Financial Donor Transparency: What Inexactly are we Talking About?

By Russell Pomeranz, President and CEO, Claverack Advisory Group

This article originally appeared on the blog of the New York Community Trust Nonprofit Excellence Awards, a program of the Nonprofit Coordinating Committee of New York.


While we may understand the political ramifications of nonprofit donor transparency, how does transparency relate to efficiently and effectively running organizations that are financially and programmatically sustainable over time? What impact—positive or negative—does transparency have on different constituencies? Is there anything to suggest that current levels of financial transparency—990s, audits, annual reports, and reports to funders—are insufficient?

Donor transparency is the bedrock on which nonprofit development departments raise money. Nonprofits want to acknowledge their supporters, while donors want to support well respected, mission-credible and financially stable organizations. But some donors also want their names on buildings and on event invitations at high levels. However, the lack of financial donor transparency may mask questionable programmatic investment or purchased research/evaluation outcomes. Such donors, by damaging an organization’s reputation, put subsequent unrestricted and restricted fundraising efforts at risk.

So what is to be done about this matter of transparency? Successful business models that align   programmatic mission with building and investing financial resources will incentivize donor transparency. Consider the following to build stronger nonprofits that are sensitive to the risks of a lack of transparency.

  • Nonprofit boards should include more financial contributors who can align the mission with long-term business investments.
     
  • The nonprofit sector should consider the impact of eliminating the tax deduction for large quid pro quo restricted and unrestricted contributors. Such gifts can prioritize the donor’s agenda at the expense of the nonprofit’s mission, a transparency disincentive.
     
  • The press should become more informed about the nonprofit industry, and report more stories of how particular transparent, donor-backed initiatives contribute to nonprofit organizational success and positive outcomes.

Above all, the stronger the correlation is made between mission success and the underlying financial resources that contributed to that success, the less likely it will be for questions and problems to arise related to donor transparency.