Nonprofits must keep donors apprised of spending
By Kelvin H. Taketa
There was a time when nonprofit organizations received the benefit of the doubt from everyone. Donors, regulators and the news media all trusted organizations largely on the basis of their mission and their aspirations to benefit society. But those days are gone.
The controversy surrounding disbursement of the Sept. 11 relief funds and national coverage of mismanagement involving some highly visible nonprofit entities appear to have left a lasting impression on the public's perception of the sector. A 2004 survey by the Brookings Institution showed that confidence in charitable organizations stands 10 percent to 15 percent lower now than it was in summer of 2001. Nonprofits found themselves just barely ahead of organized labor, television news, big business, HMOs and Congress. And they lagged behind the military, the U.S. Supreme Court and churches.
While public confidence can affect the value of private businesses, in the nonprofit sector it can mean everything. Trust affects the public's willingness to contribute its hard-earned money and give their precious time to a nonprofit organization. Ultimately, the level of trust that an organization earns with its constituents can determine its very survival. That's why the decline in public trust of the nonprofit sector over the past few years is something that organizations, both large and small, should be concerned about.
So what happened? First, the news media, nationally and locally, has toughened its reporting on nonprofits and has raised the profile of stories questioning the ethics, integrity and operations of nonprofits. Often, the public sees little distinction between different types of nonprofit organizations, so coverage about any controversy concerning a nonprofit organization ripples through the field. While we all strive for balanced reporting that would equally highlight what the nation's 1.2 million charities do and why their 11 million employees come to work each day, to suggest that media coverage is misplaced misses the point. The sector is big, newsworthy and deserving of scrutiny.
But more importantly, people who contribute to charity are increasingly demanding of the level of transparency and accountability from the sector. In this age of Google and GuideStar (a leading online source of information about nonprofits), so much more can be learned about organizations to encourage support or raise concerns. In today's environment, nonprofits need to recognize increased scrutiny as an opportunity. A big challenge is the acceptance of self-regulation and the development of a common set of best practices to deal with issues such as conflicts of interest, fundraising ethics and whistleblower protection. In addition, many organizations are starting to educate their volunteer board members so they understand their fiduciary responsibilities.
The Brookings Institution survey found that even Americans who have a great deal of confidence in charities, and who believe these organizations do a very good job helping people (31 percent), have begun to wonder about fiduciary and administrative performance.
In particular, people who admired what organizations did were still concerned about whether they spent wisely.
Most nonprofit organizations are highly efficient in how they use financial resources. In fact, they are often so frugal that they forego important investments, such as staff training and reasonable compensation that can help build and retain quality staff or information technology that can help improve systems and administrative processes. Few private-sector companies of similar scale would do the same.
The point is that nonprofits are efficient and spending money wisely, but they are not adept at communicating this to their donors or the general public. As a result, the taint of past scandals, unrelated to local groups in either geography or program area, continues to color public perception. Organizations need to take the offensive and explain how and why the investments they make through their operations serve the capacity of the organization to deliver the goods in terms of mission.
Finally, the Brookings survey uncovered a growing expectation among donors for demonstrated results. This transformation toward greater accountability is ongoing, but it requires patience on the part of donors and the public.
Kelvin H. Taketa is president and CEO of the Hawai'i Community Foundation. Reach him at firstname.lastname@example.org.