Financial Accountability & Transparency
Responsible financial management isn’t just about building budgets, fundraising, and forecasting finances. It’s also in the more granular things, like communicating with your board, filing taxes, and being transparent with your employees. Ensuring that you’re accountable and transparent with your animal shelter’s finances helps to build public trust, promote employee buy-in, and guarantee that your nonprofit is operating above board. Let’s talk about the three domains of financial accountability and transparency in the shelter.
Financial Transparency With The Government
If your shelter has a valid 501(c)(3) status, that means that you’re exempt from many state taxes and federal income taxes. To maintain this status, you have an obligation to annually file IRS Form 990, which you are required to disclose to the public or the government upon request.
Embracing Audits
In addition to your application for tax exemption and regular filing of IRS Form 990, many nonprofits are also subject to audits on a regular or semi-regular basis. In the nonprofit sector, audits are conducted by independent auditors in order to provide a comprehensive evaluation of an organization’s overall financial health and ensure that they are complying with financial regulations.
Contrary to popular belief, audits are not something to be scared of. Nonprofits undergo audits for a variety of reasons, including state law compliance, grant applications, and having received federal funding that exceeds $750,000 per year. Some organizations even write regular audits into their bylaws to:
Ensure regular financial accountability: Conducting regular financial audits will help to ensure that your organization is always operating above board, even as your organization grows.
Get a clear picture of financial health: Audits provide a comprehensive view of your organization’s overall financial health, giving you an opportunity to assess and make changes as needed.
Increase public trust: By disclosing the contents of your financial audit and the improvements you’re implementing in response, you’ll promote a public image of accountability and transparency.
Public opinion is a big contributor to the financial health of your organization. The public is your main funding base, and it’s important to maintain trust by being transparent and accountable with your finances.
2. Financial Transparency With Your Stakeholders
In addition to your obligations to the government, you also have an obligation to communicate finances with your stakeholders, namely the public and your board. There are several steps you can take to embrace financial accountability and transparency with your stakeholders, including:
Communicating with your board of directors: Ensure that your board of directors receives all financial information in a clear, easy-to-read format. All financial plans, reports, and tax documents should be reviewed and approved by your board of directors prior to implementing or filing them.
Being honest in solicitation materials: Ensure that any requests for donations are truthful about how funds or gifts will be used in your shelter.
Adding relevant information to your website: Be clear about the tax-exempt status of your organization on your website, and publish financial information, like recent IRS forms and completed audits. Also, consider publishing a list of the people serving on your board of directors for additional transparency.
Adopting an executive compensation policy: Ensure that your board of directors is made aware of the compensation for your executive director, and give them the ability to approve of this compensation on an annual basis.
Providing mandatory disclosures: Upon request, nonprofits are required to provide copies of their three most recently filed annual information returns and their application for tax-exemption to the public or the government. Ensure that you respond to requests for this information in a timely manner.
3. Financial Transparency With Your Employees
Finally, it’s important to be transparent with the people who are on the ground, doing the hard work of keeping your shelter running. We’ve talked a lot about staff mental health and the measures you can take to support them, and accountability and transparency is an important piece of that. By trusting your staff with financial information, you’re telling them that you trust them and value their insights. Help your staff to feel more connected to your mission by:
Communicating about financials: Share the contents of your budgeting plan with staff during staff meetings. Be candid with staff about your organization’s financial health, and let them know how you plan to use your financial resources for new programming, renovations, or wages.
Embracing staff input: Beyond just communicating with staff about finances, you might consider allowing them to play an active role in planning how funding is used. Staff are intimately involved in the day-to-day running of your shelter, and they have a unique perspective that you might not get from your board or upper-level management.
Your employees are the lifeblood of your shelter, and the effort to make them feel valued and involved is well worth it.
Feeling Overwhelmed By Finances?
Maybe you’re struggling with financial accountability because, try as you might, you just can’t get a handle on your organization’s financial health. Sometimes, it can help to outsource to somebody who can see the bigger picture. If you’re not sure where to go from here, consider hiring an auditor or enlisting the help of an animal shelter consultant.
Laurie Lawless is an expert at the big-picture aspects of shelter management. By helping shelters to get a handle on things like finances and operations, Laurie helps them to re-center behavior in their shelter management practices. Check out the Shelter Behavior Integrations (SBI) website to learn more about Laurie, access her services, and view her educational materials.
