Donors Demand Financial Accountability Before Trust

Nonprofit managers have worked in recent years toward meeting donors’ growing demands for transparency and accountability as to how gifts are spent. Organizational leaders who are breathing sighs of relief after enabling donors to verify that gifts are being used as designated are in for some disappointment, however.

Simple verifications are old news when it comes to proper gift stewardship. Donors of today see that as a given. Donors now want to know about how their gifts fit in the grand scheme of things – how far does $50 go to helping a cause? How different would $100 be?

It’s all about trust, according to “The Trust Factor & Nonprofit Financial Management,” a new e-book released by financial reporting and accounting software provider AccuFund. The 12-page publication describes trust as the prerequisite to funding. In addition to the important role of detailed financial reporting in fostering trust, time and outcomes are also of the essence.

For instance, the more up-to-date reporting figures are, the fewer challenges organizations are likely to face, according to the authors. Having real-time information on hand has the potential to both free up nonprofit leaders’ time for important analysis, as well as minimize the risk of leaving potential supporters’ questions unanswered. Leaving questions hanging out there for a period of time while relevant information is compiled risks donors look elsewhere for an organization that might be in better position to utilize their gift and show its impact.

Showing how the organization is expanding its reach and impact with tangible evidence has the ability to be similarly useful. A vague description of mission or the population an organization is helping carries less weight than up-to-date achievements such as, as the e-book poses, “we have provided education services to 3,000 students with an 80-percent graduation rate this year, and are on track to see graduation rates increase by 5 percent next year.”

According to the authors, risks to organizational trust include:

* Organizational inertia. Many nonprofits operate with antiquated accounting processes and tools, with some reluctant to implement change;
* Fraud. The e-book quotes Warren Buffett, stating that “It takes 20 years to build a reputation and five minutes to ruin it.” Updating systems, automating processes and segregating duties – ensuring that each process has multiple individuals involved – helps provide a checks and balances that limits vulnerability to fraud and abuse; and,
* Underestimating the value of reporting. Timely reporting has the potential, not only to provide funders with validations of where their grants and gifts are going, but to energize the organizations team and benefit constituents.

“Trust is not something you can think about every few months or once a year. It’s central to an organization’s success and needs constant nurturing,” said Peter Stam, president of the Needham, Mass.-based company in a release. “There is a direct correlation between the trust factor and a nonprofits level of transparency and accountability. If you have proper systems, procedures and technologies in place, it can help improve trust. Now, more than ever, donors are most critical of the organizations they choose to support. If they deem your organization lacking in the trust factor, they will donate elsewhere.”