In 2009, the Internal Revenue Service (IRS) reported over 1.4 million registered nonprofit organizations (Reoger, Blackwood, & Pettijohn, 2011). This report will provide an analysis of the financial management techniques used by nonprofit organizations in the United States. Analysis will include how the government categorizes nonprofit organizations and the steps necessary to become a nonprofit organization, a breakdown of donation sources and fundraising efficiency, donor sources, effect of the Sarbanes-Oxley Act on nonprofits, and the comparison of the accounting and financial techniques used by for profit and nonprofit organizations.
Nonprofits are not regulated with the same stringent requirements as for profit entities. Fraud, fiduciary mismanagement, and suspicious accounting practices plague this growing area of business in the United States. The ability of 501 (c) (3) designated companies to be exempt from tax requirements makes them attractive as a business venture. Although many watchdog groups monitor the efficiency with which nonprofits use their donations there is no penalty for inefficient use of the funds being donated. According to the National Center for Charitable Statistics, from 1999 to 2009, almost a quarter of nonprofits are churches (2011). The firestorm that may ensue when Congress attempts to regulate church is one that no politician would want to endure if they intend on being reelected. Also, it should be noted that the importance of nonprofits from a tax generation standpoint is low, making them less of an interest to the government.
Legislative action for nonprofits is the only path to regulation and transparency. Requiring Generally Accepted Accounting Principles (GAAP) as the standard for financial reporting will provide proper evaluation of a nonprofit financial status.
According to the Nonprofit Quarterly, a charitable trust established by William Payne in 1661 is the nation’s oldest nonprofit. The...