Management of Financial Information in Charitable Organizations: The Case of Joint Cost Allocations

Efficient Funding: Auditing in the Nonprofit Sector

“…Bradley et al (2003) find nonprofits misreporting their efficiencies in situations where potential funders are investigating this measure to make decisions about giving and fund allocation. Misreports of efficiency may be due to managerial motivation, executive compensation incentives, use of efficiency in funding decisions, charity ratings, media attention, or reputational pressures (Frumkin and Keating 2003, Trussel 2003, Jones and Roberts 2006, Krishnan et al 2006. A myriad of other literature related to unreliable IRS data and expense shifting also supports our theoretical result of a lack of observability and reliability of efficiency types in the current funding situation.…”

“…However, under these very basic terms, our analysis shows that these nonprofit efficiency reports are unreliable. This result of a lack of efficiency reliability and its causes are well documented (e.g., Quality 990 2000, Schwinn and Williams 2001, Frumkin and Keating 2003, Trussel 2003, Jones and Roberts 2006, Krishnan et al 2006, Gordon 2007, confirming that our results accurately describe the basic situation where funders are unable to effectively distinguish between efficient and inefficient organizations. Regardless of the basis for the unreliability, this theoretical result leads to the conclusion that a simple contract based solely on funds allocated in response to an efficiency report is not effective.…”

Misreporting Fundraising: How Do Nonprofit Organizations Account for Telemarketing Campaigns?

“…Trussel (2003) finds that certain performance indicators, such as lower surplus margins or less deferred revenue, are positively related to the likelihood that a nonprofit will manipulate its program efficiency ratio. Jones and Roberts (2006) suggest that nonprofits use joint cost allocations to avoid reporting changes in the program ratio. Krishnan et al (2006) show that some nonprofits inappropriately report zero fundraising expenses despite evidence on the internet that they engage in activities that can arguably be considered fundraising.…”

Management of Financial Performance Measures: Evidence from Private Colleges and Universities

“…Yetman and R. Yetman 2003;Brooks 2003) and donors may be sensitive to perceptions of a charity's effectiveness, efficiency, performance, and service quality (Tinkelman 1998;Sargeant, West, and Ford 2004;Parsons 2007). In addition, charities tend to make program spending decisions (Kitching et al 2012), change real business practices (Tinkelman 2009), and shift costs or hide fundraising costs (Jones and Roberts 2006;Krishnan et al 2006;Keating et al 2008) based on perceived donor expectations. Further, Baber et al (2002) argue that donors can interpret undistributed surplus as evidence that the organization is overfunded, which likely discourages contributions.…”

“…I ncentives influence choices from among a set of acceptable financial reporting alternatives. There is an extensive literature on earnings management through reporting choices by forprofit entities Zimmerman 1986, 1990) and an emerging and growing body of literature on management of measures of operating performance by not-for-profit (NFP) entities (Yetman 2001;Krishnan, M. Yetman, and R. Yetman 2006;Jones and Roberts 2006;Hofmann 2007;Keating, Parsons, and Roberts 2008;Tinkelman 2009;Eldenburg, Gunny, Hee, and Soderstrom 2011;Kitching, Roberts, and Smith 2012). In the FASB (2015) Exposure Draft for Not-Special thanks to Jeff Gullikson for providing valuable help as a research assistant.…”