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Now More than Ever, Charities Need to Show Accountability, Transparency

November 05, 2013

 

Michael J. Hanlon, CPA, MSAT
Partner

There is a general feeling of uneasiness surrounding the non-profit industry these days, as many are concerned that changes in tax policy at both the federal and state level could have an impact on how much and how often people and businesses continue to contribute.

The truth of the matter is the wealthiest are those who most tend to take advantage of tax deductions for charitable contributions – recent statistics show that nine out of every ten of the nation’s top earners report charitable contributions, and that totals more than $170 billion annually.

While charitable giving has historically not been greatly impacted by changes in tax policy, the nearly unprecedented level of government gridlock we are seeing right now has made this a very uncertain time regarding our tax or budget policy. This uncertainty is combined with the sheer size of the charitable tax deduction – only the tax deductions for mortgage and health insurance cost the federal government more.

It clearly illustrates why non-profits and charities are so concerned. Boards of Directors and management are thinking of how this could affect the populations in need that they serve.

So during a time such as this, when it is increasingly difficult to predict what action, if any, our federal government will take, what can non-profits do to protect themselves? After all, those resources for which non-profits are all competing are indeed finite.

For starters, non-profits must distinguish themselves from other organizations competing for dollars. While no one likes to see one-upmanship in the non-profit world (“Give to this charity but not to that one”), there can still be a concerted effort to inspire a donor base to support the mission. A mission statement that is complete and powerful, one that shows clearly who the organization is looking to help, can be a big asset.

Next, there simply must be an effort to keep awareness and success of the mission in the public consciousness. Updates should be given to donors and prospective donors on a regular basis through emails, newsletters, traditional and social media as well as direct contact. Success stories should be shared so people and businesses can draw a clear line between their charitable donations and those directly benefiting from it. The more clearly this path is illuminated, the better the chance that awareness of an organization’s success is getting through.

Prospective Donor Categories

One very helpful tactic is for a non-profit organization to divide prospective donors into strategic segments based on their willingness to give and commitment to the organization. These segments can be:

  • Current and past donors
  • Volunteers
  • Board members (current and past)
  • Individuals or family members who have been helped by the organization

Strong efforts must also be made to maintain contact with those who donate annually; keeping that relationship strong is perhaps the best way of ensuring that the annual contribution keeps coming into the organization. At a time when funds are tight and so much uncertainty continues to rule the day, complacency can be the great enemy.

Along those lines, transparency is also essential; people need to see that their charitable contributions are going to programs that indeed help people. Non-profits should show that a high percentage of contributions are used for programs rather than management or administrative costs. A good rule of thumb is 80 cents or higher on the dollar for program-related expenses – this is a responsible level that shows a significant return on investment for those who contribute.

Finally, it is often those non-profits and charities with the best development plans that succeed the most, particularly in austere times. Organizations should develop and implement a planned giving campaign while, at the same time, maintain a strong and experienced development department. This inspires confidence in potential givers and shows people that the non-profit is in the right hands.

These are the steps that all responsible non-profit organizations should take to demonstrate to their key audiences that they are the right choice for their charitable contributions. In times of great uncertainty such as this, adherence to these high standards is more important than ever.

 

Michael J. Hanlon, CPA, MSAT, is a principal with BlumShapiro,the largest regional accounting, tax and business consulting firm based in New England, with offices in Connecticut, Massachusetts and Rhode Island.  The firm, with 360 professionals and staff, offers a diversity of services which includes auditing, accounting, tax and business advisory services. The firm serves a wide range of non-profit organizations, privately held companies and government entities and provides non-audit services for publicly traded companies.  In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits, litigation support and valuation, and financial staffing. 

 

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