Nevada Nonprofit Accountability

March 16, 2011

It has been asserted that Nevada Assembly Bill 242 has been proposed because nonprofits “have no reporting requirements for state funds” and “no accountability” (Kirkpatrick, M. & Smith, D., 3-10-11). In a 2009 study of 142 human service nonprofits in Nevada, 96% indicated that they were required to report results and outcomes of their programs to the state. Most Nevada state agencies already require extensive financial reviews, site visits, and reports of expenditures.

The study found that 72 percent of nonprofit humans service providers confirmed that the reporting requirements to state and local governments were already a problem. That study also found that Nevada ranked as the 9th worst state in the nation in imposing burdensome bidding requirements on nonprofit service providers. The reasons for these documented concerns is that state and local agencies are already imposing extensive data collection burdens on their nonprofit partners. If there is a failure of information collection within state government, it should be incumbent upon the agencies to talk to each other.

We respectfully request that this new layer of recordkeeping and reporting not be imposed upon nonprofits to fix a problem within government. Instead, require the state agency to require this information up front as part of their request for proposal (RFP) process. If enacted, AB 242 would force nonprofits in Nevada to divert already limited resources by spending it on paperwork instead of providing services.

None of this is to say that nonprofits oppose appropriate levels of transparency and public accountability. Indeed, the nonprofit community is already the most transparent sector in the U.S. economy due to federal reporting requirements. This is as it should be because nonprofit organizations exist solely on the basis of public trust.

We believe that most of the essential data demanded under AB 242 is already publicly available. For example, under federal law, a nonprofit is required to post the salaries and benefits of top executives and highly paid employees. Federal law provides that no nonprofit employee receive more than “reasonable” compensation for services rendered. The IRS Form 990 requires nonprofits to follow the three-step process used to approve the compensation of the Executive Director/CEO (and certain other key employees):

Did the process for determining compensation of the following persons include a:

  1. Review and approval by independent persons,
  2. Comparability data, and
  3. Contemporaneous substantiation of the deliberation and decision? (See Section VI, Part B, line 15, of the Form 990.)

If the IRS finds that compensation is not reasonable, it can impose sanctions on the nonprofit and its board members.