We love this article from Vu Le about the harm caused by individually-tailored financial reports and certain funder interpretations of nonprofit ‘transparency’. Check out the full article and subscribe to the Nonprofit AF newsletter here!
“For decades, our sector has had this refrain: “Donors and funders deserve transparency. They have a right to know how nonprofits spend their donations and the outcomes they achieved.” Many of us agree with this, including me. Yes, nonprofits should be transparent. They need to report their revenues, expenses, program activities, and the results of their work. And most nonprofits do, as required by law. In the US nonprofits are legally required to file 990 tax forms each year. Most orgs release annual reports. Throughout the year they also let people know what they’ve been up to, using newsletters and other forms of communication.
The challenge is that for some reason the above level of transparency is not enough, and we’ve all convinced ourselves that not only do donors and funders deserve to know specifically how the dollars they contributed were spent and what outcomes could be personally attributed to them, but also that this somehow makes sense.
Let’s talk about financial reports. One time I spent 15 hours trying to dissect out how much my organization was spending on each line item on a $75,000 grant. Since the funder had a different chart of account than us, we first had recategorize our line items to match theirs. Then they also had a different fiscal year, so they only wanted a report on the expenses that fell in their particular fiscal year.
They wanted to know, among other line items, of the $890 we spent on postage that year, how much of their 75K was spent, but only from beginning of September to end of August. $172.28, I recall, according to my calculations using Excel formulas, the help of a staff member who loved sudoku, and some light dabbling in the arcane arts, which I can’t really talk about, but it did involve a bit of beet juice as a vegan substitute for chicken blood.
I’m going to call this accounting that requires disaggregating out expenses based on who contributed what: Donor-Adjacent Financial Tracking (DAFT). DAFT has been so prevalent in our sector that we’ve just all taken it at face value. Many funders seem fully bought into this, as evidenced by the constant silly, aggravating, and pointless financial reporting, like the above, that they force nonprofits to do.
The same goes for outcomes. One funder not only requested a breakdown of how my organization spent $25,000, but also what outcomes their $25,000 achieved. “Please explain what outcomes were specifically attributable to the grant fund that we allocated to your organization” they wrote on the grant report instructions. This was followed up with “Please also indicate what outcomes you achieved that were NOT attributable to the funds we gave your organization.” I wept softly into my lunch: a container of hummus and some raw cauliflower florets, leftovers from a prior community event (Cauliflower florets are always the least popular!)
These examples seem extreme. But this sort of thinking—that individual expenses and outcomes can be attributed to individual donors and funders—is pervasive in our sector, manifesting in various degrees, and so we’ve all just accepted it as normal. Most funders will think it’s perfectly fine, even best-practice, to ask a nonprofit to parse out what their 10K or 100K specifically accomplished, and to do it on the funder’s own timeline, and not what timeline makes sense for the nonprofit’s programs and services and fiscal year.
Can you imagine if for-profits are expected to do this? Picture someone going to a store to buy a laptop:
Customer: “Here’s $750 for my laptop. At the end of the year, I want to know how you spent the $750 I gave you and how it helped your bottom line.”
Cashier: “Uh, we’re a publicly traded company, and in the US the SEC requires that we file financial reports every quarter, as well as file annual and 10-Q and 10-K reports. You’re more than welcome to those reports.”
Customer: “No, bro, I need a detailed report of how much of my specific $750 you spent on each line item. For instance, of the $750, how much went to your rent, how much to your CEO’s salary, etc. And also how my $750 affected your stock price.”
It’s time to admit that this is a delusion, a charade we’ve all be upholding. And a destructive one.
Imagine you have a garden and you’re trying to grow food to feed hungry people. Water is necessary for the crops to grow, but it is precious and hoarded by people, so you have to go and ask various people to contribute a few liters here and there. Someone gives you a liter of water and you add it to your watering can, and then you water your raised bed. After a few days, this person turns to you and asks, “Uh, which plants did you water with the liter of water I gave you and by how many ounces each? Also, how many people did my one specific liter of water help feed?”
Because of the power dynamics and the fear of offending this person who contributed a liter of water, you say, “Oh, we spent 15 hours calculating it, and you watered the carrots 2 ounces, the spinach 7 ounces, the corn 14 ounces,” etc., followed by “And your generous contribution kept 4 and a half people fed for 6 meals.”
How is that normal? How did we get here? If we want to be brutally honest, the answer to the above question should be “Who cares?! There’s barely enough water to keep these plants alive, and if we don’t get more, these crops will die and people will starve! Can we focus on making sure these plants are growing and feeding the community, please?! We’re trying to help hungry families, and you’re asking inane questions, YOU ABSOLUTE NUMPTY!”
Besides the significant amount of time it wastes and the aggravation it causes, this delusional line of thinking reinforces the toxic individualism underlying many of the issues we’re trying to address. Many of the problems we’re tackling stem from the lack of communal thinking among people, especially people with wealth and privilege. We should be encouraging everyone to think they’re contributing collectively to making the world better. Instead, our practices force people into transactional, individualistic mindsets, where their need to feel some sense of agency weighs more heavily than what is best for the entire community.
So, yes, donors, funders, and the public in general are entitled to transparency in nonprofits. But that is what annual reports, tax reports, newsletters, and other communications are for. Through these publicly available documents, everyone can see how much revenues nonprofits receive, how they’re spending it, and toward what outcomes.
NO ONE—whether a funder or a donor, of ANY amount—deserves their own special snowflake report about how their specific contribution was deployed or what it achieved, just like no retail customer or stock investor deserves their own accounting of how their money or investment was deployed. (And don’t argue with me about “customers and investors get a product or service whereas donors and funders get nothing, so you need to put up with these rules, no matter how nonsensical.” That’s bullshit; they get outcomes, including a stronger, better society to live in.)
It’s time we put a stop to this and realize that when we donate to or provide a grant to a nonprofit, we are contributing to a collective body of work, and that it is pointless and morally unjustifiable to spend time and energy parsing out individual agency when there is more vital work to attend to.
Funders: There’s been some conversations over the years about how to make the grant reporting process better for grantees. The answer is simple: Stop expecting grantees to write you a report at all. Instead, accept their annual reports, 990, balance sheets, and other general documents, and move on. You do not deserve your own special snowflake outcomes and financial report tailored to your grant based on your timeline. Give General Operating funds, cut through the time-wasting, ego-driven bureaucracy, and let your grantees do their work.
Donors: For years nonprofits have been trained to make you believe you have direct impact in their work and outcomes. This is an illusion we’ve woven because we know that making you believe you have some agency in making the world better means that you will keep donating. But it is an illusion. Your $500 or $5,000 cannot accomplish anything on their own. It takes all of us—staff, volunteers, other donors, funders, board members—along with other resources, to make things happen. You are an important part of it, and your contributions matter. But please stop asking how specifically your contributions helped, because the answer is that your donations went into nonprofits’ bank accounts, and we used it to carry out the mission. Towards what end? Read the annual report.
Nonprofits: Remove all opportunities for donors and funders to place restrictions on you. For example, stop listing on your website the opportunities for donors to choose which programs or category of expense their donations will go to, and put language saying all donations will go towards carrying out the organization’s mission. Please also stop putting prices on outputs and outcomes and reinforcing transactional and individualistic thinking. Saying something like “Your $500 provided 50 meals for 10 hungry families” may help (falsely) illustrate to donors what they paid for and makes them eager to donate, but it reinforces a line of thinking that ultimately harms our work. Instead, try “Your $500 contributed to us being able to support over 400 families this year.” Doesn’t that sound better?
Let’s all move out of this individualistic mindset and start believing we are collectively helping to make the world better, that the water we each contribute, no matter the amount, is used to water all plants, and we have a part to play in effecting all outcomes. That’s how we will create a vibrant, healthy garden that nourishes all of us.
And hopefully with more than just cauliflower.“