February 24, 2015

Burning Man Becomes Unlikely Leader in Financial Transparency

Philipp Schwartz/Splash News/Newscom

The Burning Man Project is a new nonprofit that is trying to spread around the world the open culture associated with the famous Nevada desert gathering that bears its name.

Though the organization is no stranger to publicity and controversy, it has also proved itself a model in open financial reporting—one that more nonprofits should follow.

Most people know about Burning Man’s attempt every year to build a communal city dedicated to "community, art, self-expression, and self-reliance."

While Burning Man is typically seen as a gathering place for today’s hippies, the spirit of self-expression it represents has also played out in astounding ways, such as billionaires spending their fortunes to create elaborate tents featuring top chefs and sleek models being paid to provide entertainment.

Other than in its nod to free expression, Burning Man is not an obvious candidate as an exemplar of financial transparency, as it faces no serious external pressure to make information openly available. It relies little on donors; it is a relatively small organization; its audience is an eclectic group of people, many of whom regard accounting as anathema; and its activities intentionally avoid polarizing or political labeling.

Burning Man could easily have blended into the fray by providing only the required regulatory information. But it has chosen to blaze a different path.

The organization’s most recent Form 990, which reflects the completion of a three-year transition to nonprofit status, epitomizes Burning Man’s commitment to transparency.

Its leaders, who decided that being a nonprofit entity was more in keeping with the organization’s mission, did not fill out the financial forms in a way that merely complies with the law. Instead, they went out of their way to provide additional details, particularly in regard to transactions with insiders and other items stemming from its reorganization.

In other words, they did not avoid the tough issues, but took advantage of opportunities to explain them. What’s more, they made sure not to make the report an information dump, but an attempt to fully explain the organization’s methods, intentions, and projections for the future.

Importantly, Burning Man’s Form 990 marks the beginning, rather than the end, of the organization’s efforts to communicate with the public about its finances. The organization prominently posted on its website a discussion about its finances and answers to frequently asked questions.

This effort covers the range of issues an interested reader might want to know, including:

  • What a Form 990 is and how to read and interpret it.
  • Why the organization decided to change its status to a nonprofit.
  • What transactions were involved in that transition.
  • What operations the organization has completed or intends to complete going forward, and how that is likely to be reflected in financial statements.

It is hard to read through the materials provided by Burning Man without viewing them as constituting a genuine effort at educating the general public about where the organization has been and where it is going, at least financially speaking.

I heap this praise on the organization not because I think it or the operating choices it has made are wise; to comment on these aspects of the organization would only obscure the point.

Instead, I am emphasizing that the group’s decision to provide a wealth of information and seek ways to make it understandable to those who are not accountants or lawyers is commendable. The move is particularly noteworthy because Burning Man’s openness is likely to invite more, not less, scrutiny of its actions by its detractors.

To this end, I note how the organization’s approach contrasts with the usual way in which financial information is disclosed.

Nonprofits rely on guidance from regulators and watchdogs on what information to make public. Regulators and watchdogs, in turn, confirm that a nonprofit has followed the rules. They do this by relying on checklists to classify organizations based on their transparency, rather than rewarding the more amorphous goal of free and open expression.

When organizations go beyond the basic reporting requirements, the results are mixed.

Guidestar and GiveWell deserve credit for seeking clear and open communication. But far more common are organizations that supplement basic requirements by offering cherry-picked financial information that conveys an incomplete, if not misleading, view of their operations.

Take, for instance, the American Red Cross, which NPR and Pro Publica revealed has repeatedly tried to show that it spends 91 cents of every donated dollar on programs, without providing specific financial backup of the claim. Sadly, the charity is hardly the only one making such questionable claims.

Many organizations tout the share of donations that goes to programs without mentioning that such expenses may be devoted chiefly to "awareness" advertising . Other charities that rely heavily on telemarketers to raise funds bury their high fees by classifying them as part of public-education efforts. Meanwhile, many aid groups accept donated supplies only tangentially related to their mission or operations to create an outsized appearance of impact.

To put it mildly, things shouldn’t be this way. Nonprofits are supposed to serve the public good, and they rely on the trust of donors who volunteer to support their causes and the indirect support of taxpayers who subsidize their tax-exempt status. That’s why charities should be eager and encouraged to meet a higher standard when it comes to accountability and transparency.

So, while some may use Burning Man’s open and clear communication as an opportunity to question the organization’s operations, the group should nonetheless be admired and congratulated for its transparency.

I sincerely hope that these new and added efforts to generate effective disclosure mark the beginning of a new era of transparency, both for Burning Man and the rest of the nonprofit world. All nonprofit leaders can benefit from taking a close look at Burning Man. Doing so may prove enlightening.

Brian Mittendorf is a professor of accounting at Ohio State University’s Fisher School of Business.