Professional Fundraisers and Joint Cost Allocations: Form 990 versus Survey Data Mark Hager Center on Nonprofits and Philanthropy The Urban Institute

1
Professional Fundraisers and Joint Cost
Allocations Form 990 versus Survey Data Mark
HagerCenter on Nonprofits and PhilanthropyThe
Urban Institute
2
The Issue

• Financial expenditure reporting focuses on three
  functional categories programs, fundraising,
  and administration.
• Accurate reporting is important because the
  public is increasingly relying on publicly
  available financial documents.
• Quality of reporting by a large segment of sector
  is poor, and nonprofits are not motivated to
  improve.

3
Purpose of Paper

• To articulate arguments for the value of accurate
  financial reporting by nonprofit organizations.
• To present empirical evidence of shortcomings in
  the current state of financial reporting.

4
Indicators From Other Work

• Factoid Of nonprofit organizations that report
  at least 5 million in annual contributions,
  about 1 in 4 report no fundraising costs.
• Factoid Of nonprofit organizations that report
  at least 10 million in annual expenses, about 1
  in 25 report no administrative costs.

5
Topics of the Current Work

• Reported expenses for hiring work from external,
  professional fundraising firms.
• Reported expenses for events, publications, and
  appeals that have joint fundraising and
  programmatic (or administrative) content.

6
Data Sources

• IRS Form 990
• - Required of all registered charities with
  25,000 in annual gross receipts.
• - The only public document required of
  charities.
• Overhead Costs Study Survey
• - 1540 organizations in Spring of 2002.
• - Matched with Form 990 for comparison.

7
Professional Fundraisers Form 990

• Report professional fundraising and counsel on
  Part II line 30.
• 180,000 charities in 2000 34 report
  fundraising costs.
• 5 (9000 orgs) report professional fundraising
  fees.
• 1 in 4 do not report fees as fundraising expense.

8
Professional Fundraisers SurveyHow the 7 of
Charities Report Professional Fundraiser Expenses
9
Joint Costs Form 990

• Part II Did you report in program service
  expenses any joint costs from a combined
  educational campaign and fundraising
  solicitation.
• Less than 1 of Form 990 filers in 2000 answered
  yes to this question, 1000 orgs.

10
Joint Costs Survey

• Many organizations combine educational campaigns
  (or other program activities) with fundraising
  appeals. Does your organization combine program
  and fundraising activities?
• Over 1 in 4 organizations say that they do.

11
Joint Costs, Survey

• (If yes) For these joint cost activities,
  does your organization allocate portions of the
  costs to both programs and fundraising?
• 1 in 10 are unsure.
• 4 in 10 say they do not allocate joint costs.
• 5 in 10 say they allocate joint costs.

12
Implications

• A substantial number of nonprofits report
  financials that do not accurately reflect their
  spending.
• Managers have bad information for planning.
• Researchers have bad information for policy
  analysis.
• Donors have bad information for assessment of
  worthy recipients of their money.