Standards of Charitable Accountability
By Frank Monti, CPA
Responding to concerns about accountability relating to nonprofit fund raising, the nation's major charity watchdog group, the Better Business Bureau (BBB) Wise Giving Alliance, has developed voluntary standards that call on nonprofits to devote at least 65 percent of their total expenditures to charitable programs, regularly evaluate their operations, and take steps to protect donors' privacy.
The guiding principle of the standards 20 in all is full disclosure to donors and potential donors at the time of solicitation and afterward.
The BBB Wise Giving Alliance Standards for Charity Accountability were developed in 2001 to assist donors in making sound giving decisions and to foster public confidence in charitable organizations, and go beyond the requirements of local, state, and federal laws and regulations.
These standards apply to 501(c)(3) organizations but not to private foundations, since foundations do not solicit contributions from the public.
There are standards in the areas of governance and oversight, measuring organizational effectiveness, finances, and fundraising and informational materials. The standards reinforce the concept that the governing board has the ultimate oversight authority for any charitable organization. Adherence to the standards will help ensure that the volunteer board is active, independent, and free of self-dealing.
Continual effectiveness in a constantly changing world requires an organization to regularly assess its effectiveness in achieving its mission. The effectiveness standards encourage an organization to have a defined process in place to evaluate the success and impact of its program(s) in fulfilling the goals of the organization and that also identifies ways to address any deficiencies.
It almost goes without saying that a charity should spend its funds honestly, prudently, and in accordance with statements made in fund raising appeals. The finance standards provide an organization with measurable targets in the finance area. And, finally, in the solicitation area, the standards recognize that it is in this activity that a charity has its most frequent contact with the general public. The solicitation and informational materials section of the standards seeks to ensure that a charity's representations to the public are accurate, complete, and respectful.
Among the standards for charitable accountability are the following:
- Boards should demonstrate that they are providing adequate oversight of a charity's operations, including "regularly scheduled appraisals of the CEO's performance" and "evidence of disbursement controls, such as board approval of the budget, fund raising practices, establishment of a conflict of interest policy, and establishment of accounting procedures sufficient to safeguard charity finances."
- Charities should assess their performance at least every two years and determine what future actions are needed to achieve their missions. A written report that outlines that assessment and recommended actions should be submitted to the organization's board for its approval.
- Address privacy concerns of donors by providing a means for both new and continuing donors to inform the charity if they do not want their name and address shared outside the organization.
The complete list of these standards is available at this link
To further advance charitable accountability, the BBB Wise Giving Alliance also encourages charitable organizations to adopt the following management practices.
Frank Monti is a Principal with Kahn, Litwin, Renza & Co., Ltd. (KLR), a Rhode Island based certified public accounting and business consulting firm, servicing the needs of nonprofit organizations and closely-held businesses in Rhode Island and Massachusetts. Call him at 401-274-2001 or email to firstname.lastname@example.org
- Initiate a policy promoting pluralism and diversity within the organization's board, staff, and constituencies. While organizations vary widely in their ability to demonstrate pluralism and diversity, every organization should establish a policy, consistent with its mission statement, which fosters such inclusiveness.
- Ensure adherence to all applicable local, state, and federal laws and regulations including submission of financial information.
- Maintain an organizational adherence to the specific standards as cited. The BBB Wise Giving Alliance also encourages charities to maintain an organizational commitment to accountability that transcends specific standards and places a priority on openness and ethical behavior in the charity's programs and activities.