How Nonprofit Organizations Can Earn Legitimacy
by: Melissa S Burchfield
Nonprofit organizations (NPOs)
play an important role in our society. From meeting basic needs to providing
care, goods, and services, these organizations are vital to the groups they
serve. In order for a nonprofit to thrive, especially in the first
three-to-five years, the organization must been seen as a trusted part of the
community. This is particularly true for nonprofit religious organizations.
This paper will explain the necessity of proving accountability through
business documentation, sound financial practices, and registration with the
Internal Revenue Service in order to achieve and maintain legitimacy within
their respective communities.
It is easy to get overwhelmed when the nonprofit is new.
Oftentimes the need they are designing themselves to meet is great, and this
can lead to issues right away. One of the biggest mistakes NPOs can make is to
attempt to do the work on their own. As McLeod-Grant & Crutchfield (2007)
point out, the secret to success for NPOs lies not in their own innate
abilities but in their relationships with other organizations: “greatness has
more to do with how nonprofits work outside
the boundaries of their organizations than how they manage their own internal operations.” Relationships
between organizations are called networks,
and building a network, much like building a relationship, requires trust.
Trust is a measure of the confidence we have in one another, and through
trust-based partnerships, our organizations have an increased ability to help
the communities we serve to flourish.
The religious nonprofit organizations have an even greater
burden to prove legitimacy, since they are up against several difficult,
negative opinions. Trust is a gift not often given to religious groups leading
these organizations to fight harder to earn it. News stories speak of the
actions of pastors and priests as though the behaviors of these leaders are
indicative of every member of the faith from sexual indiscretions and
color-blind racial attitudes to fraud and greed, the religious nonprofits have
social stigmas to overcome that can be crippling if left unaddressed. Prominent
and influential publications like Time magazine are even printing articles
speaking out against religious organizations and their tax-exempt status
(Oppenheimer, Time, 2015).
Overall, the goal is to create a NPO that has high
accountability, because in the eyes of the public, legitimacy is the
end-product of accountability. For-profit organizations typically have a
single, unified goal: to make profits. Because of the government regulations
surrounding business relationships, these organizations must create a system of
checks and balances that prove to their consumers that they will be good
stewards of their money. In a similar fashion, NPOs, depending upon the
category, have reporting systems, but these are not often inclusive of the
entirety of their operations. NPOs tend to focus heavily on their work with
less attention to detail in operational documentation let alone providing an
avenue to disclosure their business practices. In religious nonprofits, the
amount of disclosure is often far less than for non-religious NPOs, suggesting,
as Tremblay-Boire & Prakash (2015) point out, that “religious bonding
enhances trust and reduces incentives for self-disclosure;” however, increasing
the amount of information disclosed, including organizational documents and
financial statistics, will help the organization stand out in the community
and, more importantly, among the target populations (p. 693).
Accountability: What is it, and why do we need it?
Accountability
is an aspect of governance in which the organization has a standard for
assumption of responsibility for its actions including the quality of their
products and services as well as ownership for failings on behalf of the
organization or those acting in its name. The two sides of accountability are
right action and responsibility: assurance that the organization will do the
right thing and when there are issues that the organization will do
due-diligence to correct or repair them. NPOs rely upon trust, as stated above,
to build relationships and network in not only the third sector, but between
organizations and individuals in the for-profit sector as well as the
government.
J. Koppell lists five
dimensions of accountability including transparency, liability,
controllability, responsibility, and responsiveness (Anheier, 2014, p. 421).
These five dimensions provide a means for nonprofit organizations to judge
their own business structure and subsequent performance in administrative
processes through the trust they receive from internal and external parties.
Transparency is a term used to describe the overall amount of data an
organization shares. Transparency builds trust through disclosure. Liability
describes the amount of ownership the organization is willing to take of both
positive and negative consequences for their actions. Liability confirms
safety, a chief component of trust. Controllability shows that there are clear
and predictable cause-effect relationships such that altering a cause will
produce a predictable effect. Controllability illustrates organizational
stability. Responsibility, similar to liability, exhibits an acknowledged
obligation to follow the policies and procedures as dictated by organizational
documents. Responsibility feeds into trust by further providing proof of
integrity. Responsiveness, one of the areas where most young nonprofits are
lacking, is the actual reply given to stakeholders such as employees,
volunteers, consumers, and members of the target population in response to a
concern. Responsiveness completes the trust matrix, because responsiveness is
the action step that proves the other four dimensions are in working order.
Mission, Vision, and Standard Operating Procedures
The
first step toward creating a NPO that is accountable is to create a series of
administrative and business-based policies and procedures including a mission
and vision statement and standard operating procedures. Creating these
documents meets four of the five dimensions of accountability: transparency,
liability, controllability, and responsibility. The mission statement explains
what the organization is doing right now, and the vision statement explains
what the organization wants to do next. Myriad examples of mission and vision
statements are available from all of the different types of organizations, but
how does one go about creating their own? When creating a mission statement,
the idea is to provide a written statement that clearly defines the purpose and
goals of the organization. This statement reflects why the organization exists.
An example from a
nonprofit organization shows the concise language typical used to describe the
purpose of their organization. Heifer International lists their mission
statement as simple, “To work with communities to end hunger and poverty and
care for the Earth” (Heifer, 2016). Some mission statements also include a
short description of who they are to better illustrate their capabilities to
meet their goals and achieve their future-state endeavors. It is with caution
that a nonprofit mission statement provide additional detail. According the Top
Nonprofits, LLC (2016), the best mission statements are “clear, memorable, and
concise.” Their survey of the mission statements from the top fifty nonprofit
organizations in America show that the most successful organizations have mission
statements of less than twenty words. TED, the company who produces the
less-than-twenty minute “TED Talks” videos, has a mission statement that
contains only two words: Spread ideas (TED Conferences, LLC, 2016).
The vision statement,
which may be separate or included as part of the mission statement, is a
forward-thinking statement regarding where the organization is going. In other
words, vision statements describe the desired end-state of the organization.
Similar to mission statements, when Top Nonprofits looked at 30 vision
statements, they found these to be single sentences made up of less than twenty
words, as well. Examples from NPOs whose mission is to fight a disease have
vision statements that reflect a disease-free world. Organizations like Habitat
for Humanity have vision statements that show the end-state of the need they
provide to their target group: “A world where everyone has a decent place to
live” (Top Nonprofits, LLC, Vision, 2016).
Once the organization
has these statements showing a concise purpose and clear end-state, the details
on how to get there are filled in. The organizational policies and procedures
ensure consistency in performance and quality. Procedures are step-by-step
documents that explain the process by which a given outcome is achieved while
the policies are principles of intent and guidelines for behavior of
individuals, departments, and other special interest groups within an
organization. A manual of standard operating procedures (SOPs) can be the means
to success, especially when the bulk of the front-line work is performed by a
rotating staff of volunteers. Examples of items that may be included in the SOP
are instructions for signing on to the computer network, instructions for
operating a piece of equipment, an explanation of the filing system used in a
warehouse where material donations are collected or stored, and any of a wide
variety of processes. Policies are descriptions of clear behavioral
expectations. These include attendance policies, dress code, requirements for
assessing the acceptability of a donation, and so on. Providing documentation
of these processes will streamline the functionality of the organization
through standardization despite high turnover of volunteer staff members.
Strategic Planning
With
the mission and vision statements complete, the NPO can move forward with their
plan for the future. How does the NPO get from where they are to where they are
going? The strategic plan is the map. The idea is to turn the mission statement
into achievable goals. Before the goals are written, the internal and external
environments are assessed for viability. Next, the goals are chosen. They
should relevant, realistic, and achievable in the current state of the
organization. Then, the resources are allocated and the plan is put into
action.
Finances: Integrity through Practice
Financial
planning is a necessary evil in terms of organizing and maintaining
accountability in money-handling. Too often the news reports show a mishandling
of money that greatly affects the public opinion of the nonprofit sector. That
makes money a high-pressure responsibility. The key to a sound financial plan
is not only to include what to do and how to do it but also to include the whys
in the process. Explaining why a task is necessary leads to a better
understanding of the process and aids in accountability through responsibility.
First, list the
resources. From where does the money come? This is the income. Second, plot out
where the money is going. What was purchased and why? These are the expenses. Third,
set financial goals. These will be the items the NPO will work to accomplish that
need funding such as obtaining property, building a building, paid employees,
etc. Once these are named, the plan can include saving funds for these specific
goals. Finally, create a budget based on the income as well as the expenses
with enough room to plan for the future. Be honest, even if the amount of expenses
is higher than the income. This is common, especially in the first
three-to-five years of the life of a NPO.
When the basic plan is
complete, the next phase is to create a document that explains how to manage
the financial process. A well-managed financial process shows integrity in
business practices, which in turn builds trust with the community and the
potential donors. Appoint or hire a treasurer, and if necessary, hire a
consultant to work through the details. It may be necessary for a member of the
current leadership team to take a basic course in accounting such as those
offered through the Greater Washington Society of CPAs Educational Foundation who
support a webpage entitled Nonprofit Accounting Basics (2016).
Internal Revenue Service: the 501(c)(3)
Nonprofit
status is awarded by the Internal Revenue Service (IRS) office of Exempt
Organizations. By far, the most common IRS classification is the 501(c)(3),
which is the code for organizations that fall under the heading of “religious,
charitable, and similar organizations” (Anheier, 2014, p. 63). These
organizations must pass three tests to prove and maintain eligibility: the
organizational test that ensures the entity limits their activities to those
that further their purpose, the political test that ensures the organization
maintains political neutrality in terms of advocating for or against any
candidate for political office, and the asset test (the public support test)
that shows the influx of funds is nor solely provided via an individual source
or sole proprietor. Any organization whose support is provided by either a sole
private entity or a sole proprietor shall be reclassified as a private
foundation and must reapply after rectifying these circumstances (IRS 5180,
2015, p. 7).
The
benefits of obtaining 501(c)(3) status are two-fold. First, 501(c)(3)
organizations are tax exempt. That means these organizations are not required
to pay taxes. Tax exemption includes not only the tax-free purchase of material
items but also a relief from paying taxes on incoming donations. Second,
donations made to the organization qualify as tax deductions for the donor, an
incentive for giving. In order for these donations to be claimed on their tax
returns, the 501(c)(3) organization must provide a receipt for their gift (IRS
1771, p. 1). This is an important step in preparation for the nonprofit to
increase the income necessary to meet the needs in their budget as defined
above.
Fundraising
Fundraising
is an important part of managing a nonprofit organization, especially if the
NPO is not currently the recipient of grant or other governmental monies. It is
a staple of the nonprofit world. After the financial planning process and
501(c)(3) status are in place, the NPO is ready to receive donations. Most NPOs
begin their fundraising endeavors through a “guerilla-style” technique that
relies solely upon direct solicitation through explaining the NPOs mission and
services provided (Anheier, 2014, p. 363). This style generates one-time
donations and is not usually enough to sustain an organization for long. These
funds do, however, enable the organization to solidify and begin to grow. The
next phase of fundraising is normative in that potential donors are solicited
to include previous donors, donors who are alumni, volunteer staff,
organizations who have an affiliation to the NPO in some way, or other related
parties (Anheier, 2014, p. 365). At this stage, the NPO has gained enough
experience in soliciting funds that they may begin working toward directed
donation funds to meet a specific organizational need such as a building fund
to secure additional space for operations. Finally, the NPO enters the
integrative phase. This part of the process shows the NPO soliciting funds
based on the vision and earned place the NPO has in the community (Anheier,
2014, p. 365). The tone of the solicitations change from being an introductory
explanation to one of continued growth and solidarity in the community.
Branding, Advertising, and Marketing
In
order to solicit funds, the NPO must be able to clearly and concisely
articulate who they are, what they do, and where they are going. Branding is a
marketing strategy that helps the NPO create an image as a means of
establishing a presence in the mind of the community members. The work of
creating a logo and simple statement is crucial to the beginning of any
fundraising process. A logo is a design that says something about what it
represents without words; it is a symbol that will eventually stand alone as
the voice of the organization in the community. When consumers hear the names
like Pepsi, Coca-Cola, McDonalds, an image appears in their mind. This is the
result of the branding efforts of these companies. In the nonprofit sector,
similar images appear when the community hears Habitat for Humanity, American
Red Cross, the World Wildlife Foundation, and Autism Speaks. Nonprofit brand
design is crucial to reaching the right population. Before a NPO decided on a
brand, the mission statement must be clearly defined. Then, the leadership team
decides what image they want associated with their organization.
Once
the logo and pseudo-slogan are chosen, the next steps are to build an effective
website. From here, transparency becomes one of the key players in building
your network. Here is where all the pieces that have been created are put
together to form a portrait of the organization. The website will be the place
to house the mission and vision statements as well as a synopsis of the
organizational documents, calendar of events, and other networking tools to
inform the community of all the things being offered through the NPO. Key
players in the leadership are encouraged to use Facebook and Twitter accounts
to share stories, and it may be profitable for the NPO to have their own
accounts, depending upon the target group they serve or the interested persons
from whom they solicit funding. If there are teaching moments or habitual tales
to tell, a Podcast may assist with exposure. The idea is to get the name of the
NPO out into the Aether of the internet. Another option is to engage in cause
marketing in which the NPO forms an alliance with a for-profit organization for
mutual benefit (such as a for-profit donating a dollar or any such item to the
NPO per purchase of one of their goods or services).
Customer Service: The Key to Responsiveness
Finally,
customer service is not limited to the fields of the for profit industry. In
the nonprofit sector, customer service not only serves the needs of the
constituents, but also those of the donors who fund the programs. Henry Ford
once said, “It is the customer who pays your wages.” In the nonprofit sector,
it is the donor who funds the mission. Effective communication is of primary
importance in responding to donors and constituents with speed and clarity of
speech as well as kindness and compassion. Not matter how perfect the branding
or how grand the marketing scheme, no matter how good the services or robust
the volunteers, if the customer service is lacking, the nonprofit will not sustain
a viable donor pool. There are several key methods to ensuring quality customer
service, even when the organization does not provide a good for the money they
receive from their constituents. First, recognize loyalty among the donors.
Recognize repeat donors for their generosity. Second, empower the staff and
volunteers to help in building a culture of positivity. Third, include actual
statistics from reliable data when discussing metrics with potential donors and
allies. Finally, include the potential donors as stakeholders when making
decisions as an organization. When the donors feel their voice is heard, they
will be more inclined to assist in funding the operation.
Conclusion
Accountability is the
way to legitimacy for the nonprofit organization. When trust is built through
transparency, liability, controllability, responsibility, and responsiveness,
many doors will open to allow success to enter in. The road is not easy to travel,
but consistency in practice and integrity in process serve to build the trust a
nonprofit needs to build a name for themselves in the community they serve.
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