Financial Disclosure
"Every member shall provide a copy of its current financial statements upon written request and provide other disclosures as the law may require. The financial statements required to comply with Standard 3 must be disclosed under this Standard. A member must provide a report, on written request, including financial information, on the specific project for which it is soliciting gifts."
One of the complexities of ECFA member organizations is that they operate in both a public forum of fund-raising, charitable and educational activities, and in a church forum of the community of faith. Therefore, in a sense, they must render an account of their services and activities in a manner consistent with the accounting given by non-evangelical organizations and, except as may be exempted by law, to the same authorities and the public. They must also conduct themselves and give an account to their respective constituencies in accordance with biblically informed practices of integrity and accountability.
For the evangelical organization, the question often arises as to whether or not a person or organization must—at all times and under all circumstances—tell the truth to all persons in word and deed, when asked and even when not asked. In the Old Testament, "truth" ties together such concepts as personality and objectivity, integrity and reliability, and the character of people or organizations. Moral integrity, both as it relates to facts and principles, should be our concern as we present ourselves to other Christians and to the secular world. In John’s account of Jesus' arrest and trial before the high priest, the high priest questions Jesus about His disciples and teaching. To this Jesus responds:
I have spoken openly to the world . . . I always taught in synagogues or at the temple, where all the Jews come together. I said nothing in secret. (John 18:20)
In speaking about his ministry and the purity and candor of his ministerial conduct, the Apostle Paul says:
Therefore, since through God's mercy we have this ministry, we do not lose heart. Rather, we have renounced secret and shameful ways; we do not use deception, nor do we distort the word of God. On the contrary, by setting forth the truth plainly we commend ourselves to every man's conscience in the sight of God. (2 Corinthians 4:1-2)
It is evident from the context of this epistle that Paul speaks not out of concern for his own reputation, but rather contrasts himself and other Christians with others whose behavior has been inconsistent with their claim to be ministers of Christ. He does not want his ministry to be marked by subterfuge, self-interest, and deceit. His ministry is openly displayed in such a manner that no one can second-guess him or question the sincerity or genuineness of his motives. Moreover, he not only appeals and commends himself to every man’s conscience, but he does so before God. Therefore, he emphasizes a higher scrutiny than that of human conscience; namely, that it is to God that every ministry is ultimately and eternally answerable.
Paul is concerned not only for his own ministry and conduct. In writing to Titus, he addresses his concern for the kind of ministry Titus should exemplify.
In everything set them an example by doing what is good. In your teaching show integrity, seriousness and soundness of speech that cannot be condemned, so that those who oppose you may be ashamed because they have nothing bad to say about us. (Titus 2:7-8)
Titus must show incorruptibility. He must do so in order to keep opponents from pressing formal charges against him or spreading malicious gossip about him. Because of his irreproachable conduct, he can completely disprove any insinuations or accusations aimed against him. This is even more important when the accusations and antagonism are directed not against Titus as an individual, but as a disciple of Christ and, therefore, against Christ Himself.
Financial disclosure is not only an accepted, expected, and perhaps required form of accountability in society at large, but it also represents an even higher standard of openness and example for Christian organizations operating in the forum of the Church. It may be true to assert that the public disclosure of financial information is required, in part, to protect the donor public. While this is the reason most often given to justify governmental regulation, the reputation of the Christian ministry in general is at stake.
Public disclosure protects Christian ministry from the danger of claiming ownership of God's gifts. It also protects us from the temptation to make assets and the acquisition thereof our lasting companion and goal.
Furthermore, the availability of financial statements promotes responsible Christian stewardship as donors seek, in a practical and tangible way, to make monetary investments in the work of the Kingdom. Simply put, Christian organizations provide current financial statements to anyone who submits a written request for them because it is the right thing to do.
I have spoken openly to the world . . . I always taught in synagogues or at the temple, where all the Jews come together. I said nothing in secret. (John 18:20)
In speaking about his ministry and the purity and candor of his ministerial conduct, the Apostle Paul says:
Therefore, since through God's mercy we have this ministry, we do not lose heart. Rather, we have renounced secret and shameful ways; we do not use deception, nor do we distort the word of God. On the contrary, by setting forth the truth plainly we commend ourselves to every man's conscience in the sight of God. (2 Corinthians 4:1-2)
It is evident from the context of this epistle that Paul speaks not out of concern for his own reputation, but rather contrasts himself and other Christians with others whose behavior has been inconsistent with their claim to be ministers of Christ. He does not want his ministry to be marked by subterfuge, self-interest, and deceit. His ministry is openly displayed in such a manner that no one can second-guess him or question the sincerity or genuineness of his motives. Moreover, he not only appeals and commends himself to every man’s conscience, but he does so before God. Therefore, he emphasizes a higher scrutiny than that of human conscience; namely, that it is to God that every ministry is ultimately and eternally answerable.
Paul is concerned not only for his own ministry and conduct. In writing to Titus, he addresses his concern for the kind of ministry Titus should exemplify.
In everything set them an example by doing what is good. In your teaching show integrity, seriousness and soundness of speech that cannot be condemned, so that those who oppose you may be ashamed because they have nothing bad to say about us. (Titus 2:7-8)
Titus must show incorruptibility. He must do so in order to keep opponents from pressing formal charges against him or spreading malicious gossip about him. Because of his irreproachable conduct, he can completely disprove any insinuations or accusations aimed against him. This is even more important when the accusations and antagonism are directed not against Titus as an individual, but as a disciple of Christ and, therefore, against Christ Himself.
Financial disclosure is not only an accepted, expected, and perhaps required form of accountability in society at large, but it also represents an even higher standard of openness and example for Christian organizations operating in the forum of the Church. It may be true to assert that the public disclosure of financial information is required, in part, to protect the donor public. While this is the reason most often given to justify governmental regulation, the reputation of the Christian ministry in general is at stake.
Public disclosure protects Christian ministry from the danger of claiming ownership of God's gifts. It also protects us from the temptation to make assets and the acquisition thereof our lasting companion and goal.
Furthermore, the availability of financial statements promotes responsible Christian stewardship as donors seek, in a practical and tangible way, to make monetary investments in the work of the Kingdom. Simply put, Christian organizations provide current financial statements to anyone who submits a written request for them because it is the right thing to do.
Disclosure of financial statements. The Standard provides that "every member shall" provide its financial statements. A complete set of financial statements must be provided, including the CPA'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, a member organization has no authority to determine the parameters of meeting the requirement; i.e., denying access to any of its financial statements when an individual or another organization requests it. A member organization's compliance with this Standard is a condition of continued ECFA membership in good standing. The words "shall provide" clearly set forth the mandatory nature of this Standard’s requirement. The Standard's 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 words "shall provide" clearly set forth the mandatory nature of this Standard’s requirement. The Standard's 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 that each member is required to submit complete and accurate financial statements.
ECFA Standard 5 requires the disclosure of the current financial statements, complete with CPA's opinion and notes. Summaries of financial statements contained in newsletters, brochures, or promotional literature does 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, the organization is in compliance with Standard 5.
The Standard requires that the financial statement be sent or provided to anyone who submits a written request. The Standard lists no exceptions under which certain people, organizations, classes of people or organizations could be excluded from receiving the report. Therefore, a member organization is not justified in failing to provide a copy of its financial statements. The Standard's norm is disclosure to anyone seeking a copy of the financial statement.
A member is not required to comply with a request for a copy of its financial statement if it has made the document "widely available" or the member is subject to a harassment campaign:
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Widely available. Financial statements are "widely available" if they are posted in their entirety on an website that the member establishes and maintains; or if posted on an 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:
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The website must clearly inform the reader that the document is available and provide instructions for downloading.
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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).
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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.
If an individual indicates he or she does not have Internet access, the member should provide a hard copy of the financial statements as a matter of courtesy.
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Harassment campaign. An organization may be exempted from the requirement to provide a copy of its financial statement if ECFA determines that the member is the subject of a harassment campaign, the requester is part of that campaign, and compliance with requests that are part of that campaign would not be in the public interest.
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What constitutes harassment? A group of requests for a member’s documents is indicative of a harassment campaign if the requests are part of a single coordinated effort to disrupt the operations of the member rather than to collect information about the member.
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How does a member get a determination that it is the subject of a harassment campaign? The organization must apply for such a determination by submitting detailed information about the campaign to ECFA.
The Standard does not require a member organization to provide its financial statements except on the basis of a written request. Although a member organization may choose to furnish a copy of its financial statements to someone requesting it over the telephone, it is not required by the Standard.
The Standard requires that the financial statement be furnished "upon written request." "Written requests" includes those requests delivered by mail, electronic mail, facsimile, a private delivery service to a principal, regional or district office of the member organization or during a visit to a member organization.
Member 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.
Project reporting. The Standard provides that "on written request," every member "organization must provide a report, including financial information, on any specific project for which it is soliciting 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 time, or a ministry accepts contributions that are solicited with a time limitation or for a specific area of ministry, such as a program or project. Solicitation for project-related gifts may occur via fund-raising 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 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. Audited financial statements provide overall financial data for the reporting period but 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 generally 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 member is subject to a "harassment campaign" (see earlier discussion), a member is not required to comply with a request for a copy of the project report.
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.
Summary. Standard 5 can be summarized as fostering the following:
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A spirit of Christian stewardship over the resources God and donors have entrusted to us, intended for use to advance God’s Kingdom
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An attitude of openness concerning a member organization’s accountability of its stewardship
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A sense of humility and gratitude for the material blessings God has provided
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A desire to be an example of Christian integrity.
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