Recently, I taught an undergraduate course called Introduction to Philanthropy where the primary class project required the students to act as though they were on the board of a fictional nonprofit foundation. I managed to secure, in advance, a $2,000 gift from an anonymous donor so that even though the foundation was fictional, the money was not. The students were tasked with making prudential judgements about how and where to award the funds by the end of the semester. The project involved students directly in the work of philanthropy, and along the way we discussed various tactics to optimize their giving. “Responsible philanthropy” was a key theme of the course.
One of the areas we discussed was how important it is for donors to know how an organization manages its money. The third tenet of the Donor’s Bill of Rights stipulates that donors should have reasonable access to an organization’s financial statements. Donors cannot make informed decisions about how and where to give their money if they cannot get a sense of the financial health of an organization. Nonprofits that are on the up and up should have no trouble disclosing basic financial information. In a perfect world, all organizations would have financial reports for donors ready to go at a moment’s notice.
Yet, it is surprising how many organizations do not have this information at the ready, and even more so the ones that actually resist inquiries. Part of the process the students went through involved doing research on many different nonprofits, calling them, and asking them for basic financial information. The students were stunned at how many organizations evaded the request or, worse, told them to mind their own business. This was a valuable learning experience for the students as they came to grips with the unfortunate reality that not everyone in the nonprofit world has donors’ best interests in mind.
One sign of a healthy nonprofit is the degree to which it is transparent about all things financial. At a minimum, one should be able to get the following kinds of information, preferably in a concise report that is prepared specifically for donors:
- A list of all fixed monthly costs, including operating expenses such as rent/mortgage, total salaries and benefits, utility expenses (e.g., water, sewer, electric), and any other monthly expenses.
- An asset/liability statement, including cash balances in all accounts and any outstanding debts such as lines of credit or other loans.
- A list of accounts payable, including payments owed to vendors and service providers.
- A statement of the percentage of received funds that goes directly towards the mission.
- The compensation packages for the organization’s top leadership.
Armed with this information, donors can begin to assess the overall health and worthiness of an organization:
- How much of an organization’s annual donations actually go towards the cause?
- Does the organization pay its vendors and service providers on time, or do they scam them by ignoring bills?
- Is the organization operating in the black, or in the red? If in the red, how deep in debt are they?
- Does everything appear to be in order, or are there areas that look “fishy” or suspicious?
- What does the CEO or ED make, and is this reasonable given the organization’s size and the scope of its mission? (Note: a generous salary is not always a bad sign. Nonprofit workers are professionals, and the best ones are no less deserving of competitive salaries and benefits than their for-profit counterparts—especially when they are doing excellent work for the cause.)
As noted, organizations that are legitimately interested in stewarding their donors should have no trouble providing this information and answering questions. Resistance, however, is a giant red flag.
Question: What has your experience been in either requesting or providing nonprofit financial information? Leave a reply below.
*See more Donor Bill of Rights-related posts here...