Professional Fundraisers and Joint Cost Allocations: Form 990 versus Survey Data Mark Hager Center on Nonprofits and Ph

1. Professional Fundraisers and Joint Cost Allocations: Form 990 versus Survey DataMark 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.