Preface
The Better Business Bureau Standards for Charity
Accountability
were developed to assist donors in making sound giving decisions and to
foster public confidence in charitable organizations. The standards
seek to encourage fair and honest solicitation practices, to promote
ethical conduct by charitable organizations and to advance support of
philanthropy.
These standards replace the separate standards of the National
Charities Information Bureau and the Council of Better Business
Bureaus’ Foundation and its Philanthropic Advisory Service that were in
place at the time the organizations merged.
The Standards for Charity Accountability were
developed with professional and technical assistance from
representatives of small and large charitable organizations, the
accounting profession, grant
making foundations, corporate contributions officers, regulatory
agencies, research organizations and the Better Business Bureau system.
Organizations that comply with these accountability
standards have provided documentation that they meet basic standards
- In how they govern their organization,
- In the ways they spend their money,
- In the truthfulness of their representations, and
- In their willingness to disclose basic
information to the public.
These standards apply to publicly soliciting organizations
that are tax exempt under section 501(c)(3) of the Internal Revenue Code and to
other organizations conducting charitable solicitations. The standards are not
intended to apply to private foundations, as they do not solicit contributions
from the public.
The overarching principle of the Better Business Bureau Standards
for Charity Accountability is full disclosure to donors and potential
donors at the time of solicitation and thereafter. However, where indicated,
the standards recommend ethical practices beyond the act of disclosure in order
to ensure public confidence and encourage giving. As voluntary standards, they
also go beyond the requirements of local, state and federal laws and
regulations.
In addition to the specific areas addressed in the
standards, the Better Business Bureau encourages charitable organizations to
adopt the following management practices to further the cause of charitable
accountability.
- Initiate
a policy promoting pluralism and diversity within the organization’s
board, staff, and constituencies. While organizations vary widely in their
ability to demonstrate pluralism and diversity, every organization should
establish a policy, consistent with its mission statement that fosters
such inclusiveness.
- Ensure
adherence to all applicable local, state and federal laws and regulations
including submission of financial information.
- Maintain
an organizational adherence to the specific standards cited below. The
Better Business Bureau also encourages charities to maintain an
organizational commitment to accountability that transcends specific
standards and places a priority on openness and ethical behavior in the
charity’s programs and activities.
Governance and Oversight
The governing board has the ultimate oversight authority
for any charitable organization. This section of the standard seeks to ensure
that the volunteer board is active, independent and free of self-dealing. To
meet these standards, the organization shall have:
1. A board of directors that provides adequate oversight
of the charity’s operations and its staff. Indication of adequate oversight
includes, but is not limited to, regularly scheduled appraisals of the CEO’s
performance, evidence of disbursement controls such as board approval of the
budget and fund raising practices, establishment of a conflict of interest
policy, and establishment of accounting procedures sufficient to safeguard
charity finances.
2. A board of directors with a minimum of five
voting members.
3. A minimum of three evenly spaced meetings per year of
the full governing body with a majority in attendance, with face-to-face
participation. A conference call of
the full board can substitute for one of the three meetings of the governing
body. For all meetings, alternative modes of participation are acceptable for
those with physical disabilities.
4. Not more than one or 10% (whichever is greater)
directly or indirectly compensated person(s) serving as voting member(s) of the
board. Compensated members shall not serve as the board’s chair or treasurer.
5. No transaction(s) in which any board or staff members
have material conflicting interests with the charity resulting from any
relationship or business affiliation. Factors
that will be considered when concluding whether or not a related party
transaction constitutes a conflict of interest and if such a conflict is
material, include, but are not limited to: any arm’s length procedures
established by the charity; the size of the transaction relative to like
expenses of the charity; whether the interested party participated in the board
vote on the transaction; if competitive bids were sought and whether the
transaction is one-time, recurring or ongoing.
Measuring Effectiveness
An organization should regularly assess its effectiveness
in achieving its mission. This section seeks to ensure that an organization has
defined, measurable goals and objectives in place and a defined process in
place to evaluate the success and impact of its program(s) in fulfilling the
goals and objectives of the organization and that also identifies ways to
address any deficiencies. To meet these guidelines, a charitable organization
shall:
6. Have a board policy of assessing, no less than every
two years, the organization’s performance and effectiveness and of determining
future actions required to achieve its mission.
7. Submit to the organization’s governing body, for its
approval, a written report that outlines the results of the aforementioned
performance and effectiveness assessment and recommendations for future
actions.
Finances
This section of the standards seeks to ensure that the
charity spends its funds honestly, prudently and in accordance with statements
made in fund raising appeals. To meet these standards, the charitable
organization shall:
8. Spend at least 65% of its total expenses on
program activities.
9. Spend no more than 35% of related contributions
on fund raising. Related contributions include donations, legacies, and
other gifts received as a result of fund raising efforts.
10. Avoid accumulating funds that could be used for
current program activities. To meet this standard, the charity’s
unrestricted net assets available for use should not be more than three
times the size of the past year’s expenses or three times the size of
the current year’s budget, whichever is higher.
An organization that does not meet Standards 8, 9 and/or
10 may provide evidence to demonstrate that its use of funds is
reasonable. The higher fund raising and administrative
costs of a newly created organization, donor restrictions on the use of
funds, exceptional bequests, a stigma associated with a cause, and
environmental or
political events beyond an organization’s control are among factors
which may result in expenditures that are reasonable although they do
not meet the financial measures cited in these standards.
11. Make available to all, on request, complete
annual financial statements prepared in accordance with generally accepted
accounting principles. When total annual gross income exceeds $250,000,
these statements should be audited in accordance with generally accepted
auditing standards. For charities whose annual gross income is less than
$250,000, a review by a certified public accountant is sufficient to meet this
standard. For charities whose annual gross income is less than $100,000, an
internally produced, complete financial statement is sufficient to meet this
standard.
12. Include in the financial statements a
breakdown of expenses (e.g., salaries, travel, postage, etc.) that shows what
portion of these expenses was allocated to program, fund raising, and
administrative activities. If the charity has more than one major program
category, the schedule should provide a breakdown for each category.
13. Accurately report the charity’s expenses,
including any joint cost allocations, in its financial statements. For
example, audited or unaudited statements which inaccurately claim zero fund
raising expenses or otherwise understate the amount a charity spends on fund
raising, and/or overstate the amount it spends on programs will not meet this
standard.
14. Have a board-approved annual budget for its current fiscal
year, outlining projected expenses for major program activities, fund
raising, and administration.
Fund Raising and Informational Materials
A fund raising appeal
is often the only contact a donor has with a charity and may be the
sole impetus for giving. This section of the standards seeks to ensure
that a charity’s representations to the public are accurate, complete
and respectful. To meet these standards, the charitable organization
shall:
15. Have solicitations and informational materials, distributed
by any means, that are accurate, truthful and not misleading, both in
whole and in part. Appeals that omit a clear description of program(s)
for which contributions are sought will not meet this standard.
A charity should also be
able to substantiate that the timing and nature of its expenditures are in
accordance with what is stated, expressed, or implied in the charity’s
solicitations.
16. Have an annual report available to all, on request,
that includes:
(a) the organization’s mission statement,
(b) a summary of the past year’s program service
accomplishments,
(c) a roster of the officers and members of the board of
directors,
(d) financial information that includes (i) total income
in the past fiscal year,
(ii) expenses
in the same program, fund raising and administrative
categories as
in the financial statements, and (iii) ending net assets.
17. Include on any charity websites that solicit
contributions, the same information that is recommended for annual reports, as
well as the mailing address of the charity and electronic access to its most
recent IRS Form 990.
18. Address privacy concerns of donors by
(a) providing in written appeals, at least annually, a means
(e.g., such as a check off box) for both new and continuing donors to
inform the charity if they do not want their name and address shared
outside the organization, and
(b) providing a clear, prominent and
easily accessible privacy policy on any of its websites that tells
visitors (i) what information, if any, is being collected about them by
the charity and how this information will be used, (ii) how to contact
the charity to review personal information collected and request
corrections, (iii) how to inform the charity (e.g., a check off box)
that the visitor does not wish his/her personal information to be
shared outside the organization, and (iv) what security measures the
charity has in place to protect personal information.
19.
Clearly disclose how the charity benefits from the sale of products or
services (i.e., cause-related marketing) that state or imply that a
charity will benefit from a consumer sale or transaction. Such
promotions should disclose, at the point of solicitation:
(a) the actual or anticipated portion of the purchase
price that will benefit the charity (e.g., 5 cents will be contributed to abc charity for every xyz company product sold),
(b) the duration of the campaign (e.g., the month of
October),
(c) any maximum or guaranteed minimum contribution amount (e.g., up to a maximum of $200,000).
Comply with BBB Regarding Complaints
20. Respond promptly to and act on complaints brought to its
attention by the Better Business Bureau Serving Metro NY about fund
raising practices, privacy policy violations and/or other issues.