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Transparency Required under ECFA’s Standards in Addition to Disclosures Required by Federal Law

Federal law requires charities to disclose Forms 1023, 990, 990-T and 5227 when requests are made in person or in writing.

ECFA’s Standard 5 goes beyond federal regulation in that it states:

Standard 5 – Transparency – “Every organization shall provide a copy of its current financial statements upon written request and shall provide other disclosures as the law may require. The financial statements required to comply with Standard 3 must be disclosed under this standard.

An organization must provide a report, upon written request, including financial information on any specific project for which it sought or is seeking gifts.”

Disclosure of financial statements. The standard states that “every organization shall provide” its financial statements. A complete set of financial statements must be provided, including the auditor’s report, all financial statements, and notes to the financial statements. A management or comment letter is not included in the definition of financial statements.

Under this standard, an organization has no authority to determine the parameters of meeting the requirement, unless an exception later described herein applies. Compliance with this standard is a condition of continued ECFA accreditation in good standing.

The words “shall provide” clearly set forth the mandatory nature of this standard’s requirement. Its language is not permissive in scope and does not merely provide a “guide” for a form of public accountability. Rather, this standard requires the organization to provide its financial statements.

The use of the word “provide” in the drafting of the standard is intentional. The sense of the word is “to supply,” “to furnish,” or “to give.” Merely making a current financial report available for inspection at the organization’s headquarters or financial office is not sufficient. Restricting availability or charging a fee before providing a report discourages access. These restrictive practices are inconsistent with the standard’s underlying policy and philosophy.

ECFA Standard 3 requires each organization to submit complete and accurate financial statements.

ECFA Standard 5 requires the disclosure of the current financial statements, complete with the CPA’s opinion and notes. Summaries of financial statements contained in newsletters, brochures, or promotional literature do not satisfy the requirement of Standard 5. However, if the financial report as defined under Standard 3 is part of a larger report, such as the organization’s annual report or a book of annual reports of affiliated or associated organizations, providing such a document puts the organization in compliance with Standard 5.

An organization is not required to comply with a request for a copy of its financial statements if it has made the document “widely available,” the organization is subject to a harassment campaign, or the request is part of a broad, general data-gathering request:

  1. Widely available. Financial statements are “widely available” if they are posted in their entirety on a website that the organization establishes and maintains; or if posted on a website established and maintained by another entity as part of a database of similar documents of other tax-exempt organizations. If the organization has made its financial statements widely available, it must inform any individual requesting a copy where the document is available, including the URL address of the website.

    The following requirements must be met:

    1. The website must clearly inform the reader that the document is available and provide instructions for downloading.

    2. The document is posted in a format that, when downloaded, viewed, and printed, exactly reproduces the image of the financial statements in their entirety (including footnotes to the financial statements).

    3. Any individual with access to the Internet can access, download, view, and print the document without special computer hardware or software and without payment of a fee to the exempt organization or the entity maintaining the website.

    4. If an individual indicates he or she does not have Internet access, the organization should provide a hard copy of the financial statements as a matter of courtesy.

  2. Harassment campaign.  An organization may be exempted from the requirement to provide a copy of its financial statement if ECFA determines that the organization is the subject of a harassment campaign, the requester is part of that campaign, and compliance with requests that are part of that campaign are not in the public interest.

    What constitutes harassment? A group of requests for an organization’s documents is indicative of a harassment campaign if the requests are part of a single, coordinated effort meant to disrupt the operations of the organization rather than to collect information about the organization.

  3. Broad, general data-gathering request.  An organization may be exempted from the requirement to provide a copy of its financial statements if ECFA determines that there is a broad, general data-gathering request for financial statements and the requestor to the organization is participating in that data-gathering request.

    The standard does not require an organization to provide its financial statements except on the basis of a written request. Although an organization may choose to furnish a copy of its financial statements to someone requesting it otherwise, it is not required by the standard.

    The standard requires that the financial statements be furnished “upon written request.” This includes those requests delivered by mail; e-mail; facsimile; a private delivery service to a principal, regional, or district office of the organization; or during a visit to an organization.

    Organizations are required to respond to such requests within a reasonable time, avoiding undue delay in furnishing a copy of the financial statements. If for some reason the organization cannot immediately provide a copy of its financial statements, it should inform the requester in writing as to when the requested material can be sent. The organization should then furnish the financial statements as quickly as possible.

  4. Project reporting.  The standard provides that “on written request,” every accredited organization “must provide a report, including financial information, on any specific project for which it sought or is seeking gifts.” Project reports communicate project results to donors and are a further evidence of the ministry’s accountability.

    A “project” generally occurs when a donor places a restriction on a gift as to purpose, or a ministry accepts contributions that are solicited for a specific area of ministry, such as a program or project. Solicitation for project-related gifts may occur via fundraising events, through direct mail, Internet solicitation, by radio or television, and in other ways.

    Unrestricted contributions have no implicit or explicit time or donor restrictions and are available to be used at any time and in any exempt area or operation of the organization. Therefore, project reporting does not apply to unrestricted gifts.

    The primary responsibility for project reporting is to a charity’s donors. Any information that is shared with individuals who have not donated to a certain project may be appropriate, but it is not required as a commitment to financial accountability. That commitment is fulfilled by sharing the financial statements with all who request them.

    The project report should include the amount of donated income, the costs related to administering the project, and the amounts that went directly to the project for which the solicitation was held. Any unusual items related to income or disbursements should be identified and explained. Though audited financial statements provide overall financial data for the reporting period, they are not intended to provide data on specific projects. So, in addition to financial reports, project accomplishments should be shared with the donor. This may include both short-term and long-range results of project gifts.

    The appropriate style of the project report depends on various factors. If the donor’s request is in writing, a written response is appropriate. If the request is made by telephone, a verbal response may be adequate. Some charities may post project information on their website to reduce the need to provide written and verbal responses. If the project reporting is made “widely available” or the organization is subject to a “harassment campaign” or “broad, general data-gathering request” (see earlier discussion), the organization is not required to comply with a request for a copy of the project report.

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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