The nonprofit sector is huge. Did you know the Center for Civil Society Studies at Johns Hopkins University reports that more than 70 million people work and volunteer in the industry? Nonprofits produce more than 1.9 trillion dollars annually and employ the third-largest workforce of all U.S. industries. (More here.)
With such a big industry, charity evaluators, reviewers and nonprofit watchdogs play an essential role. They expose unscrupulous tactics like shifty bookkeeping, deception and aggressive fundraising. And they are a fundamental resource for philanthropists deciding where their donation dollars would be best spent.
Within an industry this diverse, it’s difficult to implement a one-size-fits-all system. Personal opinions and modus operandi aside, criteria and standards set by these organizations raise the bar for the whole sector.
What can your nonprofit learn from the charity watchdogs?
Even if yours is a small or mid-sized organization, any nonprofit with drive and passion can up their game by aiming for these high standards in their operation. Individual nonprofits all have their own unique limitations but what can a smaller, local charity, glean from the big nonprofit watchdogs?
The standards set are intended to confirm a charity is using resources reliably and wisely while fulfilling undertakings made in its fund raising appeals. Using different metrics, each nonprofit watchdog evaluates performance primarily based on the data the charity reports to the IRS on Form 990.
Some important sources of nonprofit data are Charity Navigator, GuideStar (Note: GuideStar does not consider themselves a ‘watchdog’. Please check comments below.) and Better Business Bureau Wise Giving Alliance. Financial wellness, good governance, transparency and accountability, and effectiveness are the criteria by which the impact of a nonprofit is measured.
The following are nine areas that come under the spotlight of nonprofit watchdogs and divulge the condition of a charity. By tightening up weak spots, a nonprofit sends a clear signal that it’s committed to inspire confidence and encourage giving. Can you answer these questions in the affirmative? Does your nonprofit address these issues?
1. Tweak Form 990
Does your Form 990 report the CEO’s salary and list board members and any reimbursement they may receive? Is Form 990 provided to the governing body prior to filing with the IRS? The IRS has public disclosure regulations which you can access in this on-line tutorial.
2. Update your policies and practices
Organizations that welcome complaints and have a policy of “no reprisal” are considered more transparent. Are there policies in place such as a conflict of interest policy, a whistle-blower policy and a records retention and destruction policy?
Is there a process in place for determining CEO compensation? Implement an executive compensation policy to ensure that the whole board is aware of and agrees with the compensation of the CEO.
3. Take inventory of your board’s responsibilities and activities
This appointed or elected body has overall responsibility for the management of a nonprofit. Ideally the board should be independent with at least five members forming a voting majority and all board meetings should have minutes taken. Are loans made to officers, staff or board members? Is there a written policy in place limiting the terms a board member may serve? How often does your board meet per year?
4. Up your website’s potential
5. Keep an eye on program expenses
What portion of total expenses should be spent on charitable programs? According to CharityWatch.org 60% is considered reasonable, bearing in mind that higher is better. Very effective nonprofits can put as much as 75 percent or more into their programs.
6. Increase efficiency of your administration
Out of the total expenses of your nonprofit, what percentage is spent on administration? Good governance will show itself in lower percentages but adequate infrastructure is also important. It’s a juggling act, balancing the cost of acquiring tools and skills to accomplish goals while keeping expenses at acceptable levels.
7. Increase fundraising efficiency
How much does it cost your nonprofit to raise a dollar? Generally, lower is better. As an overall rule, $ .35 or 35% of a dollar is a realistic goal.
8. Embrace transparency and accountability
This is assessed using the Form 990 in conjunction with the organization’s website. How is the charity governed, how is the money spent? Does it disclose information willingly and how accessible is that information to potential donors?
Finally, transparency is so much more than publicly releasing some insignificant documents or information. Openly sharing the triumphs and struggles engages the public and attracts separate resources. It’s a win-win; more donations, more volunteers, and better publicity. Nonprofits can increase their impact by using transparency as a force for good.
9. Stay on top of your goals
Self-evaluation is an important part of the picture, serving to gauge if a charity is achieving the goals it espouses through its programs. Donors should be able to recognize results with regular progress reports.
At the end of the day, compare those reported results against your charity’s mission statement? What has been achieved through the programs and the spending?
And this is how dotting the i’s and crossing the t’s can improve your standing with all your supporters. By fulfilling watchdog requirements, donors, sponsors, volunteers, supporters and the public will recognize an organization they can trust.
We need the nonprofit watchdogs because corruption does happen. But why not use their standards to make your own nonprofit better? The majority of charities are idealistic, full of integrity and passionate people. After all, we’re here to make a better world!