Building trustworthiness: How to maintain accountability as a nonprofit

You know the importance of your nonprofit’s work, down to the individual backend duties that make it possible. From an outsider’s perspective, however, your organization’s efforts may be less readily understood, especially for complex processes like financial management. That’s where transparency and accountability come in.

Nonprofit accountability is both a legal obligation and a core element of securing donations. Stakeholders must trust that your nonprofit works ethically and efficiently before being willing to give, volunteer or advocate for your cause. Additionally, public support is one of the key differentiators between public charities and private foundations, meaning that maintaining community trust is central to retaining your 501(c)(3) status.

Let’s review effective strategies for upholding nonprofit accountability and how to turn these practices into long-term credibility.

1. Establish clear internal controls

First things first: Is your nonprofit truly accountable? Before you try to convince the public of your credibility, look inward. Review your nonprofit’s policies and make sure you have the right checks and balances in place to hold your team accountable.

Strong internal controls ensure your team handles the organization’s programs, services and finances with integrity. If you’re lacking the right policies or practices, here are a few places to start:

• Segregate financial duties. Assigning different team members to authorize payments, record transactions and reconcile accounts minimizes errors and prevents the misuse of your nonprofit’s funds.
• Develop written policies. Provide guidelines for approving expenses, reimbursing transactions and other financial activities to ensure that all spending aligns with the organization’s mission.
• Schedule regular audits. Conduct independent audits frequently for an objective report on your nonprofit’s financial performance and plan for internal audits periodically to check in on your progress.

As your nonprofit’s operations become more complex, these controls should evolve alongside the organization’s growth. Such growth could also necessitate new investments to monitor compliance.

For example, you might use a CRM like Salesforce for nonprofits to reliably track donor relationships and contributions in a platform that integrates with your accounting software. You may also need external oversight from an outsourced compliance expert or professional bookkeeper to strengthen internal controls.

2. Keep impeccable financial records

Donors, stakeholders and the public expect your nonprofit to be meticulous with its funds. Proper bookkeeping proves that your organization pays close attention to its financial activities and uses reliable data to inform budgeting, IRS filings, strategic planning and other processes.

Here are a few ways your organization can improve its financial recordkeeping:

• Maintain documentation for all income and expenditures. According to Foundation Group’s nonprofit bookkeeping guide, this includes recording and categorizing each transaction and producing financial statements based on that data to provide an overview of your organization’s fiscal health.
• Use cloud-based accounting software tailored for nonprofit needs. The right tools provide built-in features to track donations and generate reports, enabling nonprofits to monitor compliance and export financial data as needed.
• Track restricted versus unrestricted funds accurately. Correctly categorizing types of revenue ensures your spending honors donors’ intents. Again, accounting software can help nonprofits separate funds in their records for aligned spending.

Financial records are especially powerful when paired with meaningful impact metrics, such as the number of people your program served or the tangible outcomes of your work. For example, you could tie a donor’s unrestricted gift of $50 to your nonprofit’s $5,000 investment in a program that delivered meals to 100 community members experiencing homelessness. This data shows the importance of donors’ contributions, transparency about your nonprofit’s spending and the impact both parties can make when you work together.

3. File Form 990 accurately and on time

The IRS Form 990 is a compliance requirement, meaning you’ll risk having your 501(c)(3) status revoked if you fail to file it. However, the document is also public. This means it can indicate transparency because the form details all your organization’s financial activities for the fiscal year.

You’re required to report several types of information on Form 990, including:

• Governance details, like the number of individuals employed by your organization or voting members in your governing body
• Revenue, including contributions, grants, investment income and other forms of revenue you receive
• Expenses such as employee salaries, fundraising fees and other costs your organization incurs
• Fund balances, which include total assets, total liabilities and net assets

Accurate bookkeeping is the first step in filing properly, because it equips you with the data needed for an accurate report. While your nonprofit may not promote this form on its social media accounts or other marketing platforms, the IRS does require public disclosure for a three-year period beginning with the due date of the return. Ensure you speak to your bookkeeper or accountant for the most up to date requirements*.

4. Educate and empower your board

As your nonprofit's governing body, the board of directors plays a pivotal role in maintaining and demonstrating accountability. A proactive board is like your nonprofit’s first line of defense against operational risks and reputational damage.

Equip board members with the knowledge and tools they need to govern effectively by:

• Providing annual training on fiduciary responsibilities
• Encouraging financial literacy, especially around budget and audit reviews
• Dispelling common myths related to complex transactions, like donor-advised funds (DAFs)
• Familiarizing board members with conflict-of-interest disclosures and annual statements
• Implementing self-assessments (Double the Donation recommends conducting annually at a minimum)

When the board of directors leads your nonprofit transparently, they’ll naturally guide the organization toward an overall culture of accountability.

Nonprofit accountability is a strategic asset that strengthens your organization’s reputation and as a result, stakeholder trust. In the end, accountability directly impacts your ability to fundraise and provide services, making it invaluable to your mission delivery.

When in doubt, consult a nonprofit finance or compliance expert who can partner with your nonprofit. With an arsenal of tools, expertise and best practices, your organization will be well-equipped to maintain accountability.

^{*This is for general informational purposes only and is not intended as legal advice. You should consult your own legal counsel and relevant IRS guidance to determine what is most appropriate for your specific business needs and circumstances.}