Being Publicly-Funded, How Much Must We Disclose?

Q: I was re-reading something you wrote previously on confidentiality versus transparency in the boardroom. You peaked my curiosity. When an organization is operating with "public funds," what degree of "disclosure" is REALLY is required?

A: Can I consider your word “REALLY” to be lower case as I craft my response? In all seriousness, this is a tough question because there are no black and white answers.

The Panel on the Nonprofit Sector, convened by Independent Sector, stated in its final report to Congress in June 2005, “Comprehensive and accurate information about the charitable sector must be available to the public.” They went on to clarify this:

To encourage participation and confidence in the nonprofit sector, the public must have access to accurate, clear, timely and adequate information about the programs, activities, and finances of all charitable organizations. Government regulation should promote such transparency while providing sufficient flexibility to accommodate the wide range of resources and capabilities of nonprofit organizations, particularly of small organizations. (Report to Congress and the Nonprofit Sector on Governance, Transparency and Accountability, p. 21)

Unfortunately, this isn’t very instructive. It doesn’t even give us an idea of what constitutes “small organizations.”

The Internal Revenue Service is a bit more clear. Since 1999, public charities have had to make immediately available to whomever asked copies of their three most recent Form 990's, with all schedules and attachments, along with their exemption application. The only thing that can be redacted is the names and addresses of donors.

With the latest version 990’s, more information than ever before must be shared. This includes new reporting of the organization’s level of public support, any endowment and/or special funds, including donor advised funds, and non-cash contributions. It also requires that a summary of the organization’s mission and activities, as well as its governance structure, policies and practices be shared – including its disclosure practices. Transactions with interested persons, such as board members, must be revealed, as must relationships with professional fund raisers. Even its accounting methods must be spelled out and copies of audited financials or their equivalents provided. (For more information, go to http://www.irs.gov/pub/irs-tege/moving_from_old_to_new.pdf.)

While many organizations rely on GuideStar’s posting of their 990’s to satisfy the disclosure requirements, you might want to consider additional methodologies to communicate to the public how you operate, how you are using its money and the impact you are having in the community as a result. I suggest you work with your PR specialist and your accountant to help you in the presentation of this information. After all, you want people to actually read and understand what you are providing them.

All this having been said, my guess is that you are less concerned about the regulartory issues above and more concerned about how much you should disclose about those issues that come before the board, such as personnel problems, potential lawsuits or pending mergers. I am unaware of any “official” guidelines on this. What I would say, is that your board should have policies in place that spell out how to proceed if – or more likely, “when” – the organization is faced wtih such situations. The policies should indicate if you will disclose information proactively or reactively, the types of trigger points that would cause you to disclose, the manner in which you prefer to disclose – e.g., press conference, news release, email blast – and who shall serve as the spokesperson(s). Here again, working with a PR person, especially one who understands crisis management, is critical. He or she can help you design messages and dissemination strategies that keep the organization in the best light.

In today’s environment, where transparency and trust are paramount and people are re-evaluating the organizations they choose to support, the more information you can provide, even if it is not required, the better.