Nonprofits with Separately Reporting Affiliates
In a previous post, we discussed how NPI evaluates cost per beneficiary. Cost per beneficiary is not a number to be compared directly across organizations but rather as a way to understand how much it costs a nonprofit to deliver its specific services and generate its specific impact.
Some larger nonprofits are structured as multiple entities, with a parent organization and affiliate organizations filing separately with the IRS. Parent or headquarter organizations provide a wide spectrum of services to affiliates which may include training, planning, research, marketing and advertising. While there are valid reasons for structuring an organization like this, detailed disclosures are required to understand how the impact of the organization relates to the financial input to the parent vs. affiliates.
For a nonprofit with a single-entity corporate structure, we calculate: Cost per Beneficiary = (Total Cost to Deliver Services) / (Number of Beneficiaries Served), where time periods for numerator and denominator must match.
For a nonprofit with separately reporting affiliates, there are several ways to calculate and evaluate cost per beneficiary. Because supporters of a nonprofit have many different priorities and also have the ability to decide which entity to support, certain approaches may be more relevant than others:
- Evaluate a single affiliate. Many affiliates of the same nonprofit may operate very differently or operate in very different contexts. For example, The Boys & Girls Club of the Peninsula addresses a specific geographic community and may provide different programs and generate different results than other Boys & Girls Club locations.
- Evaluate the parent organization. A nonprofit may be able to measure and disclose the impact attributable to the parent organization itself. For example, the KIPP Foundation makes clear that KIPP schools report results separately and that the parent organization provides services to the affiliate organizations.
- Evaluate the consolidated organization. Evaluating the consolidated financials of the parent and affiliates and the total impact of the parent and affiliates provides a holistic view of the organization and model.
While approach number three provides the broadest view of an overall organization and its impact, it also requires the nonprofit to provide detailed disclosures that go beyond statutory requirements.
Here's how we look at consolidating the key numbers for this calculation:
Consolidating the Numerator (Cost to Deliver Services). The total cost to deliver services for the entire organization consists of the sum of all parent expenses plus all affiliate expenses, minus any overlap in expenses (e.g. grants provided from the parent to affiliates). While the sum of all parent expenses plus all affiliate expenses is easy to calculate from IRS filings, the overlap in expenses is not always clear from the IRS Form 990 and typically requires additional disclosures by the nonprofit.
Consolidating the Denominator (Number of Beneficiaries Served). While determining total number of beneficiaries served by a parent organization and affiliates may seem like a simple addition exercise, the reality is that the total number is only as good as the quality of the underlying numbers plus the methodology used to aggregate the data (either by the nonprofit or an outside evaluator). Additionally, if the data is aggregated by the nonprofit itself, transparency into that process and consistent disclosure of source numbers is necessary to provide credibility to the data.
While there are many approaches to evaluating nonprofits with affiliate structures, above all, it is the responsibility of nonprofits with this type of structure to clearly distinguish which impact metrics are attributable to which part of the organization. Below are nonprofits evaluated by NPI which have separately reporting affiliates. Please note that NPI has continued to evolve its thoughts around nonprofit evaluation. As we have learned more about affiliate structures, some of our research will be revised (noted below) to reflect what we have learned.
Here are the nonprofits with affiliate structures that we have reviewed and how we evaluated them:
- Accion USA. Several other organizations share the Accion name but Accion USA's revenues and expenses are specific to Accion USA. NPI's report on Accion USA is an evaluation of Accion USA and not its affiliates.
- Boys & Girls Club of the Peninsula. NPI evaluated the Peninsula entity only.
- Dress for Success. NPI's initial evaluation of Dress for Success was published over a year ago and is now being re-evaluated, with additional focus on the ramifications of their affiliate structure.
- Endeavor Global. Endeavor Global clearly distinguishes between Endeavor Global and the rest of the Endeavor organization. While disclosures allow us to approximate the correlation between financial input and results achieved, NPI's report recommends additional disclosures around the amount of funding provided from the parent organization to the affiliate organizations. This issue was not significant enough to preclude NPI's "BUY" rating on Endeavor Global.
- KIPP Foundation. KIPP Foundation makes clear disclosures regarding programs provided by KIPP Foundation vs. KIPP schools. NPI's report focuses on the Foundation's operations and distinguishes between results attributable to KIPP schools.
- Reading is Fundamental. NPI's initial evaluation of Reading is Fundamental was published four months ago and is now being re-evaluated, with additional focus on the ramifications of their affiliate structure.
- VisionSpring. NPI report recommends clearer documentation regarding VisionSpring India affiliate in order to provide assurance that disclosed results are entirely attributable to donations to the U.S. organization.