The Transparent Charity: A Simple Test

This post was provided by Patrick Johnston, Chair of the CanadaHelps Board of Directors.

Large government deficits and continuing pressure on the public purse have increased expectations for accountability of all publicly financed activities. This expectation also applies to charities that issue tax receipts for donations. Each charitable tax receipt represents foregone public revenue. The issuing charity, in effect, receives a public subsidy from all taxpayers.

One measure of accountability is the extent to which an organization is open and transparent about its operations. While many governments have Freedom of Information rules intended to foster transparency, there is no such equivalent for Canada’s 85,000+ charities. So how might a donor measure an individual charity’s commitment to transparency?

I believe there are five issues, in particular, that potential donors and funders should consider before deciding whether or not to make a donation or award a grant. The following five questions might be thought of as a simple transparency test that can be applied to any charity that issues tax receipts.

1. Does the charity have a website and an annual report?

Given the evolution in technology, almost anyone can create a basic website at minimal cost and with little skill. A website is the simplest and most cost-effective way for even the smallest charity to communicate its mission. And, , even relatively small charities can produce simple, but very informative, annual reports.

2. Is financial information easily accessible?

Every charity should be willing to provide a set of financial statements to any current or potential donor. Larger charities should be expected to have an audited set of statements available. And, their annual reports should provide some discussion about their costs of fundraising and describe their method of establishing staff compensation. An audited financial statement isn’t necessarily feasible for smaller charities. But even small charities have to provide basic information about revenue and expenditures to the Canada Revenue Agency (CRA). In fact, the annual return submitted to CRA could be uploaded onto the charity’s website with little additional effort or cost.

3. Is the mission and mandate clearly stated?

As the author Lewis Carroll wrote, “if you don’t know where you’re going, any road will take you there.” A transparent charity will have a clearly articulated statement of its mission consistent with its charitable purpose. It should also be able to provide a kind of roadmap – a description of how its programs and services will help to realize its organizational mission. In addition, the description of mission and mandate should be written in plain language free of jargon and acronyms. Potential donors shouldn’t be expected to be experts in a charity’s specific cause or field of interest.

4. Does the charity describe its governance structure?

Almost every charity is governed by a volunteer Board of Directors which is usually a legal requirement if the charity is also incorporated. The Board has legal, fiduciary and other broad oversight responsibilities for the organization. At a minimum, a charity should list the individual Directors and the positions they hold on the Board. It is even better if a brief bio is provided for each Director. And, better still if a brief summary is provided about Board committees, mandates etc. Every potential donor has the right to be assured that the charity’s governing body has the collective skills, experience and expertise to ensure the most effective use of the organizations’ resources.

5. Does the charity acknowledge its challenges as well as its achievements?

Every charity wants to, and should, trumpet its successes and accomplishments. But no charity has a perfect record of success. Potential donors should look for and reward those charities which acknowledge some of the risks and challenges they face as well as their achievements. A charity that is transparent about some of its shortcomings is more likely to address and rectify any problems with the result being improved services and programs.

Expecting charities to be accountable and open and transparent serves the best interests of everybody including a charity’s beneficiaries as well as its donors. But it is also prudent to remember that old saw; “it costs money to account.” Accountability measures should be realistic and appropriate.

The five questions posed above serve as a reasonable test of transparency without putting undue burdens on charities. If current or potential charitable donors can’t get satisfactory responses to most, if not all of these questions, they might want to use this test to redirect their donation to another, more transparent charity.