New Study Finds Non-reporting of Fundraising Expense Widespread: But Some States Much Worse Than Others

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  Andy Dean Photography /

Some nonprofits are loath to report the full costs of their overhead in an environment that focuses overly on that ratio as a measure of effectiveness, but that may be a mistake when it comes to an organization’s credibility.

A new study using the most recent IRS data available through GuideStar and performed by the Scripps Howard News Service has found that 15,389 nonprofit groups, or 41 percent of all United States nonprofits with annual budgets of $1 million or more, represent on their 990s that they spend exactly nothing on fundraising. While there are some situations in which this might actually be the truth, Scripps Howard followed up with further investigation and interviews which revealed that a number of the organizations reporting zero fundraising costs do spend money to raise money but simply do not report it.

In an article by Scripps Howard’s Thomas Hargrove, one woman leading a $1.4 million Rhode Island nonprofit baldly admits to a reporter that she does not categorize certain costs as fundraising or administrative because she is concerned about keeping her organization’s overhead rate (at least as far as the public can see) down, and a full 48 of 127 affiliates of Goodwill Industries claim that they have raised $387 million at no cost. Those 22,598 groups in the category studied that did report fundraising costs averaged an expense of seven cents per dollar raised.

The problem is far worse in some states than in others. For instance, only 28.9 percent of the District of Columbia’s 1,346 groups studied reported no fundraising expense, while in Idaho, a majority (63.7 percent) of those in the study reported they spent nothing to raise money. The only state (not including the aforementioned D.C.) with under 30 percent of nonprofits in the study reporting no fundraising costs was Massachusetts, while there were four other states (aside from the aforementioned Idaho) where more than 60 percent of groups in the study claimed no fundraising costs: Alaska, Arkansas, Mississippi and West Virginia. You can see where your state ranks here. Marcus Owens, the former director of the IRS’ Tax Exempt Division, thinks that the state regulatory environment may have some effect. “Some states are fairly aggressive about reviewing the financial data reported…others take the reports and throw them away. They do nothing.” Owens goes on to say that IRS prosecution of those filing false reports is “rare or nonexistent.”

Lest this lack of governmental enforcement make your nonprofit feel free to ignore fundraising costs, however, the press is apparently picking up where government regulators leave off and Hargrove is urging local reporters to make use of the database he has compiled on nonprofits that claim zero fundraising costs. Already, some are taking that task upon themselves.

The 41 percent of nonprofits with more than a $1 million budget reporting no fundraising costs found by Scripps-Howard appears to be higher than what was found in a 2004 study using data from 2000 from the Center on Nonprofits and Philanthropy at the Urban Institute and the Center on Philanthropy at Indiana University. That study, the “Nonprofit Fundraising and Administrative Cost Project,” found that 37 percent of organizations with budgets of more than $50,000 reported having no fundraising or special events costs.

  • Tim O’Connell

    The prefix “non” when combined with a root word to create a compound, only takes a hyphen when the root word is what we used to call a “proper noun” and is Capitalized. Otherwise, the prefix “non” is combined into a new solid compound word, just as the prefixes “a,” “an,” “in,” “inter,” “intra,” “micro,” “mid,” “mini,” “mon,” “multi,” “poly,” “post,” “pre,” “re,” “sub,” “super,” “un,” and most others are. The exceptions of those prefixes ending in a vowel is where the root word begins with the same vowel, or where there are other words spelt the same that would cause confusion (e.g., “recover” and “re-cover”).

    It is embarrassing to see professional publications make such simple spelling mistakes.

  • Sparkle

    As with most things, this is a much bigger issue than just the reporting on a 990. Having worked with nfp’s for years I have worked with many who felt like they HAD to allocate fund raising expenses in other ways just to keep from damaging their opportunity to serve others. This is most prevalent in NFP’s that raise less than $2million per year. Trying to reach the acceptable expense to mission ration is difficult. On top of that, the standards change from year to year as the game is played. I have actually seen wonderful nfp’s have to close their doors because they wouldn’t play the allocation game and therefore donors erroneously assumed they were not being good stewards of the donations. So instead of focusing on and blaming the non-profits, we need to look at ourselves and the way we allow these types of situations to occur. Shame on those who are suppose to govern this. Don’t think they don’t know that this is widespread and that they don’t know why it happens to the good and to the bad. Where’s the education and the defense of those who are doing a good job even though their expense to mission ratio is higher than most. I highly encourage people to NOT look at just these numbers but to really get involved and find out what they see as evidence of the services and resources the non-profits they support provide. Look at IOP and not just ROI. Impact on People! The value of what most of the NFP’s do is far above what it cost them to do it


    I think the reason you would be seeing this problem with non-profits with revenues over $1M is because those organizations generally do little fundraising. They receive grants, state or federal funding.

  • Dione Alexander

    I suspect that many nonprofits are not reporting or underreporting fundraising expenses for the primary reason that the article pointed out- -fear of reprisal from funders or charity-raters that arbitrarily determine acceptable overhead rates. However, a more mundane reason for nonreporting may be the fact that many nonprofits can only acccount for fundraising expenses for external consultants or special campaigns and events and don’t capture the day-to-day time and expense of donor development and grant-writing that get buried in operations and are embedded in multiple job titles. Every functioning nonprofit has fundraising expenses even if they can’t articulate them.

  • JDion

    Receiving grants, state, or federal funding almost universally require some activities that would be defined as fundraising. Grants aren’t just received with no effort on the part of the nonprofit recipient, they are typically pursued (meaning someone has researched funding/grant opportunities, written a proposal, prepared an application package, etc.) and then once they are awarded someone has to follow up with the granting entity, in the form of report writing and the like. In smaller organizations you have a higher likelihood that the fundraising activities are part of other people’s jobs, such as a program manager or even an Executive Director, where it is easier to “hide” fundraising activities within their other managerial responsibilities. Larger nonprofits, on the other hand, spend significant $$$ and staff time on fundraising, but can do it as a smaller percentage of their budgets because of scale. Interesting discussion and I’m glad this issue is getting more attention!