The ongoing series of financial failures and scandals have made me more interested in financial transparency for non-profit organizations – which economic theory states are really supported by everyone because their donations are tax deductible which reduces total tax revenues.  My thinking about the finances of non-profits has also been piqued because of an accounting class I’ve been taking, as well as by my last post about transparency in health reform legislation.

One recent example of non-profit organizations increasing their transparency is colleges and universities issuing press releases and sending letters to alumni about how the economic downturn has effected their endowment, and what steps they are taking to be more fiscally conservative – such as freezing hiring or delaying construction projects.

This type of communications and transparency is not just good PR.  How non-profit organizations communicate their internal financial workings to the public and their financial supporters can help create an extra level of trust – which can translate into more donations.  For example, when I was a Board Member at Bread for the City in Washington DC – and chaired the Fundraising Committee – we saw this when the organization received press kudos for a fundraising letter that included pie charts showing where the organization’s funds came from and what they were used for.

Now Bread for the City has taken a huge step forward in transparency by putting their audited financial statements on their web-site.  This document goes well beyond their annual report or tax return, and includes detailed information about spending for very specific functions and activities – basically the same information that the Board of Directors gets every month.

So if you’re looking at where to make your end-of-year charitable donations, think about how transparent the organization is about their finances. Be sure to look for information about where they get their funds – to make sure they have broad support – and how they are spending their funds – to make sure they are being spent on the organization’s mission, and not on just raising more money or talking about the problem they really should be solving.

And of course, you can click here if you want to donate to Bread for the City – which I have no official connection to, I’m just a big fan.