Nonprofit transparency is exceptionally important for an organization with closely monitored spending. However, it isn’t just about financial reporting. That information is required by law to be transparent. To develop a relationship with your community, you need open communication, too.
But it isn’t always easy to achieve complete transparency, especially when trying to get things done. Communication is work. Here’s what board members should know about nonprofit transparency.
As a public tax-exempt organization, nonprofits have to disclose their financials. Nonprofit organizations should also make their board meetings and decisions as transparent as possible to better serve the community. Because nonprofits are funded by others, transparency is used to build trust.
Often, a lack of transparency occurs not because the nonprofit is “hiding” anything, but instead because the nonprofit doesn’t have time to curate and publish relevant information. Without meaning to, a lack of transparency can harm the reputation of a nonprofit.
Improving the transparency of your nonprofit will encourage trust, as well as encouraging additional donations. The more upfront and honest you are, the more willing others in the community will be to work with you.
Consider the difference between charities, foundations, and school boards. Public charities collect public funds, and consequently need to be open and transparent about their spending. Meanwhile, private foundations are funded mostly through private entities. Therefore, they are not nonprofits, and a private board has no requirement to be transparent to others.
Likewise, school boards can be either public or private. While transparency is important to school functions, private schools are not required to make their meeting minutes or financial decisions public. Public school boards can often keep their meeting minutes confidential, but transparency is generally considered to be a positive. Check if your state has “sunshine laws” for civic entities, designed to keep discussions transparent to the public.
Transparency is considered to be a best practice, both for nonprofit and for-profit organizations. But beyond what is required legally, a nonprofit organization will need to use its own discretion regarding what is released to the general public.
Most importantly, all board members should be aware of what information is available for immediate release, and what information is being kept confidential. Personally identifiable information and medical information both need to be protected. Consult with your law team about any special considerations if your mission works primarily with minors or a population with other legal considerations.
For the purposes of compliance, nonprofit organizations are going to at very least need to release their financial statements. But other than financial statements, improving transparency within your operations can help build a strong, reliable organization that the community trusts. Keep up the great work!
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