The State of Nonprofit Transparency, 2008: Voluntary Disclosure Practices
Executive Summary
Findings
First, the good news:
- A high percentage (93 percent) of nonprofits are embracing the Internet to disclose information about their programs and services. In addition, nearly three-quarters of the organizations provided the names of the people who serve on their governing boards and the key staff who manage their organizations and oversee the delivery of programs and services.
Now for the rest of our findings:
- Only 43 percent of the nonprofits surveyed posted their annual reports on their Web sites. Organizations with higher income levels were more likely to make their annual reports available via the Web.
- Only 13 percent posted their audited financial statements on their Web sites. The results of our survey show a reluctance to disclose audited financial statements publically. Although not all nonprofits obtain audits of their financial statements, our survey sample reflects organizations of the size for which an audit is both prudent and a necessary tool for assessing management’s financial capabilities and the organization’s financial health.
- Only 3 percent posted their respective IRS letters of determination on their Web sites. The results of our survey show great reluctance to disclose this basic document authenticating an organization’s tax-exempt status, even though every tax-exempt organization is required to make available for public inspection its application for exemption, any supporting documentation, and any letter or document issued by the IRS concerning the application.
GuideStar’s Recommendations
We recommend five simple steps that will greatly advance nonprofit transparency.
- Nonprofits should regularly update their Web sites with current, detailed program and evaluation information. Access to information regarding strategy, evidence-based evaluation metrics, and the underlying theory of change will enhance the program information that is currently widely available on nonprofit Web sites. This information is the substance of social change and is critical to engaging new Web savvy “investors” in their cause.
- In addition to posting board members’ and key staff’s names and titles, nonprofits should post brief biographic information for these important leaders. The biographies should highlight the skills and contributions that these individuals provide to the organization; these are the people who are leading the change that affects the quality of life where we live, work, play, and worship.
- Every nonprofit that produces an annual report should post the report on its Web site. Although there is no legal requirement for a nonprofit to produce an annual report, many do.
- Every nonprofit that has an audited financial statement should post it on its Web site. Although federal regulations do not require tax-exempt entities to obtain audits and state audit requirements vary, disclosure of an audit is a common practice for those nonprofits seeking grants from private foundations and government funders.
- Every nonprofit that has an IRS letter of determination should post it on its Web site. The results of our survey show great reluctance to disclose this basic document authenticating an organization’s tax status. As noted above, the letter of determination is a public document. As is true with audited financial statements, disclosure of the letter of determination is a common practice for nonprofits seeking grants from private foundations.
We have launched the GuideStar Exchange as a new program for nonprofits that want to share more up-to-date information about their missions, leaders, programs, and accomplishments. We intend to recognize the organizations that embrace voluntary transparency with a seal that highlights their commitment to operating in an open and accountable way.
The GuideStar Exchange is open to all nonprofits that are willing to embrace greater transparency. In exchange for keeping an up-to-date report at GuideStar, we will provide complimentary access to GuideStar Premium, our most robust and user-friendly search and reporting tool. For more information, go to www.guidestar.org.
The State of Nonprofit Transparency, 2008: Voluntary Disclosure Practices
Executive Summary
© 2009, GuideStar USA, Inc.
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