It is estimated that there are 1.5 million registered nonprofits in the U.S., each of which, in their own way, strive to make the world a better place. But in order to do that, they must first win the trust of the communities they serve.
“There’s a misconception that nonprofits get the majority of their funding from contributions,” says Melessa L. Behymer, CPA, a director at Brady Ware & Company. “On average, approximately 73 percent of their funding comes from fees for services from private and government sources, 9 percent from government grants and around 13 percent from contributions. All of these funding sources, in one way or another, require the organization to have community trust.”
Nonprofits, she says, are held to the highest threshold of accountability and are expected to be open and transparent in all areas. However, it can be a struggle to meet all the demands this expectation brings because the amount of data that nonprofits must maintain can be daunting.
“In an era of growing needs and shrinking resources, many nonprofits are starved for the kind of support that can strengthen their operations,” Behymer says. “Contribution income is the bridge, but organizations must show donors that they are trustworthy and good stewards of their contribution dollars because once public confidence is lost, it can be detrimental to nonprofits’ survival.”
Smart Business spoke with Behymer about some of the ways nonprofits can earn the trust of their stakeholders.
Why is trust between a community and its nonprofits an issue today?
Trust is the backbone in the relationship between a nonprofit and the community. The number of nonprofits grows every year, which means more competition for essentially the same dollars.
Additionally, social media has made it easier for nonprofits to reach people, increasing competition among organizations for the attention of donors. And the proliferation of the internet, along with more internet-savvy people, means that its easier than ever to research organizations to learn how they put those contributions to work.
Nonprofits that have questionable practices are far more likely to find their reputation in question, which can have a negative impact on contributions.
How can nonprofits gain the trust of the community through their board of directors?
Nonprofits must provide program outcomes that are impactful, that meet stakeholder expectations and do that in a manner that is both fiscally efficient and transparent. Much of this starts at the top. Nonprofits must have a strong board of directors who can be ambassadors capable of engaging the community. To do that, the board must understand the organization’s mission, the environment it operates in and be committed to organizational accountability.
This will look different from one nonprofit to the next. A small nonprofit with a small staff will need the board to be the expertise it can’t hire. They will need professionals such as CPAs, attorneys, and human resource experts to help the organization be in line with laws and regulations as well as help create the policies and procedures needed to be transparent. Larger nonprofits boards also require professionals, but their focus would be more strategic in nature.
How can nonprofits prove they’re transparent?
Nonprofits must have a strong set of policies and procedures in place in all areas of the organization so the community knows that programs are being monitored, run efficiently, and meet stakeholder needs.
Trust in financial accountability is critical. The organization must have systems in place to account for the money that comes in and report results. Large nonprofits can hire staff to ensure this happens. Smaller nonprofits struggle in this area. This is why most nonprofits will have a relationship with an outside accounting professional. Annual, independent financial statement audits are a powerful tool for the organization to show the community they are trustworthy.
Communities have a high level of expectation for their nonprofits. And while most funding comes from fees for services, it often doesn’t cover the cost of providing the services, which is why contribution income is critical and why transparent and accurate reporting is crucial to a nonprofit’s success.
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