5 Steps to Getting Clear on TransparencyApr 10, 2023
Transparency is an ambiguous term that is used in so many different ways that it often leaves nonprofits not knowing where to start. As a matter of good practice, nonprofits must be transparent with donors, employees, and constituents regarding decision-making, how funding is acquired, fiscal reporting, and conflicts of interest. The following 5 steps, which are informed by an ETHOS framework, can help you operate ethically and transparently.
1. Establish a Commitment to Financial Transparency
Financial transparency is more than just following the law. It is about helping donors and community members make informed decisions about supporting your organization based on how your organization actually makes its financial decisions. This means that you must be clear and transparent about how you make your allocations, the formulas you're using, and your process for fundraising. This clarity comes from concrete definitions that are easy to understand in your budget narratives, clear communications, and transparent decision-making.
2. Establish Clear Policies and Procedures
Areas, where clear policies and practices have to be clearly articulated to facilitate transparency, include, but are not limited to:
- The existing executive compensation policy,
- Generally Accepted Accounting Principles known as GAAP,
- Financial management policies,
- Internal controls,
- Travel expense reimbursement policies, and
- Procurement policies.
Fundraising policies should also explicitly describe which funders you will and will not accept funding from. The reasons explaining your decision-making metrics should also be easily accessible. It is critical to ensure internal and external stakeholders that you are not inadvertently compromising your values and your mission to obtain funding dollars.
3. Make Policies Procedures and Financial Information Easily Accessible
Documents like the IRS form 990 and the audited financial statements and/or annual reports should be posted on your website. You should also let people know how you are achieving your goals and objectives while also disclosing who benefits from your donations, how much the donations are worth, and what your policies are for fundraising.
4. Pay Attention to Conflicts of Interest
It is also important to assure the constituents you serve and internal and external stakeholders that your organization is working selflessly to benefit the public good. Conflicts of interest should be avoided or disclosed in a timely manner. A failure of boards to mitigate conflicts of interest can have serious legal and reputational repercussions for the organization. Officers and board members are obligated to put the interests of the organization above their personal interests when making decisions. In the most extreme circumstances, members of the board of directors can hold personally liable if they are found to have breached their duty of loyalty.
Thus, it’s important to clearly define the actions and transactions that constitute a conflict of interest for staff, volunteers, and board members. This includes, but is not limited to:
- Establishing and clearly delineating the procedures for making decisions on transactions that are potentially problematic;
- Creating an annual schedule to monitor potential conflicts of interest;
- Training staff, volunteers, administrators, and board members on what constitutes a conflict of interest, how to report it, what the consequences are, and what protections people have;
- Disclosing to all staff, board members, and volunteers the steps or corrections that must be made when a conflict is disclosed;
- Requiring that individuals who have a conflict of interest recuse themselves from discussions on transactions where a conflict exists; and
- Keeping up-to-date record-keeping that documents the process for evaluating and managing conflicts of interest.
5. Engage in Inclusive and Transparent Decision-Making
It is important to note that transparency extends beyond compliance. It also includes inclusive decision-making internally with staff, board members, volunteers, and external stakeholders such as community members. The best way to ensure you are working ethically is to integrate the ETHOS framework (Ethics, Transparency, Harmony, Organizational Infrastructure, and Sustainability) into your planning by creating forums for inclusive discussions that conduct a 360-degree evaluation of the administrative, technical, fiscal, and logistical feasibility of a project or initiative. The inclusion of individuals across multiple levels of the organization helps to create a better understanding of the implementation obstacles, builds a sense of community across the team, and creates a sense of harmony by preemptively mitigating confusion or capacity issues.
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