Best Practices in Nonprofit Transparency: A Comparative Study of Upstate South Carolina and the United Stated
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Transparency is one core components of accountability. It often involves making information about the nonprofit organization available for public scrutiny. This research study examines the use of transparency by 501c3 nonprofit organizations in Spartanburg, South Carolina and compares that to other nonprofits organizations throughout the United States.
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Best Practices in Nonprofit Transparency: A Comparative Study of Upstate South Carolina and the United Stated
- 1. Best Practices in Nonprofit Transparency: A Comparative Study of Upstate South Carolina and the United States Angela Cannon, Alexander Dukes, Joyasha Hicklin, Julia Holt, Laurel McAlister, Shelby McKinney, Nicholle Oltz, Suzi Sears Nonprofit Leadership Johnson College of Business and Economics 160 East St. John St., Spartanburg, SC 20306 cannona6@email.uscupstate.edu, dukesag@email.uscupstate.edu, hicklinj@email.uscupstate.edu, holtjy@email.uscupstate.edu, mckinnsf@email.uscupstate.edu, oltz@email.uscupstate.edu, searsm@email.uscupstate.edu Abstract Accountability is a cornerstone of successful nonprofit organizations. Although definitions vary, it is often defined as the means by which nonprofit organizations are held responsible for their actions. (Edwards, 1996) Transparency is one core components of accountability. It often involves making information about the nonprofit organization available for public scrutiny. This research study examines the use of transparency by 501c3 nonprofit organizations in Spartanburg, South Carolina and compares that to other nonprofits organizations throughout the United States. The results indicate that 501c3 nonprofit organizations in Spartanburg should better align their transparency reporting to best practices standards. Keywords accountability, transparency, nonprofit, best practices Introduction Being transparent with relevant information is how nonprofits demonstrate accountability.(GuideStar, 2009) Nonprofit organizations have a legal and ethical obligation to be transparent and accountable. (SCANPO, 2007) The more open and trustworthy organizations are, the more they will be viewed by the public, donors, and funders as deserving of their support. Operating in a transparent manner is one of the best ways to develop and maintain trust with the public. The most recent survey by GuideStar USA, Inc. (2009) suggests that a majority of nonprofits in the United States disclose some information on-line but few adhere closely with published best practices. (Gandia, 2011; McCarthy, 2007; Nezhina, 2010; Saxton, 2011). The purpose of this research study is to compare nonprofits in Spartanburg, South Carolina to nonprofits across the United States and make best practice recommendations where appropriate. Methodology In order to compare best practices in nonprofit transparency between Spartanburg, South Carolina (local) and the United States (national), a sample size of 287 organizations were randomly selected from 905 possible organizations. The sample size was determined by using the finite population correction factor. (Lind, 2010) GuideStar, an on-line watchdog nonprofit organization based in the United States, was used to identify the local organizations. (GuideStar USA, Inc. (2009) A data collection template using Microsoft Excel was developed for documenting program information, board and staff members, letter of determination, annual reports, audits, and privacy policies. Chi-squared statistics were used to test the null hypothesis that there was no difference between transparency reporting in Spartanburg, South Carolina and United States nonprofits at the .05 significance level with a critical value of 3.841. Results Using chi-square test statistics the null hypothesis was rejected in the following areas (p-value <0.001). On-line transparency (local verse national) was found to be: Programs/services (27% vs. 93%);
- 2. Board list (28% vs. 73%); Staff list (19% vs. 70%); Annual report (13% vs. 43%); Audited financial statements (6% vs. 13%); Privacy policy (8% vs. 37%) Researchers failed to reject the null hypothesis regarding the on-line reporting of IRS letters of determination (9% vs. 3%, p-value 0.01). Conclusions Many nonprofit governance practices have transparency as one of its main guiding principles. Some of the transparency principles are required by law while others represent the belief that they should be used as a matter of good accountability practices. GuideStar USA, Inc. (2009) represents the leading standards for transparency and recommends that nonprofits should regularly update their websites by posting: program and evaluative information; names, titles and biographical information on board members and key staff; annual reports; audit statements; and the IRS letter of determination. The South Carolina Association of Nonprofit Organizations, the South Carolina nonprofit advocacy group, recommends that organizations prepares and makes available to the public annually a report that includes information about the mission, programs, basic financial data, board and staff members and volunteers. (SCANPO, 2007, p. 11) It was concluded that nonprofit organizations in Spartanburg, South Carolina were statistically different, i.e., less transparent, in most cases when compared to other nonprofits throughout the United States (on-line reporting of programs, board and staff members, annual reports, audited financial statements, and privacy policies). There was no evidence of a difference in transparency between Spartanburg and United States nonprofits with reporting on-line letters of determination. Non-profits in Spartanburg especially, but nonprofits throughout the rest of the United States as well should better align their on-line reporting with current best practices in transparency. For an on-line example of best practices, nonprofits may review the Nonprofit Leadership Alliance (NLA) home webpage at www.nonprofitleadershipalliance.org. The NLA annually posts on-line their by-laws, annual reports, conflict of interest statements, audited financial statements, IRS Form 990, and provides links to the nonprofit watchdog groups GuideStar (www.guidestar.org) and Charity Navigator (www.charitynavigator.org). One of the nine competencies identified by the NLA for emerging nonprofit professions is: Financial Resource Development and Management - Transparency and accountability as critical values in nonprofit organization. Acknowledgements The University of South Carolina Upstate Nonprofit Leadership Alliance Student Association would like to thank our faculty sponsor and advisor, John T. Long, Ph.D., USC Upstate, Johnson College of Business and Economics, Nonprofit Leadership, for his guidance with this poster presentation. Thanks also to: Dr. Frank Rudisill, USC Upstate, Dean of the Johnson College of Business and Economics for his statistical assistance and Dr. Ron Romine, USC Upstate, Professor Emeritus, Political Science, Department of History, Political Science, Philosophy, and American Studies for his financial assistance. References Edwards, M., and Hulme, D. (1996). Too Close for Comfort? The Impact of Official Aid on Nongovernmental Organizations. World Development, 24(6), 961-973. Gandia, J. (2011). Internet Disclosure by Nonprofit Organizations: Empirical Evidence of Nongovernmental Organizations for Development in Spain, Nonprofit and Voluntary Sector Quarterly, 40:57-78.
- 3. GuideStar USA, Inc. (2009). The State of Nonprofit Transparency, 2008: Voluntary Disclosure Practices, Washington, D.C., retrieved from http://publications.guidestar.org/transparency-report/ on December 10, 2012. Lind, D., Marchal, W., and Wathen, S. (2010). Statistical Techniques in Business and Economics. Boston. McGraw-Hill Irwin. McCarthy, J. (2007). The Ingredients of Financial Transparency, Nonprofit and Voluntary Sector Quarterly, 36:156- 164. Nezhina, T., Brudney, J. (2010). The Sarbanes-Oxley Act: More Bark Than Bite for Nonprofits, Nonprofit and Voluntary Sector Quarterly, 39:275-301. Saxton, G., Guo, C. (2011). Accountability Online: Understanding Web-Base Accountability Practices of Nonprofit Organizations, Nonprofit and Voluntary Sector Quarterly, 40(2)270-295. SCANPO (2007). Guiding Principles & Best Practices For South Carolina Nonprofits Preserving the Public Trust. South Carolina Association of Nonprofit Organizations, Columbia, South Carolina.