The pressure to demonstrate accountability and transparency is increasing for non-profit organizations. Stakeholders, including donors, board of directors, staff, volunteers, and the public, are taking more of an interest in how non-profits are spending donations and government grants on programs and services. These stakeholders are asking questions and seeking transparency from non-profit organizations in order to make an informed decision about continuing their support. How can your non-profit organization answer their questions and build a stronger legacy through financial transparency?
Non-profit organizations have different missions, but all of them need to improve their financial transparency and accountability practices. One of the tenets of the International Statement of Ethical Principles in Fundraising states about financial reporting:
“Fundraisers will work with their organisation to provide accurate reports on their organisation’s income and expenditure according to their national regulatory framework and publish clear information on their activities for stakeholders, beneficiaries, donors and the public.”
In this regard, financial transparency will help your organization share your financial story and build trust with stakeholders. It helps you maintain your donor base, obtain additional government funding, and continue to build your organization’s legacy. Additional benefits of financial transparency include:
Transparency sheds light on your organization’s financial practices and how you have made operating in an ethical and accountable manner a priority. There is a direct correlation between stakeholder trust and a non-profit organization’s level of transparency and accountability. Non-profit organizations can demonstrate accountability by making it an organizational value, creating policy and procedures to ensure finances are properly managed, and by communicating their financial practices to stakeholders.
Growth of financial contributions
A study of 14,000 non-profit organizations published in the Journal of Accounting, Auditing & Finance shows that organizations who proactively share financial information with the public, and went from not being transparent to transparent, saw an increase of 53% in total contributions one year later. Sharing your financial story increases interest in your mission which can result in a deeper financial commitment from stakeholders.
Improved stakeholder relationships
Financial transparency helps stakeholders understand your organization’s fiscal health and how you are spending money. Communicate with stakeholders by sharing financial reports, strategic goals and objectives, and metrics that show progress and results, making a connection between your finances and how you are delivering on your mission in a fiscally responsive manner. When the people who care about your organization understand your financial situation, they will feel a greater sense of responsibility to support your mission.
Financial reports can be powerful tools for increasing transparency and demonstrating accountability, but how can you ensure your organization is providing the right kind of information to stakeholders?
Improve your budgeting process
If you are still budgeting with spreadsheets or your ERP financial system, it may be time to consider a better solution. Traditional accounting systems are ill-equipped to help non-profit organizations contend with the unique challenges of managing revenue streams from donations, membership dues, program revenues, and government grants. A full-featured budgeting system can streamline your budgeting process, as well as provide the time-saving functionality and flexibility your non-profit needs to prepare budgets and keep track of financial information.
Use better reporting tools
To help stakeholders dig deeper into your budget numbers, review supporting details, and see how your non-profit is setting goals and measuring performance, use reporting tools that can help you produce reports that are comprehensive, yet easy to understand. Reports that make a connection between financial data and your non-profit organization’s accomplishments can be engaging to stakeholders internally in your organization, as well as external stakeholders, such as donors and the general public.
Ensure your financial data is accurate
Manual processes put the accuracy of your budget at risk for errors and the static financial information in a spreadsheet will not give you a real-time understanding of your organization’s financial performance. Non-profit organizations make better decisions and build more compelling cases for future financial support with the assistance of accurate forecasts and analysis of what-if scenarios. A dynamic budgeting solution can provide you a secure system for managing financial data, plus the ability to create multi-year budgets, forecasts and what-if scenarios. You can not only provide current and accurate financial information to stakeholders, but give them a glimpse into the future of your organization as well.
A non-profit organization’s financial story is fundamental to advancing your mission and showcasing to stakeholders your accomplishments. Financial transparency is becoming increasingly important for non-profit organizations, as important stakeholders question how you are spending donations and government grants. By using methods to improve financial transparency and share accurate financial information with stakeholders, your non-profit organization will build trust with stakeholders, improve the perception of your organization’s accountability and attract new supporters. A full-featured budgeting system can help non-profits move away from the risk of errors to produce accurate, timely reports and financial information. When stakeholders understand your organization’s financial health on a deeper level, they will become more engaged and committed to supporting your organization’s legacy.
To learn more about budgeting and transparency tools that can help build your non-profit organization’s legacy, read one of our blogs or white papers, or sign-up for one of our free monthly informational webinars.
Questica is the recognized leader in budget preparation and management software. Over 700 public sector and non-profit organizations across North America have opted for smarter planning, budgeting, management, transparency and engagement with our solutions. To learn more about Questica and how our software solutions can help your public sector organizations – check out our resources and news/blog sections, or request a demo today!