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Fundraising Costs Project Conducts Case Studies

WASHINGTON (AFP eWire - Jan. 26, 2004) - An ongoing study to evaluate nonprofit fundraising and administrative costs is expected to release new findings in 2004.

The Nonprofit Fundraising and Administrative Cost Project hopes to release templates later this year that nonprofits can download for free that will help them understand, track and report their costs more accurately. This will help ensure greater compliance with governmental and accounting standards and will reinforce donor confidence in the accuracy of reports from nonprofits, the project's researchers said.

The researchers recently conducted five of 10 planned case studies of nonprofits to examine how they calculate fundraising and administrative costs. A progress report was presented at the 2003 Conference of the Association for Research on Nonprofit Organizations and Voluntary Action.

'The case studies have been very important to helping us understand how and why nonprofits are actually allocating their overhead and fundraising costs,' said Patrick Rooney, director of research at the Center on Philanthropy at Indiana University. 'However, we have heard some disconcerting but true stories about the struggles nonprofits face to cover their overhead costs and the pressures they face to report low overhead and fundraising costs - regardless of what these costs are in reality.'

Rooney is conducting the study along with Thomas H. Pollak, Mark Hager and Ken Wing with the Urban Institute's Center on Nonprofits and Philanthropy. AFP's Research Committee helped conceptualize the study, and the association is a founding co-sponsor of the research.

In 2001, the researchers evaluated management costs of more than 37,500 organizations reported on Internal Revenue Service 990 Forms and in 2002 surveyed more than 1,500 of those nonprofits to gather further information about fundraising expenses. Case study participants were selected from respondents to the survey.

In a preliminary analysis of the case studies, the researchers found that the nonprofits don't track personnel time related to different functions and face pressure to keep fundraising costs low. One funder threatened to pull funding when it discovered that a literacy nonprofit's administrative and fundraising expenses were 30 percent of total cash expenses. The nonprofit staff explained that they rely heavily on volunteers and that their administrative and fundraising costs drop to 12 percent when donated services and facilities are factored in, according to the study progress report. Only after the explanation was documented in writing did the organization receive its funding.

Two of the five organizations studied reported zero fundraising costs on their IRS 990 Forms. One organization's audit, prepared by a financial professional, showed fundraising costs, but the costs were inexplicably not included on the 990 Form. The other organization's audit charged all salaries to the program area and listed no fundraising costs although the organization conducted limited direct mail fundraising and had fundraising software, according to the study progress report.

'Despite the fact that both the Financial Accounting Standards Board (FASB) and the IRS require expenses to broken down by functional expense category (program, management and general, and fundraising), only one of the five case study sites we have conducted to date has any employees fill out timesheets that would permit them to allocate costs this way, and the other four had no plans to do so in the future,' said Pollak of the Urban Institute.

All five nonprofits faced challenges in raising money for administration and infrastructure, making it difficult to hire qualified people willing to work for below-market wages, buy fundraising and accounting software or, in one case, have the benefit of furniture that wasn't falling apart or a roof that didn't leak.

The researchers plan to conduct at least five more case studies, including those on a few nonprofits that could serve as 'best practice' organizations. Findings from earlier phases of the project using survey and Form 990 data are available at Nonprofit Fundraising and Administrative Costs.

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