe its constituents.

And now, a moment of silence for Patrick Swayze z”l (1952 – 2009).

Tizku LeMitzvot [May you continue to merit doing good deeds],

Shuey