Nonprofits by the Numbers: Data Overview and Stakeholder Interests

For most charitable institutions, the Internal Revenue Service Form 990 is the only annual filing requirement to sustain 501(c)(3) standing. Form 990 lays out the revenues, expenses, and assets of each organization, providing a snapshot of both fiscal year and continuing operations. Only about half of larger nonprofits must file similar data to their respective state governments. The IRS does not require auditing of financials submitted on Form 990, so the figures provided by charities are not subject to any formal review unless required at the state level, and even then, this verification normally applies only to larger charities. When financial data reveals low program expense ratios, higher than expected administrative costs, or questionable fundraising outlays, then soft corruption may be in play. Poorly run charities also display poor working capital and liability to asset ratios. Nevertheless, statistical testing provided here shows that raw financial criteria are not always the best metric for ascertaining a nonprofit’s performance: this is especially the case with charities that mobilize their resources to address immediate societal needs (e.g., feeding those affected by a natural disaster). Some wish to extend such forbearance to the wider charitable arena, especially to younger and more entrepreneurial organizations that are breaking the mold of traditional philanthropy. Alternative measures for evaluating nonprofits, such as output or impact analysis, may be growing in favor but such indicators have shortcomings of their own, including uneven reporting and the impracticality of comparing performance across charities. Moreover, jettisoning financials as a primary means of assessing nonprofit performance will only embolden wrongdoers in what is already a loosely controlled environment. An additional challenge is how to make nonprofits answerable to multiple stakeholders—donors, beneficiaries, grantors, employees, community leaders, and the public at large—and accounting figures may not be reliable indicators for measuring such accountability.