Do donors respond to discretionary accounting information consolidation?

Abstract

Purpose The purpose of this paper is to investigate donor responses to discretionary accounting information consolidation. Nonprofit (NP) financial statement consolidation discretion significantly impacts program ratio reporting, the primary NP performance measure. Stakeholders are misled to allocate limited resources inefficiently. While some NPs file group Internal Revenue Service (IRS) Form 990 returns with their affiliates, effectively providing consolidated statements, others choose to file independently of their affiliates. Design/methodology/approach The authors use OLS regression analysis and panel data for 5,697 NP-year observations for the period 2009-2011 retrieved from the National Center for Charitable Statistics Form 990 database. Findings The authors find evidence that consolidation discretion substantially impacts donor decisions. NP managers have incentive to utilize consolidation discretion to influence charitable giving. Practical implications The authors urge the IRS and the Financial Accounting Standards Board to reconsider the consolidation guidance for NP organizations, to develop performance measures beyond the widely used program ratio, and to require program ratio segment reporting to allow for better comparability among NPs irrespective of consolidation status. Further, the authors caution stakeholders to consider supporting organization transactions in their resource allocation decisions. Originality/value The authors are the first to use NP supporting organization information to investigate consolidation discretion and its impact on donor responses.

Financially supported nonprofits and IRS Form 990 expense reporting

“…Nonprofit organizations sometimes separate their mission-focused activities from ancillary activities purposefully by creating related organizations (Quosigk and Forgione, 2018a). An AICPA 990 Task Force acknowledged this by stating that it “is quite common for exempt organizations which are ‘related’ to centralize certain administrative functions to allow them to focus efficiently on programs” (AICPA, 2007, p. 62).…”

“…We hypothesize that the unconsolidated nature of Form 990 results in zero or understated fundraising and administrative expenses for supported organizations. This is expected regardless of whether supported organizations are created to separate their mission-focused activities from ancillary activities (Quosigk and Forgione, 2018a), to “centralize certain administrative functions to allow them to focus efficiently on programs” (AICPA, 2007), to opportunistically manipulate their fundraising and administrative expenses (Quosigk and Forgione, 2018a, b), or for other reasons. We disregard whether the use of related supporting organizations by supported organizations is an intentional decision to manipulate reported efficiency measures or an unintended byproduct of using supporting organizations for other purposes.…”

“…A large percentage of nonprofit organizations (over 40%) are not stand-alone, but instead receive support from related organizations to perform fundraising, administrative, or other activities on their behalf. These supported organizations have made the decision to create related organizations to segregate their mission-focused activities from ancillary activities (Quosigk and Forgione, 2018a). Acknowledging the frequent use of related supporting organizations, an American Institute of Certified Public Accountants' (AICPA) 990 Task Force states that it “is quite common for exempt organizations which are ‘related’ to centralize certain administrative functions to allow them to focus efficiently on programs” (AICPA, 2007, p. 62).…”

The impact of relative CEO compensation on not-for-profit contributions

“…We also encourage additional research that addresses how risk proxies and governance measures could mitigate concerns of organizational funders versus the demand for organizational talent. Future research could also assess the role of discretionary accounting information consolidation reporting (see Quosigk and Forgione, 2018), as well as changes in governmental funding (Kim and Mason, 2020), on donor and grantor contribution penalties.…”

Encryption Management of Accounting Data Based on DES Algorithm of Wireless Sensor Network

“…Finally, in the network environment, the accounting information of enterprises is no longer like the information island [2,10] form of accounting information under manual accounting [11,12]. Its accounting information system is closely connected with the internal and external as a whole, and information users can obtain their required accounting information through the network [13,14]. However, the development of network technology has brought convenience and risks to corporate accounting.…”