Knowledge Shark

For many nonprofit organizations, the answer could unfortunately be yes. True, the computing age has been a blessing for many nonprofits. Social computing tools such as Facebook and VolunteerMatch have helped nonprofits build larger volunteer and donor bases. Yet, there are other seemingly harmless websites that may be quietly erasing all those positive efforts.

The Power of the Written Word

Here’s how. It’s no secret that nonprofits are scrabbling for private donations as the economy heads deeper into recession and government grants are waning. At the same time, private donors are becoming extra careful with where they place their dollars. They’re, also, becoming smarter and better informed in nonprofit finance. Donors are turning increasingly to services like GuideStar and Charity Navigator to research organizations before writing those all important checks. Yes checks, less than 5% of all donations are made online.

GuideStar provides information on the programs and finances of more than 1.7 million IRS-recognized nonprofits. This service relies on a nonprofit’s Form 990 for financial information. Charity Navigator is a little different. Besides providing visitors with information about nonprofits, Charity Navigator awards each nonprofit with an overall rating ranging between zero and four stars. Their rating system is based on a number of factors such as an organization’s ability to carry out and sustain its mission. Unlike GuideStar, Charity Navigator focuses only on section 501(c) (3) organizations that file a Form 990 and receive more than $500,000 in public support.

Is Your Information Misinformation?

All sounds harmless, why should I worry? Aren’t these sites a nonprofit’s friend, not foe? Yes, in a perfect world, these sites protect donors and well-meaning nonprofits alike. But this is the real world and things can go wrong. Not being listed or being listed with erroneous information could hurt a nonprofit’s ability to secure grants, endowments and donations. Compounding the problem is that most Internet-oriented fundraising and nonprofit informational sites are powered by GuideStar’s database. These resources include most of the big and the up-and-coming philanthropy websites like Facebook Causes, Change.org, Network for Good and even Charity Navigator. And even though the percentage of donations made online is small, it still represents $10.4 Billion in funds.

Charity Navigator even reviews and evaluates each charity’s commitment to donors’ privacy rights and reports their findings on the rating page of each charity. There are several very prominent nonprofits with poor Charity Navigator ratings because of their insufficient donor privacy rights. Although, there are no statistics yet on this particular item, it is not unimaginable that these organizations are being negatively impacted by this public disclosure that they sell donors’ names, addresses, and charitable habits. Not having any donor privacy rights can also hurt a nonprofits’ rating on Charity Navigator.

Time to Dot the I’s and Cross the T’s

What can a nonprofit do to ensure these sites work for, not against them? Following this two stage plan should help. First, nonprofits should check to see if they’re list on both GuideStar and Charity Navigator, if applicable. Not being listed could cost them money. If listed, a nonprofit should review their listings. Improper information on these sites may cost even more money than no listing at all.

Besides ensuring that their financial information is up-to-date and correct, nonprofits should inspect the sections on management profiles, organizational mission, past year accomplishments and current fiscal year goals for accuracy. Lastly, a nonprofit should ensure their donor privacy policy is properly reflected on these sites or if they don’t have a policy that one is drawn up for them. These steps are easy and can have a very positive impact, but are often overlooked by even the largest organizations.

It’s important to remember that all the sites mentioned above want to celebrate charitable organizations. Their personnel are very helpful and want to help nonprofits ensure their data is correct on their sites. In fact, GuideStar will be launching the GuideStar Exchange to help make it easier for nonprofits to correct and supplement their online reports.

It’s All Comes Down to Dollars & Cents

The second stage for getting on track is a bit more multifaceted. As mentioned earlier, donors are becoming more sophisticated in reviewing nonprofits’ financial information.

The Urban Institute, a nonpartisan economic and social research center, reported in December 2004 that nonprofits often miss-categorize costs for grant writing, fundraising personnel and even fundraising direct-mail costs. Similar studies have had similar results. This information has been reported in dozens of news outlets alerting the public to the situation.

Nonprofits should take special care to ensure their finances are reported properly. Unrealistic fundraising-efficiency ratios (fundraising costs/ total contributions) are easily being spotted even by the most casual donor. Fundraising expense reporting mistakes are usually the most easily identified, but nonprofits should not stop there. All the figures that are used to calculate the program-spending ratio (total program expenses/total expense) should be reviewed too.

A nonprofit with suspect figures in one reporting area, runs the risk of all their figures being subject to scrutiny by donors. In tough times, a nonprofit may not be able to afford any negative perceptions about their organization.

The great news is now is the perfect time for a nonprofit to start reviewing how it’s reporting its finances as it uses the new Form 990 redesign. If functional expense reporting errors are discovered, then a nonprofit can work with their internal and external experts to create and implement procedures to correct those problems.

Transparency is the New Green

As taxpayers wonder where their money went with the first bailout package. And investors worldwide are feeling the pain of scandals. Public trust is at an all time low. Unfortunately for nonprofits, research shows that Americans already distrusted them.

Organizations that focus on transparency will have the edge in this economy. This is why nonprofits need to ensure online research information about them is correct and updated often.

Additionally, today’s more educated donors appreciate organizations that not only mind, but also report their finances the best. Nonprofits that make needed improvements in their reporting systems will not only benefit from more accurate financials, ratios and management decisions, but will be praised and rewarded by donors.

This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.

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