Does the Voluntary Standards for Excellence Program Improve Reporting Qualities & Financial Ratios of Nonprofit Organizations?

Author

Harmony Little, University of Kentucky

Year of Publication

2006

College

Martin School of Public Policy and Administration

Date Available

9-5-2014

Degree Name

Master of Public Administration

Executive Summary

Problem Statement

The issue of accountability in the nonprofit sector has increased over the past few years, and along with it, questions about the adequacy of information in the 990 forms filed annually by nonprofits to the IRS. The intent of the 990 form is to provide the public with necessary information to evaluate the performance of a nonprofit; however, a number of studies show that there are significant errors on the 990 returns. At the same time, there has been a rise in nonprofit watchdog groups who use the information available on the 990 forms to calculate nonprofits’ financial ratios, and in turn, use those ratios to rank and determine the effectiveness of a nonprofit organization. The practice of ratings has increased over the last few years and is putting pressure on nonprofit organizations to cut their management and spending costs.

Research Question

Does participation in the voluntary Standards for Excellence program improve the reporting quality and financial ratios of nonprofit organizations?

Research Strategy

The research design for this analysis is a quasi-experimental design of a before and after tests with a treatment and comparison group. The 990 forms of some charities that participated in the Standards for Excellence program developed by the Maryland Association of Nonprofit Organizations was examined the year before and the year after they received certification to see if there are any improvements in reporting quality and financial ratios. That data was compared to a comparison group who did not receive the Standards for Excellence certification to see if there were any differences between the two groups. The t-test was used to see if there were any significant statistical differences among and between the pretests and posttests of the treatment group and of the control group. The t-test was also used to determine if there was a significant statistical difference in the change of errors and financial ratios between the two groups.

Major Findings

No statistical differences could be found to indicate that voluntary participation in the Standards for Excellence program improves the reporting quality or the financial ratios of nonprofit organizations. Consequently, the study cannot determine if there is a treatment effect for the certified organizations.

Summary

The findings of this study points to the fact that the Standards for Excellence program does not resolve the reporting problems related with the 990 form that is a widespread issue throughout the nonprofit sector, nor does the program improve the financial ratios of certified organizations. Other measures will have to be found to remedy the problem with the quality of information disclosed on the 990 form and the issues surrounding using financial ratios to rate the effectiveness of nonprofit organizations.

Recommended Citation

Little, Harmony, "Does the Voluntary Standards for Excellence Program Improve Reporting Qualities & Financial Ratios of Nonprofit Organizations?" (2006). MPA/MPP/MPFM Capstone Projects. 195.
https://uknowledge.uky.edu/mpampp_etds/195