Building Donor Confidence Through Transparency

Muslim Advocates Counsel Mohamed Sabur authored a May 30 piece on the blog altmuslim on the ways in which nonprofits and charities can provide accountability to donors and those interested in learning more about the organization. The following is a reprint of the blog entry:

Building donor confidence through transparency

Through appropriate planning and disclosure on behalf of organizations, and investigation and research on behalf of donors, Muslim charities can set an example of good governance.

Earlier this month, many charities and nonprofits filed a crucial transparency, marketing, and financial form that will boost the confidence of their donor base: their informational tax return. While annual individual tax return filings are well behind us, many organizations were required to file the Form 990 to the Internal Revenue Service by May 15. It often comes as a surprise to many charities when they realize how critical this simple form can be to stand out from the pack, demonstrate credibility and gain support from donors who want to research charities before writing a check. Similarly, many community members are often unaware that such a helpful peek inside the operations of their preferred charity is so readily available.

2007 Pew Research Center survey of 60,000 American Muslims found that more than three-fourths of respondents considered zakat (alms giving) to be “very important” to them, while a 2009 Gallup poll found that American Muslims are more likely to give charity than the general population in America. Indeed, helping the least among us is a shared American and Islamic value. However, recent scrutiny of charities by law enforcement has left donors thinking twice before cutting a check, and credible organizations grappling for ways to reassure donors.

This is where an otherwise seemingly mundane filing can be a treasure trove of information for donors and a crucial communications tool for nonprofit organizations and charities. Once filed, the Form 990 is open to public inspection: Websites such as Guidestar and Charity Navigatormake these available for the scrutiny of both donors as well as media, academics, and outside watchdog organizations. Furthermore, organizations are required to furnish their most recent 990 to anyone who asks.

The Form 990 allows organizations to be transparent about their operations and accounting, thus giving potential donors a credible guide before giving money. It is important to note that mosques, as with most other religious organizations, aren’t required to file a Form 990, while organizations generating less than $50,000 in annual gross receipts can file the nominal Form 990-N e-Postcard, in lieu of the informational tax return. Key highlights from the Form 990 include:

  • Part I, a snapshot covering the organization’s mission, board structure, revenue sources, salaries, and fundraising expenses
  • Part III, covering achievements of the organization’s three largest program areas by expenses, allowing donors and others to see the breakdown of costs.
  • Referred to as the “crown jewel” of the revised Form 990 by Steven Miller, IRS Commissioner of Tax Exempt and Government Entities, Part IV of the form covers an organization’s governance and board, which is just as important as financial reports. This section details the composition of an organization’s governing body and the relationships among directors, key employees, and other members.
  • Part VII, detailing compensation to directors, key employees, and other contractors working for the organization.

Planning Tips For Organizations Filing the Form 990

In addition to seeking guidance from legal and financial professionals, organizations can take a few steps to make their regular filing of the Form 990 run smoothly:

  1. Start early and take your time. The form is complex document–2 pages and up to 16 schedules–that requires a lot of planning and forethought. If your organization can’t meet the deadline (which varies depending on your accounting year), you can easily request an automatic, three-month extension. Remember, it’s always better to file late (with no penalty) than to file poorly.
  2. Get your website in order. Part I of the Form 990 asks for your organization’s website, and donors often look at an organization’s website when deciding whether to donate. Just as your publications and marketing materials are central to your public perception, your website conveys a lot about your operations. Make sure it fits in line with your mission and values, and conveys the same message as your Form 990.
  3. Identify your organization’s most expensive programs. Part III of the Form 990 requires you to disclose and describe your three biggest program areas and their achievements. Make sure these three areas are in line with your mission and communicate a sufficient focus to your organization’s purpose and values.
  4. Get the board involved. Unlike a strictly financial audit, the Form 990 covers multiple aspects of your organization. Make sure you consult the various leaders within your organization to ensure that accomplishments are effectively conveyed and areas of concern are properly addressed.
  5. Establish or amend policies as needed. Although the Form 990 does not require the attachment of specific policies, the IRS (and your donors) do want to know that your organization has sufficient guidelines in place that deal with conflicts of interest, joint ventures with taxable entities and expense reimbursement among other issues. Check Part VI, Section B for a full list of policies your organization may want to consider establishing or amending.

The Form 990 provides a great deal of information about a nonprofit organization, but accountability and disclosure to donors should not stop here. Keep in mind that there are many areas in the Form 990 that ask for simple yes/no answers, but donors may want more comprehensive and detailed information. One option for nonprofits is to pursue accreditation from the Better Business Bureau-Wise Giving Allinace (BBB-WGA). Muslim Advocates provides Muslim charities with one-on-one technical assistance to meet the vigorous BBB-WGA 20 standards and obtain accreditation through our Muslim Charities Accreditation Program. Through direct assistance to nonprofit leaders, educational programing, and technical assistance for their organizations, the Muslim Advocates Program to Strengthen Muslim Charities enhances the ability of nonprofit leaders to comply with governance, legal and financial requirements and best practices.

American Muslims view charitable giving as both a religious duty and civic responsibility. Through appropriate planning and disclosure on behalf of organizations, and investigation and research on behalf of donors, Muslim charities can set an example of good governance for others across the nonprofit sector to follow.

Mohamed Sabur serves as Counsel at Muslim Advocates, a national legal advocacy and community education organization, and leads its Program to Strengthen Muslim Charities.

Click here for the original blog entry on altmuslim.