A Comprehensive Guide to Nonprofit Transparency

Darcey Jones • May 07, 2021
nonprofit transparency

Nonprofit transparency is vital to improving organizational effectiveness and boosting fundraising success. Organizations that earn a transparency accreditation receive 53% more donations than organizations with no accreditation.  

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What is Nonprofit Transparency?

Transparency is the process of conducting business openly and clearly. It works hand in hand with the concept of accountability, which is the process of taking responsibility through effective communication.

Not only do transparency and accountability efforts create a more ethical nonprofit organization, but they also build trust among stakeholders, which is the foundation of an impactful philanthropic relationship.

Let’s dive into five factors that can help your organization increase donations through transparency and accountability.

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5 Steps to Improve Your Nonprofit’s Transparency

1. Remain Externally Focussed

There are two types of stakeholders in a nonprofit organization: internal and external. Internal stakeholders are those that have a direct relationship with the organization through employment or board membership. 

External stakeholders are those who are not directly involved in running the organization but who are affected somehow by its actions. These may be volunteers, community members, or program recipients and their friends and family.

But why is this important to accountability? As Ruth McCambridge highlights in Nonprofit Quarterly, accountability problems can occur when organizations ignore the needs of their external stakeholders to address the needs of their internal stakeholders. 

What’s more, research has shown that current accountability practices seem to prioritize donors and board members rather than the external stakeholder communities. 

Essentially, for an organization to effectively fulfill its mission, mechanisms need to be put in place to hold the organization accountable to the external stakeholders it is dedicated to serving. 

Even though your board members and donors keep the lights on, don’t forget why you bought the light bulbs in the first place!

One way to balance the needs of your stakeholders is to survey the needs of your community. Understanding and acting upon what your external stakeholders like and don’t like about your organization is a great way to establish a relationship built on accountability. 

Keela makes survey data collection easy through its forms. Keela donations forms automatically collect, store, and leverage all the right information from your supporters, community, and contacts. You can easily set up and customize donation pages, campaigns, and surveys to collect donor data directly into Keela.

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2. Join a Standards Program

Standards programs provide a “seal of approval” to organizations that follow a specific set of guidelines. These programs provide a nonprofit with third-party assurance, signaling to stakeholders that the nonprofit is an industry leader in areas such as environmentalism, fundraising ethics, and yes, transparency and accountability.

Nonprofits usually pay a fee for these programs to gain the legitimacy associated with the accreditation. Accreditations are an excellent way to combat public mistrust, promote ethical behavior, and gain access to the accreditation organization’s networks. All of these factors can help drive donations.

American Accreditation

There are several accreditation agencies in the USA that work with nonprofits to ensure they meet specific standards. Consider looking into The Better Business Bureau (BBB), Guide Star, Nonprofits First, and Standards for Excellence. Additionally, Charity Navigator rates nonprofit transparency and accountability and has a comprehensive list of standards and suggestions. 

Fun Fact: a study found that a BBB pass rating translates into approximately $75,000 more in donations to an organization. Put differently, for every $1,000 in revenue, an organization will receive an extra $71 in contributions.

Also, keep an eye out for accreditation services within specific fields of work. For example, the National Health Council provides accreditation for public health nonprofits. Specialty accreditation can add an extra layer of legitimacy to your organization’s efforts. 

While you’re looking for independent accreditors, don’t forget to research and follow your federal, state, and local transparency and accountability regulations. 

No matter where your organization is, nonprofit and charitable accreditation is an excellent way to show your donors that their dollars are being put to good use! 

Canadian Accreditation: Imagine Canada

Imagine Canada is a national charitable organization that is committed to strengthening Canadian charities and nonprofits. Their standards program is a comprehensive system of accreditation involving 73 different standards.

By joining the program and receiving Imagine Canada’s Trustmark, you can show stakeholders that you’re a first-rate organization across five critical areas of operation:

  • Board governance
  • Financial accountability and transparency
  • Fundraising
  • Staff management
  • Volunteer involvement

Receiving a gold star from Imagine Canada will strengthen the foundation of trust your organization shares with its donors.

Additionally, you’ll have access to program support tools, including volunteer peer advisors from accredited organizations, a gap analysis tool, and sample policies and procedures. 

3. Publish Your Reports Publicly 

The Muttart Foundation found that 74% of individuals say they want more information on charities’ impact. Creating insightful reports for your stakeholders is an easy way to satisfy this demand while prioritizing accountability and transparency.

Drafting these reports can seem like quite a challenge. But, with Keela’s customizable Nonprofit Annual Report Template, you’re given a sure-fire outline to pull together a document that will motivate your stakeholders to continue their support.

Wait! Before you fill out your report, ensure you’re filling it with the Key Performance Indicators (KPIs) that matter. Check out our guide to nonprofit KPIs to learn more about what KPIs are, which ones to focus on, and how to make strategic decisions using them. 

Once your report is drafted, post it on your website’s homepage so your stakeholders can check out the stellar work you’ve been doing. Also, consider sending out an email blast or posting on social media to thoroughly show your community that you take accountability and transparency seriously.

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4. Maintain a Transparent Board Structure

Board members are the captains of your ship. They ensure that your nonprofit effectively and responsibly fulfills its mission statement. That is why it is important to ensure that your board is leading by example and doing everything it can to promote transparency and accountability. 

Here are a few ways to ensure that your board promotes transparency and accountability:

  • Publicly list your board members: You know what the best part about flying is? It’s seeing the smiling face of the captain as you get on board and knowing that you’re going to have a safe flight. Give this peace of mind to your stakeholders by showing them the people safely piloting your nonprofit through clear skies and turbulent times. 
  • Don’t compensate your board: The key motivation of your board members should be to fulfill your organization’s mission. This creates an environment in which each board member is incentivized purely by the success of the organization.  

When financial incentives are introduced, board members may make decisions based on retaining or improving their level of compensation. It’s extremely difficult for board members to sustainably and effectively guide a nonprofit when they are profiting. 

However, ensure that your board members are reimbursed for expenses they incur while performing their duties, such as travel and accommodation expenses.  

  • Work with an independent board: Essentially, an independent board member is someone who has not been compensated by their nonprofit or a related organization as a staff member or independent contractor. These rules also extend to the board’s family members. 

Organizations must take reasonable steps to ensure that these criteria are met to classify board members as being independent. 

Many regulatory bodies such as Charity Navigator and the IRS encourage the majority of board members to be independent, to ensure a greater diversity of opinions, and to reduce conflict of interest.

In the US, Charity Navigator checks IRS Form 990 to determine if at least five independent board members make up a voting majority. Charity Navigator states that this allows “for full deliberation and diversity of thinking on governance and other organizational matters.” 

Hopefully, it’s obvious why an independent board impacts transparency and accountability. It isn’t? Darn! Essentially, by introducing and disclosing independent board members, nonprofits operate more clearly and openly that is more closely aligned with the organization’s mission. 

  • Document board meetings: an easy way to maintain the transparency and accountability of the board is by keeping track of board meeting minutes. Meeting notes can be used for future reference to demonstrate that specific topics have been discussed and taken seriously by the organization. 

5. Implement Crucial Policies 

Speaking of the board of directors, make sure a lawyer is on the board to enact important policies that can improve transparency and accountability. Below is a list of some policies which can do just that.

  • Privacy policy: The trust between an organization and its donors is partially developed by how it handles donors’ information. Information such as donor names, personal information, demographic data, email addresses, etc. 

Nonprofits with a written privacy policy that explicitly states how donor data will be used can operate openly and clearly, fostering additional trust with their donors and wider stakeholders. 

  • Whistleblower policy: This policy outlines how employees and volunteers can confidently voice complaints against the organization, such as types of harassment or financial mismanagement. Ensuring your stakeholders are aware of this policy will help them understand that the organization encourages a healthy and sustainable work environment. 
  • Conflict of interest policy: Nonprofits need to prepare a conflict of interest policy. This policy should outline procedures for when the organization enters into a transaction that may benefit the private interest of a staff member or a board member. This policy protects the organization and demonstrates to your stakeholders that the organization is prioritizing its collective benefit over anyone in a leadership position.
  • Fundraising policy: Fundraising ethics is a hotly debated subject. To remove yourself from some of this debate, draft a fundraising policy! 

Your policy should outline the ethical guidelines that your fundraisers will adhere to while soliciting donations from potential donors. These policies cover a wide range of topics: donor rights, gift restrictions, gift types, sponsorships, refunds, donor recognition, and much more. 

The National Council of Nonprofit Organizations has excellent guides for what you should include in your privacy policy, whistleblower policy, conflict of interest policy, and fundraising policy.

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There are so many strategies that can be implemented to improve transparency and accountability. This guide lists some of the most important efforts, but keep in mind that there are many more.

You may not have time to implement and evaluate all of the different strategies. What might be most important is showing your stakeholders that you are always trying to improve and operate clearly and openly. Now, get out there and make the world a better place!