Question - Do nonprofit accounting standards serve to clarify a nonprofit’s financial condition, or rather to obscure it?
A recent article in Barron’s said this:
“Non-Profit accounting is arguably one of the last vast wastelands of corporate accountability; rules are lax, disclosure is minimal and available data are usually months, or even years, old.”
Robert Kesten, a consultant, policy advisor, and nonprofit executive added:
“A good accountant or bookkeeper working for a nonprofit can make it pretty hard for a donor to pick up on accounting issues.”
Recently, the FASB (Federal Accounting Standards Board) introduced new recommendations regarding: net-asset classification, improved disclosures of information useful in assessing liquidity, whether NFPs would be allowed to use either the direct method or indirect method of presenting operating cash flows, and whether unrestricted net assets should be renamed net assets without donor restrictions.
Question - Do some nonprofits utilize poorly worded, but entirely legal and ethical, accounting rules to hide their true financial position?
Fifty years ago auto dealers decided to compete with one another by giving the consumer the impression that the sticker price of a car meant nothing. They would give you a “deal” on the car if you shopped with them rather than one of their competitors. “Making a deal” is now the institutionalized method of selling in the auto industry. The consumer no longer trusts any auto dealer and always leaves vaguely dissatisfied that he could have made a better “deal”. This has cost the auto industry trillions of dollars over fifty years and a permanent lack of trust on the part of the auto buying public.
NON PROFIT INDUSTRY
“Looking for loopholes” in nonprofit accounting regulations that, although legal, serve to obscure important financial metrics is damaging the reputation of all nonprofits. It has led to the creation of organizations like Charity Watch that feel it is their mission to protect donors from unscrupulous nonprofit agencies. Stakeholders are beginning to rely on the integrity of Charity Watch rather than the integrity of the nonprofit they seek to support.
This is, of course, a completely untenable and ironic turn of events brought on by nonprofits themselves. All nonprofits must be seen as - good people doing selfless good work. There must never be an issue of trust between a nonprofit agency and its stakeholders. Trust is the very foundation of the nonprofit industry.
Furthermore, one of the top reasons people become repeat donors to an organization is because they understand their donation’s impact. Nonprofit financial reporting must seek to clarify where the money goes and what it is being used for.
Where there is knowledge - less trust is required - but more trust is engendered.
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