Is Your Nonprofit Organization Truly Transparent?

In my job, I constantly contact donors and ask them why they give to our organization. They say it is a matter of trust. They say we trust you and especially value your low cost to raise a dollar.

I was involved recently with a solicitation of a potential foundation. I met with several officers of the foundation. After the facilities tour, we sat down to discuss the organization. They asked a number of probing questions about how monies are spent, how monies are invested, and the integrity of officers and staff. I said, with strong conviction, that our organization was transparent. At that point the matriarch of the foundation said that word is "tossed around a great deal." I understand the reason for that comment.

I remember the article and situation surrounding the 2008 case involving the volunteer treasurer of the Madison County Indiana Humane Society who was charged with using $65,000 of the charity's money to buy jewelry and makeup. According to Stephanie Strom from the New York Times, a report the same year based upon data from the Association of Certified Fraud Examiners found that all organizations, whether government, for-profit or nonprofit, lose on average 6 percent of revenue to fraud each year.

I also read a 2014 article by Christina Bush, wealth manager at CB Wealth Advisory, that alerted to those in our profession to "Beware of Fraud of Non-Profit Organizations." Her research through the New York Times indicated that $40 billion to $50 billion per year nationally that is lost in fraud in nonprofits and scandal is found in 20 percent of philanthropic organizations. She noted that it is wise to be skeptical and do your due diligence first before involving yourself or your financial support in any charity.

Key points made by Bush in her research highlighted the following:

• Fraud is usually committed by someone in the financial area of the charity.
• Careful practices must be in place and instituted.
• Every 501(c)(3) organization should have a clearly written mission statement.
• Every organization should maintain a board book that contains articles of incorporation, bylaws, minutes to board meetings, past three years tax returns and annual financials.
• An internal audit should be performed at least annually.
• A board's primary responsibility is to "uphold the public trust."
• Paid staff should not serve on the board of directors.
• Board members should analyze EVERY assumption that they make.

Bush also noted that Professor Janet Greenlee, an associate professor of accounting at the University of Dayton, saw signs that charities are working harder to deal with fraud through creation of audit committees plus adopting the provisions of Sarbanes-Oxley as best practices.

In the article "How Ethical is Your Nonprofit Organization?" by GuideStar, key questions are asked that challenge organizations to evaluate their procedures, principles and practices. GuideStar also notes that all nonprofit organizations need to pay attention to ethical issues and have a clear ethical compass. All employees need to understand the difference between right and wrong in all dealings with every constituency.

While you work for one charity, remember that your actions affect all charities and our profession as a whole. There must be zero tolerance for any perceived act of unethical behavior.

People work very hard to make money that in turn is given to charity. All of us have a right and responsibility to use funds given to us in a wise and prudent manner with policy safeguards. Our profession and professionals must be held to a higher standard of ethical behavior. When you tell prospective donors and volunteers that your organization is transparent, be ready to back it up with facts, programs and policies in place. We must earn respect and trust every day by our actions. In the end, proper ethics is the foundation for our profession.