Charitable Statistics (NCCS), more than 1.5 million nonprofit organizations are registered in the U.S as of 2016.
When choosing a charity, donors want to know that the organization is trustworthy and will use their money in the
way they intended. How can you make sure that your organization passes muster? Transparency is key.
Charitable Statistics (NCCS)1, more than 1.5 million nonprofit organizations are registered in the U.S
as of 2016. When choosing a charity, donors want to know that the organization is trustworthy and will use their
money in the way they intended. How can you make sure that your organization passes muster? Transparency is key.
efficiently run organizations that don’t squander resources and that use their donations wisely. Here are some of
the elements donors are looking for in a nonprofit, as well as tips for how nonprofit organizations can communicate
to their donors with full transparency.
have a clearly defined mission and vision, and to communicate this on your organization’s website and in printed
materials such as annual reports and donor newsletters. Be honest and specific. If your organization serves a
specific geographic region or demographic, share that information upfront so donors won’t feel like they were
misled or misinformed.
been around since World War II and was originally founded to help Americans with polio2. Once polio was
largely eradicated, the March of Dimes shifted its mission to focus on preventing birth defects. Be honest about
your organization’s history, whether it’s long and storied or brand-new.
tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated
exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private
shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence
legislation as a substantial part of its activities and it may not participate in any campaign activity for or
against political candidates.”3 Donors can easily look up your tax-exempt status using websites like
GuideStar or Charity Navigator.
Although they might not be able to get a full tax deduction for their donation (depending on whether the
application is approved), they still might be excited to help a new nonprofit get off the ground. If the IRS
approves a pending tax-exempt status, the status is recognized retroactively to the date the nonprofit was created,
and donors’ contributions will then be tax-deductible.
like the Form 990-EZ, Form 990-N or Form 990-PF) — with the federal government each year. Nonprofits are required
to make their 990 forms public4, and many organizations include a link to their 990s on their websites.
Donors can also look up charities’ 990s using online tools like GuideStar. The 990 includes information such as
board members, the organization’s employees with the highest salaries, payments made to contractors, the amount of
money spent on advertising/promotion and office expenses, total revenue and expenses and more.
document, an independent auditor looks at a nonprofit’s finances. Many foundations (including private foundations,
corporate foundations and family foundations) require an organization’s audited financial statements and 990 when
the organization is applying for a grant.
current fiscal year. The organization’s board must review and approve the annual operating budget.6 Some
funders may ask for the annual operating budget as part of a grant request.
not directly related to programs is known as “overhead.” Conventional wisdom stated that overhead should be kept as
low as possible — but in more recent years, a number of thought leaders in the nonprofit world have denounced this
published a joint letter debunking the “overhead myth.” Dan Pallotta, the founder of numerous high-profile charity
events (including the Breast Cancer 3-Day walks and the multi-day AIDS Rides), as well an author of numerous books
on nonprofits, has campaigned heavily against the old overhead rule, giving many talks and publishing numerous
articles on the topic.
about spending too much on overhead. Be upfront with your donors about how much you spend on non-program expenses.
Many organizations list this information (or even include a pie chart with this detail) in their annual reports.
annual or semi-annual basis. It’s good practice to include a section in your grant proposal that provides details
on how you plan to evaluate the program for which you’re seeking funding.
measure your organization’s success, and they’ll take note of organizations that can track their success and share
it. GuideStar currently gives gold, silver and bronze ratings for nonprofits that offer a high level of
transparency and provide great detail about their effectiveness.
hard and fast rule for what must be included in a nonprofit’s annual report. Annual reports come in all kinds of
formats, lengths and configurations. They can be very simple or incredibly complex. These are some components to
consider including in an annual report:
from a foundation or a donation from an individual that was earmarked for a specific project. Then, due to
unforeseen circumstances, the project was delayed, got canceled or simply didn’t pan out as hoped. For instance,
perhaps the lead staff person who was supposed to carry out the project left the organization unexpectedly.
communicate any changes in plans, personnel, costs, etc. In some instances, you may need to get written permission
from the donor to use their funds differently from the way you originally anticipated.
release an annual report once a year, stick with it. Make sure your website isn’t outdated, and be sure to update
any incorrect information on it.
trust and transparency. The more trust you can build in your organization, the more donations you’ll receive.
Honesty truly is the best policy.