How to Assess Nonprofit Financial Performance

The fundamental reason for nonprofit financial performance assessment is to determine how well an organization is fulfilling its mission. The financial numbers alone cannot answer this question, but they can provide insight into the sources of funding, the cost of service delivery, and an organization's ability to operate in the future. Over the past decade, a second reason for conductng financial performance analyses of nonprofits has emerged. Several major financial scandals have rocked the nonprofit world, including embezzlement by the president of the United Way of America for (Murawski 1995) investment fraud by the head of the Foundation for New Era Philanthropy for perpetrating (Stecklow 1997), theft by leaders of the Episcopal and Baptist churches (Greene 1995; Fletcher 199), improper use of funds by the head of the National Association for the Advancement of Colored People (NAACP) (Greene 1995), and excessively generous compensation of the president of Adelphi University due to an (Thornburg 1997). In the past decade, the issue of the non-profit financial reporting and accountability of the nonprofit sector has surfaced, including the adequacy of the current reporting and oversight mechanisms. Given these issues, we argue that the nonprofit community's future economic success depends not only on the quality of its social and economic activities, but also on improving the way it measures its work and communicates these results to the sector multiple and diverse stakeholders. This report is designed to help participants in the nonprofit sector better address two issues: How should nonprofit financial performance be assessed? How can information about financial performance be made accessible to and usable by the multiple stakeholders in nonprofit organizations?