How Charities Can Regain Lost Trust (part III)

The present system of charitable giving entails an informal
agreement, between donor and charity, that is based on trust.
A donor gives to a non-profit and trusts that the non-profit will
use that gift to support a mutually agreed upon person in need.
Non-profits have functioned on a business model based on that
trust. The recent financial turmoil caused by the Wall Street and
Madoff scandals have caused a breakdown in the agreement
between donor and non-profit. The environment in which non-
profits have functioned has changed. The new environment of
uncertainty requires non-profits to change their business model.
The new business model must reflect the changed environment.
The present system of giving, based on trust, must be transformed
to a system based on transparency. Those non-profits that
make their finances transparent will regain the trust of
donors; those non-profits that do not make their
finances transparent will lose support.

Recommended Non-profit Actions:
1) The non-profit should make sure that it is rated by Charity
Navigator http://www.charitynavigator.org/. Charity Navigator
is America’s premier Charity evaluator and it rates charities based
on their financial efficiency.
2) The non-profit should provide it’s Charity Navigator rating on
the home page of its website. The non-profit should also explain
what the rating means.
3) The non-profit should provide its three most recently filed tax
returns on its website.
4) The non-profit should provide a breakdown of its liquid and
fixed assets. This can be found by examining the non-profit’s
investment-securities assets (Line 54b of 990 tax return) and its
fixed assets of land, buildings and equipment less accumulated
depreciation (line 57c of 990 tax return.)
5) The non-profit should provide the same type of investment
information that mutual funds provide. Specifically, the non-profit
should provide its investment philosophy and a breakdown of its
investments on a semi-annual basis.
6) The non-profit should provide donors and others with access
to an employee who can respond to financial questions upon
request. If the the employee is unable to answer the question,
the employee should promise to get back to the questioner within
24 hours.
7) The non-profit should provide information on its home page
about its its recent financial losses. It should provide information
as to weather it had direct exposure to Madoff investments. The
Jewish Communal Fund,
http://www.jewishcommunalfund.org/ provides
information about its exposure to Madoff investments on its home
page; it had NO exposure to Madoff investments.
8) The non-profit should provide information on its website about
any cutbacks it will be making. It should be specific about where
it is making its cutbacks – program expenses, administrative
expenses or fundraising expenses.

Conclusion:
Nobody likes bad news. However, hiding the bad news only
compounds the problem. Non-profits that are transparent about
their finances will regain the lost trust of its donors sooner than
those non-profits that are not transparent about their finances.
The economy runs in cycles. Today’s economic downturn will
eventually end. Those non-profits that choose to be
transparent today will benefit far more in tomorrow’s
economic upturn than those non-profits that are not
transparent. Rahm Emanuel, President Obama’s Chief of Staff,
famously said, “You never want a serious crisis to go to waste.
And what I mean by that is an opportunity to do things you think
you could not do before.” Today’s crisis in the world of Jewish
philanthropy is really an opportunity for those non-profits that
choose to be ahead of the curve. Providing financial transparency
today will allow non-profits to be more effective in supporting
their brother and sister Israelite in the future.

Next Week's Blog: Abraham Joshua Heschel School (NYC)