Variations in Overhead and Fundraising Efficiency Measures: The Influence of Size, Age, and Subsector (original) (raw)
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Two Approaches to Nonprofit Financial Ratios and the Implications for Managerial Incentives.
Nonprofits compete in donation markets for resources and are expected to report on the financial stewardship of the organization. Without a clear comparative signal to differentiate organizations in this resource market, simple financial ratios have been used as proxy measures of relative organizational efficiency. Two conceptual models can be applied to the use of these ratios: first, as dichotomous conformance thresholds that identify poor performers who are unable to meet some minimum standard, or second, as directly comparable scales of performance where more optimized ratios can be used to distinguish the best performers. These two different conceptual models imply two different managerial approaches and potential organizational outcomes. This research assesses the extent to which nonprofits that are evaluated by an external evaluator appear to use the ratios as thresholds to pass or as scales to optimize.
Understanding Management and General Expenses in Nonprofits
Annual Meeting of the Association for …, 2001
There has been growing coverage by the press and the accounting profession about how nonprofits report their management and general costs. There has also been growing attention by some donors, perhaps made most famously by claims by some donors that nothing should go to administration. While this area of nonprofit management has caught the attention of the public, it has largely escaped the research lens of scholars. This paper is a first step to understanding and explaining what management and general costs look like in the nonprofit sector and whether or not various institutional characteristics such as mission, size, age, sources of revenues, and/or accounting practices can help explain some of the variation in management and general expenses. We find that these institutional characteristics do matter quite a bit in explaining differences in management and general costs in nonprofits.
Public Administration Review, 2001
This article addresses the question of whether operational efficiency is recognized and rewarded by the private funders that support nonprofit organizations in fields ranging from education to social service to arts and beyond. Looking at the administrative efficiency and fundraising results of a large sample of nonprofit organizations over an 11 year period, we find that nonprofits that position themselves as cost efficient-reporting low administrative to total expense ratios-fared no better over time than less efficient appearing organizations in the market for individuals, foundations, and corporate contributions. From this analysis, we suggest that economizing may not always be the best strategy in the nonprofit sector.
Enhancing Efficiency at Nonprofits with Analysis and Disclosure
Columbia Journal of Tax Law, 2020
The U.S. nonprofit sector spends $2.54 trillion each year. If the sector were a country, it would have the eighth largest economy in the world, ahead of Brazil, Italy, Canada, and Russia. The government provides nonprofits with billions in tax subsidies, but instead of evaluating the quality of their work, it leaves this responsibility to nonprofit managers, boards, and donors. The best nonprofits are laboratories of innovation, but unfortunately some are stagnant backwaters, which waste money on out-of-date missions and inefficient programs. To promote more innovation and less stagnation, this Article makes two contributions to the literature. First, this Article breaks new ground in identifying sources of inefficiency at nonprofits. The literature focuses on incentives, arguing that managers and board members are less motivated to run a nonprofit efficiently because they cannot keep its profits. In response, this Article emphasizes that the problem is not just motivation, but also...
The quality of financial reporting by nonprofits: Findings and implications
2004
inancial information has become a popular ingredient in assessing the performance of charities. Donors, funders, and watchdog agencies make extensive use of audited financial statements and publicly available IRS Forms 990 as part of their assessments. Many users pay particular attention to the proportion of total expenditures used for administration and fundraising. They also look to annual surpluses and deficits as measures of the quality of financial management, or in some cases, financial need. But how good are the numbers on which these assessments are based? When we examine them closely, do we find serious errors? What are the sources of inaccuracy? Do nonprofits face unique issues that ordinary accounting principles do not address? Will users who analyze the more readily available Form 990 data reach the same conclusions about an organization as those who review audited financial statements? To study these issues in depth, we conducted detailed discussions with nine organizations. The organizations ranged in size from under 1milliontoover1 million to over 1milliontoover40 million in annual expenditures. They represented various fields of work, such as health, education, and the arts. This brief highlights five groups of findings relating to financial reporting that emerged from these case studies.
An Analysis of the Relation between Nonprofit Organizations’ Income Structure and Disclosures
2013
Each year ARNOVA gathers more than 600 of the best scholars, researchers and teachers interested in nonprofits, voluntary action, philanthropy and civil society at its Conference. The panoply of presentations, from these scholars and students examining the realm of voluntary / nonprofit / nongovernmental /civil society organizations and action, offers a wide-ranging vista-with some significant detail-of the most pressing subjects, topical emphases and methodologies of the latest research in this field. This catalogue is presented for those interested in questions about and developments in philanthropy, fundraising, nonprofit management, voluntary action, social enterprise and civil society, from the local to the international scale. This catalogue can be searched by key words, including author's names or paper titles, as well as by field or subject of interest. If you want to search this document, just hit 'Ctrl f', and a box in which you can enter search terms should appear in the upper right-hand corner of your screen. The work referenced here belongs to and is best understood by the authors, so we leave it to you to contact the authors to request copies of their papers and seek conversations, as you wish. Authors' email addresses are found on the right-hand side of the top line of each entry. Please note: ABSTRACTS were pulled directly from submitted papers. What we know is that dialogue among scholars and practice-leaders around these presentations of research is critical to building knowledge and improving practice. So we hope publishing this will encourage those conversations and further collaboration; and we hope you find this a useful tool for your own work.
A servant of two masters: The dual role of the budget in nonprofits
Journal of International Accounting Auditing and Taxation, 2014
In the absence of clear and acceptable measures for outcomes, the budget is probably the most important managerial tool for nonprofits. Nevertheless many nonprofits use their budget solely for fund raising and neglect its managerial role. A properly designed budget should have a dual role: it should provide the organization's management with tools for decision making and at the same time should serve as a fund raising tool by presenting a clear picture of the organization's programs. These two goals require two different financial presentations, which the budget should be able to address. This paper uses a case study of an Israeli nonprofit that provides services to drug addicts, in order to demonstrate the dual role of the budget. The use of the budget for decision making is demonstrated by combining the economic presentation of the budget with a judgmental scale that is derived by Analytic Hierarchy Process (AHP). Then the budget for fundraising is constructed and the different methods of allocating fixed costs are discussed. Finally the concept of "true program cost"a term which is often used by donors and funders-is discussed and is shown to be futile.
Journal of Accounting, Auditing & Finance, 2005
We examine whether required disclosures regarding joint cost allocations raise concerns about the validity of efficiency ratios reported by not-for-profit organizations. An experimental design is used to hold constant the geographic location, size, and mission of competing charitable organizations. Participants include financial officers of not-for-profit organizations (preparers), foundation executives (expert donors), and students (novice donors). We find that preparers base contribution decisions almost entirely on the reported fund-raising cost and accept the validity of reported program ratios. Foundation executives, representing experienced users of not-for-profit financial statements, also appear to accept the joint cost allocations as reported. By contrast, novice users are the most attentive to the allocation disclosures and consider them more often when deciding on the amount of a hypothetical gift. Overall, there is little evidence that joint cost allocation disclosures a...
Nonprofit and Voluntary Sector Quarterly, 2014
The nonprofit starvation cycle is a debilitating trend of under-investment in organizational infrastructure that is fed by potentially misleading financial reporting and donor expectations of increasingly low overhead expenses. Since its original reporting in 2004, the phenomenon has been referenced several times, but seldom explored empirically. This study uses 25 years of nonprofit data to examine the existence, duration, and mechanics behind the nonprofit starvation cycle. Our results show a definite downward trend in reported overhead costs, reflecting a deep cut in administrative expenses partially offset by an increase in fundraising expenses. The organization's size is instrumental to its behavior, with a sharp rise in reported overhead occurring when revenues equal 100,000,butdiminishingat100,000, but diminishing at 100,000,butdiminishingat550,000. Finally, the brunt of the cuts have fallen on nonexecutive staff wages and professional fees, which heightens the concern of potentially ill effects derived from a fixation on overhead cost reduction.