Environmental, Social & Governance Briefs

Should Nonprofits Be Required To Publicly Disclose Their Donors?

November 04, 2019

Recent scandals surrounding nonprofit organizations’ acceptance of financial contributions from controversial donors have placed a spotlight on when and how these organizations disclose their financial backers to the public as well as the tension in the nonprofit community between the privacy of valuable donors and the public’s need for transparency.

With rare exceptions, nonprofit organizations are not required to disclose the names of their donors to the public. It’s true that most nonprofit, tax exempt organizations in the United States are required to file tax returns annually, which include a list of all donors who contribute more than $5,000 in a tax year, but this listing is not made public by the Internal Revenue Service. Similarly, the Code of Ethical Standards for the Association of Fundraising Professionals (AFP) does not include a duty of nonprofits to disclose the names of their donors.

In fact, it’s quite the opposite.

While AFP’s 33-page Code of Ethical Principles and Standards of Professional Practice contains a number of standards that require adherence to the mission and values of their institutions (e.g., "Members shall not engage in activities that harm the members’ organization, clients, or profession" and "Members shall not engage in activities that conflict with their fiduciary, ethical, and legal obligations to their organizations and clients"), the Code makes great effort to protect the privacy and anonymity of an institution’s donors.

Standard 12 states: "Members shall not disclose privileged or confidential information to unauthorized parties." Under the guidelines issued on this Standard, members must honor and protect donors’ right to anonymity, and balance the obligation of their organizations to collect, record, and make public information with the right of prospective donors and donors to privacy.

But, is this the right approach for organizations who are formed for the public benefit and are exempt from paying taxes on their income as a result?

I posed this question to a small group of nonprofit leaders recently and heard both sides of the issue. Some stated that they disclose all their donors unequivocally, and do not accept anonymous contributions. Others respect the right of donors to be private, and worried that some donors might shy away from supporting their organizations if their gifts were made public.

One leader told me that some donors simply don’t want to be inundated with similar requests from other nonprofit organizations, preferring to stay anonymous and less hassled. With over one million nonprofit, tax exempt organizations operating (and soliciting funds) in the United States alone, one can sympathize with this position.

Who’s right? Should the right of the public to know who is sustaining our nonprofit organizations financially outweigh the right of individuals and institutions to privacy? Should fundraising professionals be obligated to choose one party over another?

One way to resolve this issue might be to make the IRS Form 990, Schedule B (Schedule of Contributors) public information. The IRS already collects this information (which doesn’t accept anonymous entries), and it already releases other parts of the tax form to the public. So, why not Schedule B?

Many nonprofit organizations already disclose the names of their donors in annual reports and other publications, and they already have to be thorough and truthful in their tax returns. So, if an individual donor really wants to stay anonymous, they can give to a third party like a United Way or community foundation that aggregates gifts and then makes grants to other nonprofit entities.

It seems a small price to pay to maintain the integrity of our nonprofit community while balancing the needs of the public and private donors. And, it might make it easier for fundraisers to fulfill the primary directive spelled out in their Code of Ethics to “practice their profession with integrity, honesty, truthfulness and adherence to the absolute obligation to safeguard the public trust.”

This piece was originally published by CSR Now!