Daniel G. Neely

Building Nonprofit Financial Capacity: The Impact of Revenue Concentration and Overhead Costs

Building on the impressive body of research on issues of nonprofit revenue choice and mix, this research empirically tests Foster and Fine’s claim that revenue concentration contributes to the growth of nonprofit organizations. Using National Center for Charitable Statistics (NCCS) digitized data (1998-2003), the authors test whether revenue concentration is a viable revenue-generating strategy that can help bolster a nonprofit’s financial capacity. Overall, study findings refute the mythology of revenue diversification; the authors find that implementing a revenue concentration strategy generates a positive growth in one’s financial capacity—in particular, a growth in one’s total revenue, over time. Contrary to the prevalent charges laid at the door of high administrative and fundraising efforts by some, the authors find that in order to support financial capacity growth, nonprofits must make positive investments in favor of administrative and fundraising support but not in the form of high executive salaries.

Some Econometric Issues in Studying Nonprofit Revenue Interactions Using NCCS Data

Several econometric issues arise in using nonprofit data. After controlling for unduly influential observations and heteroskedasticity, regression analysis performed on National Center for Charitable Statistics “digitized data” from 2001 to 2003 found mixed evidence of economically significant associations between donations and other revenue streams; regressions without these controls support different conclusions. Testing does indicate that government support sends greater quality signals than program support or investment income.

Nonprofit lobby expense reporting

We investigate the determinants and consequences of nonprofit lobbying activity by analyzing 501(c)(3) nonprofit lobbying choices as reported on the primary tax form, Form 990. Under the Internal Revenue Code (IRC), nonprofits may lose their tax exempt status if they engage in a substantial amount of lobbying. We examine lobbying choices across three dimensions: (1) the test used to determine whether lobbying activities are substantial (i.e., making an H-election) (2) whether lobbying activities are directly related to the mission of the nonprofit (i.e., program related) (3) whether an affiliate nonprofit lobbies on behalf of a nonprofit. Results indicate lobbying choices are associated with the amount of lobbying reported and the amount of contributions received. Additionally, our results provide some evidence that nonprofit lobbying choices allowed under the IRC are underutilized.

ACCOUNTING PROFESSIONALISM AND LOCAL GOVERNMENT GAAP ADOPTION: A NATIONAL STUDY

We examine the factors that associate with local government decisions to comply with Generally Accepted Accounting Principles (GAAP). GAAP non-compliance is surprisingly common among larger local governments, and that trend has important implications for public policy, financial management transparency, and government accountability. To examine the factors that drive GAAP compliance, we develop a conceptual framework based on the politico-economic perspective on accounting policy choice, and then test that model with data from a national survey of local government finance professionals. Our key contribution is that we incorporate accounting professionalism. The findings suggest that for many local governments the decision to adopt GAAP is a response to the pressures of professionalism rather than a rational response to political and economic motives.

Accountability Standards for Nonprofit Organizations: Do Organizations Benefit from Certification Programs?

ABSTRACT Stakeholders are demanding nonprofit organizations (NPOs) continually improve and work effectively in an ever-changing environment. While there are many ways to approach this operational challenge, this paper examines the impact of acquiring an accountability certification, specifically the Standards for Excellence® Certification. Using a sample of 102 NPOs that have received the Standards for Excellence certification, we find that the certification is associated with increases in public support relative to a control group that did not receive the certification. These results suggest that some stakeholders favorably respond to the certification process, and NPOs can realize tangible benefits from becoming certified.

Multiple Information Signals in the Market for Charitable Donations

We find robust evidence which indicates that nonprofit donors incorporate third party rating information into their decision to give. Specifically, using a sample of over 3,800 unique nonprofit organizations rated by the three largest charity rating organizations and over 12,000 unrated control firms, we find that rated organizations have significantly higher direct donations than unrated charities. Given our ability to simultaneously test ratings from all three ratings agencies, we are also able to identify an incremental increase in donations accruing to organizations that receive multiple ratings. Additionally, although organizations that receive a positive assessment are associated with a higher level of public support relative to organizations receiving a negative assessment, our results indicate that both positive and negative rated organizations in fact receive a higher level of direct donations relative to unrated organizations. Finally, we find that the market values consistency across the three rating agencies, supporting the notion that noisy signals are valued less by donors.

The decision to advertise nonprofit accreditation status

ABSTRACT Nonprofits seek accreditation to bolster their reputation and signal their worthiness to funders. The Better Business Bureau accredits nonprofits who pass 20 standards of accountability. Accredited organizations have the option to pay for the right to advertise their accredited status. At issue is why some organizations pay to advertise and other organizations do not. Utilizing a sample of 495 nonprofit organizations accredited by the Better Business Bureau, we find that nonprofits that pay to advertise the seal are larger, more profitable, have higher visibility, and are more likely to hire professional fundraisers. The results should be of interest to stakeholders and fundraisers interested in the adoption of methods to signal the accountability of nonprofit organizations.

Examining the Role and Diversity of Fiscal Sponsors in the Nonprofit Sector

This study discusses and documents the role and diversity of fiscal sponsors within the nonprofit sector. Fiscal sponsors provide critical support to nascent nonprofits, yet relatively little is known about which nonprofits elect to become fiscal sponsors, which type of projects and/or organizations do they choose to sponsor, and what costs are associated with sponsorship. We find that Arts and Philanthropic/Grantmaking subsectors are the most frequent home for fiscal sponsors; however, most subsectors house fiscal sponsors. Interestingly, with rare exception, fiscal sponsors charge a non-trivial fee based on revenues raised by the sponsored organization in exchange for administrative support services. The administrative support services provided cluster around financial management (bookkeeping, tax, bill paying). Overall, this study sheds light on an important support function for nascent nonprofits. The study concludes with future research streams that can further our collective understanding of a growing and critical support function for early stage nonprofits.