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Research Briefs
1. What We Know About Overhead Costs in the Nonprofit Sector Brief #1 summarizes findings from IRS Form 990 data and overhead cost survey data, concluding that a surprisingly high percentage of nonprofit organizations (37%) with private contributions of $50,000 or higher reported no fundraising costs. The brief also discusses the staffing patterns of nonprofit organizations' fundraising efforts and the fundraising tactics that they employ.
Related resources
U.S. General Accounting Office, April 2002: Tax-Exempt Organizations: Improvements Possible in Public, IRS, and State Oversight of Charities
Chronicle of Philanthropy, May 2000: Charities Zero-Sum Filing Game Note: Subscription required
File: Brief 1.pdf
Back to Top 2. Who Raises Contributions for America's Nonprofit Organizations? Brief #2 summarizes findings from the overhead cost study survey, conducted in the fall of 2001. It describes the recent growth of use of staff members whose primary responsibility is fundraising. Even in organizations with such a staff member, involvement of other staff, volunteers, and board members in fundraising is common. Additionally, some organizations receive fundraising support from partner organizations, either other community organizations that share their funds or professional solicitation firms that conduct fundraising campaigns. The brief is a summary of a longer paper.
Read the Philanthropy Journal's July 2004 coverage of this brief.
File: Brief 2.pdf
Back to Top 3. Getting What We Pay For: Low Overhead Limits Nonprofit Effectiveness Brief #3 is the first of two that summarize results from detailed case studies of the financial management of nine nonprofit organizations. It focuses on the relationship between spending on administration and fundraising and the effectiveness of nonprofit organizations in carrying out their missions. Smaller organizations tended to invest less in organizational infrastructure, resulting in conditions that compromised their effectiveness. Part of the reason why these organizations invested less in infrastructure involved their reliance on grants with limits on how much could be spent on overhead costs.
Read the Association of Fundraising Professional's preliminary coverage of Briefs #3 and #4.
Related resources
Lee Draper: 100% Goes to Charity?
Thomas McLaughlin: Our Little Secret: Why Nonprofits Will Never Have $80 Screwdrivers
Phil Anthrop (pseudonym): How I Cooked the Books and Why
File: brief 3.pdf
Back to Top 4. The Quality of Financial Reporting by Nonprofits: Findings and Implications Brief #4 is the second of two briefs that summarize results from detailed case studies of the financial management of nine nonprofit organizations. It focuses on public financial reporting and addresses issues such as weak methods for allocating staff salary costs to program, administrative, and fundraising expenses; the need for greater sophistication in accounting for capital gifts and in-kind donations; and the effects of unique IRS reporting rules on overhead and fundraising cost ratios. This brief concludes that simplistic efforts to assess and compare public charities based on their public financial reports may lead to flawed conclusions.
Related resources
Liz Keating and Peter Frumkin: Reengineering Nonprofit Financial Accountability
Linda Lampkin: Being Transparent: What Forms 990 on the Web Means For Nonprofits
File: brief 4.pdf
Back to Top 5. The Pros and Cons of Financial Efficiency Standards Brief #5 discusses the use of financial efficiency ratios to evaluate and compare nonprofit organizations. Recent technological advances have made nonprofit financial reports and electronic databases widely available to analysts, further popularizing financial comparisons. In this brief, we summarize both the advantages and dangers of such analyses. The chief advantage is that managers and donors can productively use financial comparisons for decision-making. The chief disadvantage is that analysts tend to over-rely on these measures when making judgments regarding the effectiveness or donation-worthiness of nonprofit organizations.
Read the Association of Fundraising Professional's coverage of the cost of fundraising ratio.
Related resources
BBB Wise Giving Alliance: Standards for Charity Accountability
GuideStar: Why Ratios Aren't the Last Word
Charity Navigator: Evaluating Charities: Why the Numbers Count
Put Barber: Comment on Charity Navigator, The "Hardest Place in Nation to Raise Money?"
Tony Poderis: The Fallacy of Financial Ratios, Part 1; Part 2
Paul Nelson: Useful, But Limited
Liz Keating and Peter Frumkin: How to Assess Nonprofit Financial Performance
Jennifer Lammers: Know Your Ratios? Everyone Else Does
Peter Swords: How to Read the IRS Form 990 & Find Out What it Means
NCNA and NHSA: Rating the Raters: An Assessment of Organizations and Publications That Rate/Rank Charitable Nonprofit Organizations
File: brief 5.pdf
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