Senate Legislation Mandating Nonprofit Performance Measurement

As many of you know, the Senate Finance Committee (SFC), under Senator Grassley's leadership (Dean Zerbe is the key SFC staffer), has been considering a series of new proposals to increase accountability of nonprofits. Much of the focus has been on curbing abuses: cracking down on donor-advised funds, regulating foundation expenditures, and preventing contributions to charities with terrorist linkages. But embedded in the raft of proposals is a recommendation that charities with over $250,000 in gross receipts would need to report performance measures to the IRS as part of their tax return. The actual text of the SFC proposal is below:

8. Disclosure of performance goals, activities, and expenses in Form 990 and in financial statements

Charitable organizations with over $250,000 in gross receipts would be required to include in the Form 990 a detailed description of the organization’s annual performance goals and measurements for meeting those goals (to be established by the Board of Directors) for the past year and goals for the coming year. The purpose of this requirement would be to assist donors to better determine an organization’s accomplishments and goals in deciding whether to donate, and not as a point of review by the IRS. Charitable organizations would be required to disclose material changes in activities, operations or structure. Charitable organizations would be required to accurately report the charity’s expenses, including any joint cost allocations, in its financial statements and Form 990.12 Exempt organizations would be required to report how often the Board of Directors met and how often the Board met, without the CEO (or equivalent) present.

Independent Sector's Panel on the Nonprofit Sector was convened to make recommendations on the pending legislation. Their comments are here. See page 37 for comments on the proposal to mandate reporting of performance measures. As predicted, the panel completely sidestepped this issue. The reason stated was that measurement is impossible because there are too many different nonprofits and there are no standard measures. This rationale is pretty weak...these issues have been addressed years ago. The fact is, 60% of foundations require outcomes to be reported, and 100% of federal government grants to nonprofits do. The fact is, reporting performance measures is one of the most powerful ways that nonprofit organizations can control the impressions of donors and the public at large. Many organizations (validly) complain that they are being unfairly rated by Charity Navigator and other watchdog sites based on irreleveant metrics: administrative costs, % of dollars spent on fundraising, etc. Reporting actual results is the one surefire way for nonprofits to give the market more relevant data by which to judge their accountability and performance. Let's hope that the Senate takes a bolder stance.

Others have commented about the Panel's bland responses to Committee proposals:

USA Today Article: Non-profit reforms aim for tougher penalties

and the NCRP: Heads in Sand