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nonprofit management principles and practice by michael j worth
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Chapter 5
Accountability and Performance Measurement:
Non-profit organizations are private however, they are granted charters to serve purposes that
society has deemed to be of public benefits. They are exempt from taxation, and donors are
permitted deductions for gifts made to charitable nonprofits. As they use public money
(because they do not give taxes which may well be used for people), people are
interested in ensuring accountability of organizations.
Defining and Ensuring accountability:
1) Being required to answer: to take responsibility for one’s actions. Following the
law: obeying non-distribution requirement, avoiding conflict of interests, treating staff
without discrimination, etc. But this is minimal standard.
Mechanism for Accountability:
There are 3 principal mechanism: rule of law, self-regulation, and transparency.
1) Requirement of law: N.P (non-profit) must comply with laws at both state and
federal level. This includes courts against misuse, removal of board members, etc. at
federal level regulations include rules of IRS and it has authority to put sanctions,
revoke organization’s tax exemption, eliminating ability to raise tax deductible gifts.
2) Self-regulation: Standards and Accreditation: Education and health care sectors
have long been self-regulating through the process of accreditation. Individual
institutions engage in self-studies according to the process defined by accrediting
body and evaluated through intensive visits. Even though accreditation is
voluntary, for gaining funds from government, it is a requirement. Standards
essentially describes recommended best practices- that is a set of guides for behavior
that reflects a consensus about how a well-managed and accountable n.p should be.
There are also standards developed by organizations for internal use only, which
guide the actions of their own staff, board members and volunteers.
3) Charity Watchdogs and Raters: There is an increasingly influential array of charity
watchdog organizations or charity raters that proactively examine n.p, applying their
own standards, with or without the cooperation of organization they evaluate.
Example: U.S News & World Report. Rating do not have force of law, but is still
influential and powerful. BBB standards (uzun case study idi, sebrim chatmadi )
are based on best practices: describes what accountable n.p should do in the areas
, of governance, measuring effectiveness, finances, fundraising, and informational
materials. However, BBB does not advocate specific methods for measuring
effectiveness of performance.
Measuring Effectiveness and Performance: Doing the right thing does not guarantee that
the organization is effective in achieving its mission. Some people also use the terms
organizational effectiveness and organizational performance synonymously. Others defined
performance as broader than organizational effectiveness.
Effectiveness vs Efficiency: Kelly explains that efficiency is a measure of the proportion
of resources used to produce outputs or attain input-cost ratios, whereas effectiveness is
measured by comparing the achieved with result sought. Another important distinction is
between program effectiveness and the effectiveness or performance of an organization.
Program evaluation includes whether programs (set of resources and activities directed one
or more common goals) are effective in achieving their goals. Organizational effectiveness
looks at the broader question of whether the organization as a whole is effective in achieving
its mission.
Financial Ratios as Measures of Performance:
Business world financial data and ratios (earnings, stock price, etc.) are the principal way to
measure a company’s performance and strength. Charity Navigator (for n.p) bases its
ratings of n.p organizations exclusively financial ratios that it obtains from form 990s.
but other raters use financial ratios and other standard in combination.
Advantages: data is objective, readily available, easily compared.
Disadvantage: they fail to account for the realities faced by many organizations, they
may be misleading, and potentially destructive. (there were no explanation).
BBB standards do not in general emphasize financial ratios, however, spending on
fundraising should not be more than 35% of the funds raised. + it also allows to offer
justification for higher ratios on spending.
Charity Navigator: higher ratios for programs and lower ratios for fundraising activities
bring more stars to the n.p. They evaluate organizations on the basis of “organizational
efficiency” and “organizational capacity” both defined in financial terms.
It has 7 categories of indicators and they are combined to calculate overall numerical rating.
1) Fundraising efficiency: amount of a charity spends to raise 1 $ (lower is better), 2)
Fundraising expenses: total functional expenses on fundraising (lower is better), 3)
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