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January 21, 2008

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robert guinto

When should the IRS review an organization to see whether their nonprofit status is allowing the organization to take an advantage of avoiding taxes, charge top dollar and have an advantage over a for-profit?

What percentage of an organization’s expenses should be charitable? What amount of charitable fundraising should be required to lower their costs to offset the fees that would be charged?

Educational and medical hospital institutions are the two types of nonprofit organizations whom have fierce competition against each other and for whom branding is important. It is the one environment where private pay and the level of subsidy are an every day balancing act.

I challenge one area of statistics these organizations use when stating the amount of free care that is provided. It’s called the depreciation expense built into the rate structure. Most of the organization raised the capital through donors to cover the expense to build a building and to maintain it. This amount is placed in a reserve and used to pay the loans to cover the construction. If invested wisely the investment income completely covers the loan and some. So should the rate charged to individuals include the depreciation and loan principle? Should the allowance used to reduce the cost to the individual show the actually means for which the cost is to be covered? Do any of us really care?

With this ability for an organization to show a paper loss but not cash loss it is important to know both.

While the accounting practices are legal acceptable practices it is a misperception presented to the public and government oversight bodies that I find needing change.

These are nonprofits and the lack of control over their inflationary direction should require more scrutiny of their giving back to the public good.

Colleges should be increasing the amount of grants, lowing the amount in loans and offsetting their inflation costs with fundraising.

The medical field must reduce the costs of construction and medical devices that they incur above the inflation factor by allocating the expenses to fundraising. The other aspect to fundraising is to lower the cost of medical personnel loans. Those whom are part of an educational institution need to work to have the educational loans become grants. I find it to be a conflict of interest when an educational system is also running a medical system. Where is the incentive to lower costs?

phil

Robert, thank you for contributing your professional nonprofit management expertise here. I have added your blog to our blogroll. On the technical areas you discuss above, you are way ahead of me. Nice to have you as an expert here.

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