Nonprofit Sector
Significant Federal Funds Reach the Sector through Various Mechanisms, but More Complete and Reliable Funding Data Are Needed Gao ID: GAO-09-193 February 26, 2009Increasingly, the federal government relies on networks and partnerships to achieve its goals, and many of these involve nonprofit organizations. GAO was asked to assess (1) the mechanisms through which federal dollars flow to nonprofits and (2) what is known about federal dollars flowing through them to nonprofit organizations in fiscal year 2006. To address these objectives, GAO conducted a literature review of funding; analyzed data from several sources, including the Federal Procurement Data System--Next Generation (FPDS-NG) and the Federal Awards and Assistance Data System (FAADS); and analyzed nonprofit organizations' roles in 19 federal programs.
The federal government uses a variety of funding mechanisms to achieve national priorities through partnerships with nonprofit organizations, and the relationships are sometimes complex and multidirectional. Nonprofit organizations receive federal grant and contract funds both directly and through other entities, such as states, for performing activities or providing services to particular beneficiaries. Federal funds paid to nonprofit organizations as fees for services follow a somewhat more complex path. Credit through loan and loan guarantee mechanisms facilitate nonprofit organizations' access to capital. Similarly, some tax policies result in benefits to nonprofit organizations by either reducing their costs or increasing their revenues. With direct federal grants and contracts, and with some loans and loan guarantees, federal agencies generally select the nonprofit participant, directly control the amount of funding provided, and monitor nonprofit performance. With other mechanisms, such as tax expenditures and fee-for-service programs, the federal government sets criteria for acceptable recipients but does not directly select or monitor nonprofit performance. Due to limitations and reliability concerns with tracking systems' data, the data presently collected provide an incomplete, unreliable picture of the federal government's funds reaching the nonprofit sector through various mechanisms, although they suggest these funds were significant. No central source tracks federal funds passed through an initial recipient, such as a state, and the nonprofit status of recipients was not reliably identified in FPDS-NG or FAADS. Factors contributing to data limitations include the nonprofit status of recipients being self-reported and no consistent definition of nonprofit across data systems. The development of a system to report funding through subawards, currently underway, may enable more complete estimates of funding to the sector in the future. However, until the accuracy of nonprofit status is improved, accurately determining the extent of federal funds reaching the sector is not possible, leaving policy makers without a clear understanding of the extent of funding to, and importance of, key partners in delivering federal programs and services. Funding data sources identified the following as the approximate amounts of federal funds flowing to nonprofits in 2006 under different mechanisms, although most sources did not reliably classify nonprofit status of recipients: (1) $135 billion in fee-for-service payments under Medicare; (2) $10 billion in other types of fee-for-service payments; (3) $25 billion in grants paid directly to nonprofits; (4) $10 billion paid directly to nonprofits for contracts; and (5) $55 billion in federal funds paid to nonprofits by states from two grant programs, including Medicaid. (GAO could not assess other programs.) In addition, approximately $2.5 billion in loan guarantees and $450 million in loans were issued to nonprofits, and approximately $50 billion in federal tax revenues were foregone due to tax expenditures related to nonprofits.
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Director: Team: Phone:GAO-09-193, Nonprofit Sector: Significant Federal Funds Reach the Sector through Various Mechanisms, but More Complete and Reliable Funding Data Are Needed
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Report to the Chairman, Committee on the Budget, House of
Representatives:
United States Government Accountability Office:
GAO:
February 2009:
Nonprofit Sector:
Significant Federal Funds Reach the Sector through Various Mechanisms,
but More Complete and Reliable Funding Data Are Needed:
GAO-09-193:
GAO Highlights:
Highlights of GAO-09-193, a report to the Chairman, Committee on the
Budget, House of Representatives.
Why GAO Did This Study:
Increasingly, the federal government relies on networks and
partnerships to achieve its goals, and many of these involve nonprofit
organizations. GAO was asked to assess (1) the mechanisms through which
federal dollars flow to nonprofits and (2) what is known about federal
dollars flowing through them to nonprofit organizations in fiscal year
2006. To address these objectives, GAO conducted a literature review of
funding; analyzed data from several sources, including the Federal
Procurement Data System”Next Generation (FPDS-NG) and the Federal
Awards and Assistance Data System (FAADS); and analyzed nonprofit
organizations‘ roles in 19 federal programs.
What GAO Found:
The federal government uses a variety of funding mechanisms to achieve
national priorities through partnerships with nonprofit organizations,
and the relationships are sometimes complex and multidirectional.
Nonprofit organizations receive federal grant and contract funds both
directly and through other entities, such as states, for performing
activities or providing services to particular beneficiaries. Federal
funds paid to nonprofit organizations as fees for services follow a
somewhat more complex path. Credit through loan and loan guarantee
mechanisms facilitate nonprofit organizations‘ access to capital.
Similarly, some tax policies result in benefits to nonprofit
organizations by either reducing their costs or increasing their
revenues. With direct federal grants and contracts, and with some loans
and loan guarantees, federal agencies generally select the nonprofit
participant, directly control the amount of funding provided, and
monitor nonprofit performance. With other mechanisms, such as tax
expenditures and fee-for-service programs, the federal government sets
criteria for acceptable recipients but does not directly select or
monitor nonprofit performance.
Due to limitations and reliability concerns with tracking systems‘
data, the data presently collected provide an incomplete, unreliable
picture of the federal government‘s funds reaching the nonprofit sector
through various mechanisms, although they suggest these funds were
significant. No central source tracks federal funds passed through an
initial recipient, such as a state, and the nonprofit status of
recipients was not reliably identified in FPDS-NG or FAADS. Factors
contributing to data limitations include the nonprofit status of
recipients being self-reported and no consistent definition of
nonprofit across data systems. The development of a system to report
funding through subawards, currently underway, may enable more complete
estimates of funding to the sector in the future. However, until the
accuracy of nonprofit status is improved, accurately determining the
extent of federal funds reaching the sector is not possible, leaving
policy makers without a clear understanding of the extent of funding
to, and importance of, key partners in delivering federal programs and
services. Funding data sources identified the following as the
approximate amounts of federal funds flowing to nonprofits in 2006
under different mechanisms, although most sources did not reliably
classify nonprofit status of recipients:
* $135 billion in fee-for-service payments under Medicare;
* $10 billion in other types of fee-for-service payments;
* $25 billion in grants paid directly to nonprofits;
* $10 billion paid directly to nonprofits for contracts; and;
* $55 billion in federal funds paid to nonprofits by states from two
grant programs, including Medicaid. (GAO could not assess other
programs.)
In addition, approximately $2.5 billion in loan guarantees and $450
million in loans were issued to nonprofits, and approximately $50
billion in federal tax revenues were foregone due to tax expenditures
related to nonprofits.
What GAO Recommends:
To ensure that accurate information on federal funding provided to
nonprofit entities is available, GAO recommends that the Office of
Management and Budget (OMB), which is responsible for a searchable Web
site called USAspending.gov that includes federal assistance and
contract awards, ensure that its funding information in USAspending.gov
is categorized with a consistent definition of nonprofit organizations.
OMB commented that while GAO‘s recommendation would likely ensure more
consistent data, it could be burdensome for states tracking subaward
data. As USAspending.gov is developed, GAO believes this is an
opportune time to explore ways to improve reliability of subaward data.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/products/GAO-09-193]. For more
information, contact Stanley J. Czerwinski at (202) 512-6806 or
czerwinskis@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Funding Mechanisms Are Varied and Relationships Can Be Complex:
Data Limitations Leave Decision Makers without Complete Information on
Funding to Nonprofit Organizations, Although Data Suggest That
Significant Federal Funds Reached Nonprofit Organizations in 2006:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Detailed Scope and Methodology:
Appendix II: Nonprofit Identification in Key Data Systems:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Amounts and Limitations of Data on 2006 Federal Funds
Involving Nonprofit Organizations:
Table 2: Revenue Loss Estimates for Select Tax Expenditures Affecting
Nonprofit Organizations Reported for Fiscal Year 2006, with Budget
Function:
Table 3: Summary of Targeted Programs Discussed in the Report:
Table 4: Estimated Reliability of Nonprofit Identification in Key Data
Systems Based on Samples of Records:
Abbreviations:
ACF: Administration for Children and Families:
APPS: Automated Plan Payment System:
CCR: Central Contractor Registration:
CMS: Centers for Medicare & Medicaid Services:
DHS: Department of Homeland Security:
DOD: Department of Defense:
DOE: Department of Energy:
DOL: Department of Labor:
Education: Department of Education:
ETA: Employment and Training Administration:
FAADS: Federal Assistance Award Data System:
FFATA: Federal Funding Accountability and Transparency Act of 2006:
FNS: Food and Nutrition Service:
FPDS-NG: Federal Procurement Data System--Next Generation:
FSA: Office of Federal Student Aid:
GSA: General Services Administration:
HHS: Department of Health and Human Services:
HPMS: Health Plan Management System:
HUD: Department of Housing and Urban Development:
IRS: Internal Revenue Service:
NIH: National Institutes of Health:
OMB: Office of Management and Budget:
POS: Provider of Service:
SCHIP: State Children's Health Insurance Program:
Treasury: Department of the Treasury:
USDA: Department of Agriculture:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
February 26, 2009:
The Honorable John M. Spratt, Jr.
Chairman:
Committee on the Budget:
House of Representatives:
Dear Mr. Chairman:
Increasingly, the federal government relies on networks and
partnerships to achieve its goals, and many of these involve nonprofit
organizations. These organizations are involved in a wide array of
missions including healthcare, education, poverty alleviation, and
economic development, and their missions can align with or complement
the objectives of federal programs. Federal and nonprofit entities
often partner with one another as they work toward the same or similar
goals. The relationships are sometimes categorized and analyzed
according to the various policy issues they address, but another useful
analysis involves the funding relationships, particularly as they vary
across different federal funding tools used to accomplish agencies'
missions. These tools dictate how the relationships between federal
agencies and nonprofit organizations operate, the roles that these
entities and others (including other levels of government) play, and
the degree of control, oversight, and influence that exists between the
federal government and nonprofit organizations.
To examine the extent and structure of the partnering between the
federal government and the nonprofit sector, you asked us to focus on
the funding relationships between the two sectors. Therefore, our
objectives in this report are to provide information on (1) the
mechanisms through which federal dollars flow to nonprofit
organizations (which we define as those entities that are federally tax-
exempt), and how federal involvement varies across them, and (2) what
is known about federal dollars flowing through these mechanisms to
nonprofit organizations in fiscal year 2006 (the most recent year for
which we could obtain data from all sources).[Footnote 1]
To better understand how funds to nonprofit organizations are tracked
and how mechanisms operate, we reviewed 19 federal programs selected to
provide information on a variety of direct and indirect mechanisms and
services across a variety of policy areas and sectors, and to include
some of the more highly funded programs involving nonprofit
organizations. The information obtained from this review is not
generalizable to all programs involving nonprofit organizations. Our
steps included reviewing previous related GAO reports and meeting with
program officials. For each program, we analyzed the roles of nonprofit
organizations and how federal involvement with and influence on these
organizations varied across funding mechanisms. To assess federal
funding reaching nonprofit organizations through various mechanisms, we
conducted a literature review of funding to nonprofit organizations,
assessed the suitability of various potential data sources, and
analyzed data from several sources. Our data sources included the
Federal Procurement Data System--Next Generation (FPDS-NG), Federal
Awards and Assistance Data System (FAADS), several systems at the
Centers for Medicare & Medicaid Services, the Department of the
Treasury's (Treasury) estimates of the revenue loss of tax
expenditures, and the Office of Management and Budget's (OMB)
collection of information on federal credit programs. Although we did
not validate all of the data provided by these sources, we took several
steps to assess data quality. Overall, we determined that the data were
sufficiently reliable for our engagement purposes. However, we
identified significant reliability concerns regarding data from two
systems, FPDS-NG and FAADS, which limit the precision of our estimates.
We also reviewed research by others that provided perspective on the
sector as a whole. A detailed description of our scope and methodology
can be found in appendix I, and our findings on the reliability of
nonprofit identification in key data systems are detailed in appendix
II.
We conducted this performance audit from January 2008 to February 2009
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Results in Brief:
Federal agencies use a wide range of funding mechanisms in partnering
with nonprofit organizations--defined in this report as federally tax-
exempt entities--to carry out agencies' missions, and the relationships
are sometimes complex and multidirectional. The most direct mechanisms
are grants to, cooperative agreements with, and contracts for nonprofit
organizations to provide particular services, such as research or
services to particular beneficiaries. In fiscal year 2006, grants were
provided to nonprofit organizations directly under almost 700 different
programs. Federal grants and contracts may also reach nonprofit
organizations by passing through levels of government as
intermediaries, particularly with grant funds provided to states or
other government levels that are often passed through to nonprofit
organizations that provide services. Federal funds paid to nonprofit
organizations as fees for services follow a somewhat more complex path,
as exemplified by federal health insurance programs that reimburse
nonprofit organizations for services they provide to individuals.
Federal loans facilitate nonprofit organizations' access to capital by,
for example, financing the construction of systems to improve electric
service in rural areas. Further, other mechanisms, such as loan
guarantees, while not directly providing federal funds to nonprofit
organizations, increase access to other sources of funds for nonprofit
organizations. For example, student loans, while provided to individual
students, make funds available that result in revenues to nonprofit
higher-education institutions. Similarly, some tax policies (known as
"tax expenditures") result in benefits to some nonprofit organizations
by either reducing their costs or increasing revenues. For example,
they may be able to borrow funds at lower interest rates because of
access to tax-exempt bond financing or may receive more contributions
because the tax code provides an incentive for taxpayers to give. Each
of these mechanisms provides the federal government with differing
levels of influence and oversight over nonprofit selection and
performance. With direct federal grants and contracts, and with some
loans and loan guarantees, federal agencies generally select the
nonprofit recipient, directly control the amount of funding provided,
and generally monitor nonprofit performance. With other mechanisms,
such as tax expenditures and fee-for-service programs, the federal
government sets criteria for acceptable recipients but does not
directly select or monitor nonprofit performance.
Due to limitations and reliability concerns with tracking systems'
data, the funding data presently available leave policy makers without
a complete, accurate understanding of the amount of funding flowing to
these key partners, although they suggest these funds were significant
in fiscal year 2006. The federal government collects information on
federal funding through several governmentwide and program-specific
data systems. However, we identified significant limitations and
reliability concerns with the data contained in these systems that led
us to conclude that they provide an incomplete and unreliable picture
of the federal government's funding to nonprofit organizations. For
example, there is no central source that tracks federal funds that are
passed through an initial recipient, such as a state, to a nonprofit
subrecipient. In addition, the nonprofit status of recipients was not
reliably identified in two key data systems. Several factors contribute
to these data limitations. In particular, the nonprofit status of
recipients is often self-reported and not always verified, and there is
no consistent definition of a nonprofit across these systems. Some
changes are currently underway that may enable more complete estimates
of funding to nonprofit organizations in the future, including the
development of USAspending.gov, a searchable Web site overseen by OMB
that includes funding through subawards.[Footnote 2] However, until the
accuracy of nonprofit status is improved, it will not be possible to
accurately determine the extent of federal funds reaching the nonprofit
sector, leaving policy makers without a precise understanding of the
extent of funding to, and importance of, key partners in delivering
federal programs and services. Despite these limitations, the sources
identified the following approximate amounts of federal funds flowing
to nonprofit organizations in fiscal year 2006 under different
mechanisms:
* about $145 billion in fee-for-service payments, mostly through
Medicare;
* approximately $25 billion in direct grants;
* about $55 billion in grants that flow through states; and:
* approximately $10 billion in contracts.
These data suggest that federal funds represented a sizable portion of
nonprofit organizations' total annual revenues, reported to be $1.6
trillion.[Footnote 3] Additional funding was available related to other
federal policies. Nonprofit organizations received about $450 million
in outstanding direct loans and $2.5 billion in loans guaranteed by the
federal government. Additionally, nonprofit organizations benefited
from about $50 billion in tax expenditures.
We are recommending that OMB take action to ensure that a consistent
definition to categorize nonprofit organizations is identified and used
in USAspending.gov. In commenting by e-mail on a draft of this report,
OMB wrote that using the Central Contractor Registration (a database
used to support agency procurement) would likely offer a consistent way
to validate IRS tax-exempt status. It noted, however, the increased
resource burden on states to ensure compliance of those receiving
subawards with any requirement to register in such a system. We
recognize this additional responsibility, but believe that this is the
appropriate time for OMB to consider approaches that could be effective
in improving the reliability of this information, given that the
development of the subaward data portion of USAspending.gov is now
underway. The Department of Housing and Urban Development concurred, by
e-mail, with our findings and conclusions. The Departments of
Agriculture, Education, Health and Human Services, and Labor did not
provide formal comments.
Background:
The Nonprofit Sector:
The nonprofit sector is diverse and has a significant presence in the
U.S. economy.[Footnote 4] Of the estimated 1.8 million tax-exempt
organizations in fiscal year 2007, about 63 percent were public
charities or foundations that benefited the broad public interest, and
were referred to as 501(c)(3) organizations,[Footnote 5] and about 8
percent were social welfare organizations. Nonprofit organizations
provide services in a wide variety of sectors, including policy areas
such as health care, education, and human services. Approximately three-
quarters of the revenues of 501(c)(3) entities that filed IRS Form 990
in 2005 were from entities within two subsectors. Public charities
within the health subsector reported about $672.1 billion, or
approximately 59 percent of the revenues reported, and nonprofit
organizations within the education subsector reported about $188.2
billion, or approximately 16 percent.[Footnote 6]
While the majority of nonprofit organizations individually have
relatively small operating budgets, as a whole the nonprofit sector has
a significant presence in the U.S. economy, according to researchers of
the nonprofit sector. In 2005, nonprofit organizations that submitted
Form 990[Footnote 7] to the Internal Revenue Service (IRS) held an
estimated $3.4 trillion in total assets and received $1.6 trillion in
revenues.[Footnote 8] As we reported in 2007, in addition to
representing a significant portion of the U.S. economy, the sector grew
substantially from May 2000 to May 2006.[Footnote 9] Specifically,
researchers indicated that the number of registered public charities, a
large subset of all nonprofit organizations, grew over 30 percent from
about 646,000 to about 851,000, although organizations that have gone
out of existence may have been included in those numbers. In 2005, we
reported that the nonprofit sector accounted for over 9.6 million
employees in 2002, which was about 9 percent of the civilian
workforce.[Footnote 10]
As we have previously reported, the federal government is increasingly
partnering with nonprofit organizations because nonprofits bring many
strengths, such as flexibility to respond to needs and access to those
needing services.[Footnote 11] Federal agency officials we spoke with
reported that they may target nonprofit organizations when authorized
by program regulations or when nonprofit organizations are the best
source of a particular service, but they generally do not focus on the
profit-making status of partners when distributing funding. For
example, the Department of Labor is authorized by law to provide grants
to public and nonprofit private organizations as part of its Senior
Community Service Employment Program. Further, while the Department of
Housing and Urban Development does not specifically target Emergency
Shelter Grant Program funding to nonprofit organizations, a large
portion of this funding reaches nonprofits because these organizations
play a prominent role in delivering emergency shelter services for the
homeless.
Federal Funding Mechanisms:
The federal government uses a variety of funding mechanisms to achieve
national priorities through partnerships with nonfederal parties such
as nonprofit organizations. Federal grants and cooperative agreements
are forms of assistance authorized by statute in which a federal agency
transfers something of value, such as money or property, to a party for
a purpose, undertaking, or activity of the grantee that the government
has chosen to assist.[Footnote 12] Federal contracts are mutually
binding legal relationships obligating the seller, in this case the
nonprofit entity, to furnish the supplies or services, and the buyer,
in this case the government, to pay for them. The federal government
typically uses contracts (rather than grants) as a mechanism when the
principle purpose of the funded activity is to provide something for
the direct benefit of the federal government. For example, contracts
can be used to procure independent evaluations of programs, to conduct
research for agency missions, or to buy information technology services
for an agency. Federal credit and insurance programs, which include
direct loans and loan guarantees, provide an alternative to direct
spending and can fill market gaps when private lending and insurance
companies cannot meet economic demands. Tax expenditures are reductions
in tax liabilities that result from preferential provisions, such as
exclusions, credits, and deductions. They result in revenue forgone by
the federal government and create incentives for certain behaviors,
such as making charitable donations to nonprofit organizations. Fee-
for-service, or voucher-type, mechanisms provide funding to
organizations through the ultimate recipient of services. For example,
under a fee-for-service mechanism, physicians may receive payments for
each service provided (such as an office visit).
Several cross-governmental databases provide information on federal
funding through the mechanisms described above. The Federal Assistance
Award Data System (FAADS) provides financial data on grants and other
forms of assistance that are made by the federal government, whereas
the Federal Procurement Data System--Next Generation (FPDS-NG) collects
federal procurement data. OMB is responsible for USAspending.gov, a Web
site mandated by the Federal Funding Accountability and Transparency
Act of 2006[Footnote 13] (FFATA) that establishes a single searchable
location for financial information on grants, contracts, credit, and
fee-for-service payments. Also, the IRS Form 990 provides detailed
financial information on tax-exempt entities with annual gross receipts
greater than $25,000. In addition, the Federal Audit Clearinghouse
provides information on nonprofit organizations and other nonfederal
entities that spend more than $500,000 a year in federal awards.
[Footnote 14] Treasury's Office of Tax Analysis lists tax expenditures
and estimates their cost, as reported by OMB in the President's Budget
submission.
Funding Mechanisms Are Varied and Relationships Can Be Complex:
Federal agencies partnering with nonprofit organizations use several
different funding mechanisms, and relationships between nonprofit
organizations and federal agencies vary. The type of funding mechanism
used determines the level of federal influence over nonprofit selection
and oversight of performance.
Grants and Contracts Provide Both Direct and Indirect Funds to
Nonprofit Organizations:
Nonprofit organizations sometimes work directly with federal agencies
as grantees and contractors, in a relatively straightforward
relationship. Our analysis of the 2006 data on federal funding to
nonprofit organizations indicated that grants were provided to
nonprofits directly under about 700 different programs. Types of
activities funded through direct grants to nonprofit organizations
included social services and research. For example:
* The National Institutes of Health provide grants for extramural
research to accomplish its mission related to public health needs.
About 84 percent of its budget in fiscal year 2007 supported extramural
research by researchers at various entities, including nonprofit higher-
education institutions, research institutes, and hospitals.[Footnote
15]
* The Administration for Children and Families in the Department of
Health and Human Services provides Head Start grants to nonprofit as
well as for-profit entities. Public and private nonprofit and for-
profit agencies can receive direct grants to provide educational,
health, nutritional, and other services to low-income children and
families.
* The Senior Community Service Employment Program, funded by the
Department of Labor's Employment and Training Administration, provides
grants to nonprofit organizations to provide subsidized, part-time work-
based training to older workers through employment in the community
service sector. Under this program, nonprofit organizations can also be
the beneficiary of this subsidized labor.
Federal agencies also contract directly with nonprofit organizations to
provide goods or services for the direct benefit of the federal
government. Contracts are tracked in FPDS-NG, which we found to be
somewhat unreliable in categorizing entities as nonprofit, although
suitable for providing some order of magnitude. (See results of our
reliability analysis in appendix II.) It showed that of the federal
contracts provided to nonprofit organizations in fiscal year 2006,
about two-thirds were awarded by the Department of Energy and the
Department of Defense and about one-tenth by the Department of Health
and Human Services. Even so, the percentage of dollars contracted to
nonprofit organizations within these agencies is relatively small. For
example, nonprofit contracts constituted only 1 percent of the
Department of Defense's total 2006 contract dollars, while about 10
percent of the Department of Health and Human Services' contract
dollars were awarded to nonprofit organizations. Some programs contract
with nonprofit organizations to help administer programs. For example,
the Centers for Medicare & Medicaid Services contract with quality-
improvement organizations, which can be nonprofit organizations, to
monitor provider performance.
Nonprofit organizations also receive grants indirectly through other
levels of government, or as subgrantees of other grantees, and are
sometimes subcontractors to other federal contractors. Some federal
programs are set up as large grants to states, with the expectation
that they will then be further disbursed for local program
implementation, and nonprofit organizations are sometimes used for
further service delivery. For example:
* The Department of Health and Human Services' Administration for
Children and Families oversees the Social Services Block Grant,
providing funds to states to furnish social services to residents.
Depending on the state, nonprofit organizations compete with other
organizations for these funds to provide a wide range of social
services, which can include daycare, protective services, adoption,
case management, health-related services, and transportation.
* Similarly, the U.S. Department of Agriculture's Food and Nutrition
Service provides grants to state agencies under its Child and Adult
Care Food Program. States reimburse institutions and organizations that
provide nutritious meals and snacks to eligible children and adults
enrolled for care at participating child and adult day care homes and
centers, emergency shelters, and after-school care programs. Both the
sites providing the nutrition service and the organizations that manage
site operations, keep records, and submit claims are sometimes
nonprofit organizations.
Nonprofit organizations can also be subcontractors to other federal
contractors. For example, a nonprofit university performing research
under a federal contract could subcontract with another nonprofit
university to complete a portion of the research where its researchers
have a particular specialty.
Nonprofit Organizations Obtain Federal Funds through Fees and Direct
Payments for Services:
Federal funds also reach nonprofit organizations through other more
complex routes, such as through reimbursement for fees that they charge
their clients. The Medicare program is a significant example of such a
program. Individuals aged 65 and older as well as certain disabled
individuals seek health care at various facilities, some of which are
nonprofit hospitals, nursing facilities, and managed care
organizations. The facility is then paid by the Medicare program.
Other programs involving direct payments for services in which
nonprofit organizations can be recipients include voucher programs.
These allow the beneficiary of a program to choose the source of
services, while the services are paid by the program. The Pell Grant
program, for example, operates under this principle. It provides need-
based grants to low-income students to promote access to postsecondary
education. Students may use their grants at any of about 5,400
participating postsecondary institutions, many of which are nonprofit.
In these cases, the nonprofit institution acts as an intermediary
between the student and the Department of Education.
Nonprofit Organizations Provided Access to Additional Funds through
Federal Loans and Loan Guarantees:
Nonprofit organizations are involved in credit relationships with the
federal government, in some cases as the recipient of funds loaned or
guaranteed by federal agencies, and in some cases as the guaranty
agency. In general, the federal government loans money and guarantees
others' loans as a way of increasing the availability of funding for
borrowers or activities it considers important. The Rural Development
Electric Program, operated by the U.S. Department of Agriculture's
Rural Development, Utilities Programs, is an example of a program where
loans and loan guarantees are provided directly, in this case to
electric utilities to serve customers in rural areas.[Footnote 16] The
loans and loan guarantees help finance the construction of electric
distribution, transmission, and generation facilities; system
improvements; and other activities, including energy conservation
programs. In this program, nonprofit organizations can also be
intermediaries, issuing loans that are guaranteed by the federal
government.
Similarly, the Hospital Mortgage Insurance Program, implemented by the
Department of Housing and Urban Development's Federal Housing
Administration, operates a loan guaranty program that insures loans.
These federally guaranteed loans finance the construction,
modernization, equipping, or refinancing of acute-care hospitals. The
program facilitates affordable financing of nonprofit, for-profit, and
government-owned hospitals by protecting lenders against losses they
might incur if hospitals fail to make their mortgage payments. The
program generally targets hospitals deemed too risky to obtain private
bond insurance but able to pass certain agency underwriting tests. In
addition, the program serves as a credit enhancement and improves the
credit rating of the hospital, resulting in a lower interest rate for
the loan.
Finally, some federal programs use loans and loan guarantees to
encourage activities that indirectly result in increased revenues to
nonprofit organizations. For example, within student loan programs, the
federal government both guarantees loans and provides loans directly to
students for postsecondary education, often at nonprofit institutions.
The various loans available within the Federal Family Education Loan
Program are set up to provide incentives to lenders (such as banks,
credit unions, and savings and loan associations) to make loans to
students enrolled at eligible postsecondary institutions. Guaranty
agencies, which are state or nonprofit organizations, administer
several portions of the program by providing technical assistance and
training to schools and lenders on procedures, providing counseling to
borrowers, reimbursing lenders with federal funds when borrowers
default on their loans, and initiating collections. Conversely, with
the Federal Direct Student Loan program, the federal government
provides loans directly to vocational, undergraduate, and graduate
postsecondary school students and their parents, rather than through
private lenders. In both cases, nonprofit higher-education institutions
benefit from the availability of funds.
Nonprofit Organizations Benefit from Federal Tax Policies:
Federal tax policies provide significant financial benefits to
nonprofit organizations while resulting in revenue forgone by the
federal government. Unlike some of the other mechanisms discussed
above, they do not provide federal funds but rather either reduce taxes
needing to be paid, reduce other costs, or increase revenues.
Classification as section 501(c) type organizations provides these
entities exemption from paying federal income tax.[Footnote 17]
Further, certain types of organizations are specifically exempted from
paying income taxes; for example, credit union income is exempt from
income taxes.
Nonprofit organizations also benefit indirectly from tax expenditures
that are aimed at encouraging certain kinds of behavior by taxpayers
when those behaviors involve nonprofits.[Footnote 18] For example, tax
expenditures encourage charitable giving, stimulate economic
development in disadvantaged areas, finance postsecondary education,
and encourage adequate healthcare coverage. In some cases, these
behaviors primarily involve nonprofit organizations, such as with
charitable contributions.[Footnote 19] In other cases, nonprofit
organizations are significant providers of services being targeted,
although these services are also provided by for-profit and government-
operated entities. For example, individuals deducting education and
health care expenses could incur those expenses at all three types of
entities.
Some tax expenditures have more complex interrelationships between
nonprofit organizations and governmental units. For example, tax-exempt
bonds are used to finance the construction of facilities used by
501(c)(3) organizations. These bonds are issued by state and local
governments. Interest income from these bonds is exempt from federal
income tax, the alternative minimum tax, and, in general, state income
taxes. The tax exemption lowers the bond issuer's borrowing costs as
investors require lower returns than they otherwise would. In addition,
state and local governments can create other entities, including
nonprofit entities to issue bonds on behalf of a governmental unit.
Similarly, the low-income housing tax credit also involves multiple
parties. Nonprofit and other types of developers of low-income rental
housing receive the federal tax credits from state agencies to develop
or rehabilitate low-income housing. Developers then sell these credits
to investors to raise capital (or equity) for their projects, which
reduces the debt that the developer would otherwise have to borrow. In
addition, a few large nonprofit organizations also provide technical
assistance to nonprofit developers and serve as intermediaries for
facilitating the sale of tax credits to investors.
Type of Funding Mechanism Generally Determines the Level of Oversight
and Influence That Federal Agencies Have over Nonprofit Organizations:
The amount of federal involvement in selecting and overseeing nonprofit
performance varies across funding mechanisms. With some funding
mechanisms, federal agencies generally select nonprofit recipients,
determine how much funding nonprofit organizations will receive, and
monitor nonprofit performance. With direct contracts and grants,
agencies select nonprofit organizations by soliciting requests for
proposals and holding open competitions. The National Institutes of
Health, for example, competitively awards grants by using a system of
peer review that assesses applications on scientific merit and agency
funding priorities. Also, with direct contracts and grants, federal
agencies evaluate nonprofit performance and can under certain
circumstances choose to terminate contracts or may choose not to renew
contracts and grants when nonprofit organizations perform poorly. For
example, in the Head Start Program, the Administration for Children and
Families conducts on-site monitoring reviews of grantee programs every
3 years and administers an extensive annual survey of grantees to
evaluate performance. If a nonprofit grantee is not meeting program
requirements, the agency has authority to remove the grantee from the
program. With some credit programs, federal agencies also select
nonprofit organizations and monitor performance, but their opportunity
to evaluate performance occurs before they provide funding to the
nonprofit. The Department of Housing and Urban Development, for
example, uses a variety of financial criteria to determine nonprofit
organizations' future performance before providing hospital mortgage
insurance to hospitals. After it has awarded insurance to a hospital,
the department monitors a hospital's performance while using the loan
and can require poorly performing hospitals to hire consultants to
improve performance.
In programs using other funding mechanisms, the federal agency sets
eligibility standards for nonprofit recipients but relies on other
government entities to select nonprofit organizations and monitor
performance. For example, with indirect grant programs such as the
Social Services Block Grant, the federal government provides funding to
states, which have broad discretion to determine the services provided,
define individual beneficiary requirements, and allocate funding to
recipients.[Footnote 20] While the federal agency does not monitor the
performance of individual nonprofit and other recipients receiving this
grant funding, states are required to monitor the performance of
nonprofit recipients. With fee-for-service programs such as Medicare,
states determine service provider eligibility, but individuals choose
their providers. While the federal agency has overall responsibility
for administering Medicare, state agencies--typically state health
departments--monitor, survey, and inspect health care service
providers.[Footnote 21] Additionally, some tax expenditure programs,
such as the low-income housing tax credit, leverage state or local
governments to select or monitor nonprofit performance, or both. With
the low-income housing tax credit, nonprofit developers compete for the
credits, and states allocate them based on broad federal guidelines.
While the IRS issues regulations for the program, it relies on state
authorities to monitor and certify which projects remain eligible to
receive tax credits. The IRS may then recapture taken credits or deny
issuance of further credits for reported noncompliance with low-income
housing tax credit laws.
In other programs, individuals select nonprofit organizations, and
federal oversight of nonprofit performance is limited. With student
loan programs, for example, the Department of Education determines
institutions' eligibility to participate in the programs, while the
institutions' funding is dependent on the number of students that
choose to matriculate and the financial need of those students. The
Department of Education monitors the performance of nonprofit
postsecondary institutions through reviewing their default rates, which
measures the extent students are defaulting on their loans, and
performing periodic program reviews. Further, with charitable
deductions, agencies do not select nonprofit organizations or monitor
nonprofits' performance. Instead, individuals providing contributions
determine which nonprofit will receive funding, and the IRS's role is
limited to determining 501(c)(3) eligibility, monitoring certain filing
requirements, and revoking section 501(c)(3) status. While the IRS may
revoke the 501(c)(3) status of nonprofit organizations in certain
circumstances, it does not assess whether nonprofit organizations use
the revenues from charitable contributions to meet the goals of the
contribution, although some information is publicly available to
individuals.
Data Limitations Leave Decision Makers without Complete Information on
Funding to Nonprofit Organizations, Although Data Suggest That
Significant Federal Funds Reached Nonprofit Organizations in 2006:
The federal government tracks and provides information on funding in
order to provide decision makers and the public with accurate
information on the sources and uses of federal funds, among other
reasons. The Federal Managers' Financial Integrity Act of 1982 requires
that agencies establish controls to ensure that expenditures applicable
to agency operations are properly recorded and accounted for to permit
the preparation of accounts and reliable financial and statistical
reports.[Footnote 22] In fulfilling this responsibility, federal
agencies collect a range of information on funding mechanisms and
recipients, and this information is consolidated and reported to a few
governmentwide data systems that consolidate data across most of the
federal government. With the development of USAspending.gov--a publicly
available Web site of federal spending, mandated by the FFATA, that
provides information on entities awarded federal grants, loans,
contracts, and other forms of federal assistance--such data are readily
available to the public. In addition, in conjunction with performance
data, this information can be used as a tool for reexamining federal
roles and the efficiency and effectiveness of various mechanisms and
partners in the pursuit of federal objectives. These data are also used
as inputs for the development of economic analyses such as the
Consolidated Federal Funds Report, which analysts use to measure and
assess federal expenditures in state and substate areas.
Data Limitations and Reliability Concerns Contribute to an Incomplete
and Unreliable Picture of Federal Funding:
The data presently collected provide an incomplete and, for portions,
unreliable picture of federal funding to nonprofit organizations.
First, information on funding reaching nonprofit organizations through
indirect mechanisms is generally not available, though we present some
estimates for some programs in table 1. Therefore, we cannot conduct a
comprehensive assessment of how much federal money reaches nonprofit
organizations through subcontracts, subgrants, or through fee-for-
service payments to for-profit enterprises that are subsequently spent
on nonprofit organizations or through other mechanisms. Nonprofit
organizations may receive considerable funding through indirect
mechanisms, in particular through indirect grants to state and local
governments. According to OMB, federal grant outlays to state and local
governments amounted to $434 billion in 2006, and one study estimated
that about 26 percent of such funds reached nonprofit organizations in
fiscal year 2001.[Footnote 23]
Second, nonprofit entities are not reliably identified, which limits
the reliability and completeness of reported funding amounts in two key
data systems, FPDS-NG and FAADS. These systems are the only
governmentwide systems for obtaining detailed information on federal
procurement and assistance, and their data are used to populate
USAspending.gov. However, in developing the funding information
outlined above, we found that nonprofit organizations are not reliably
identified in either of these systems. For example, based on our
testing of a sample of records, we estimate that 8 percent of the
records in FAADS coded as nonprofit organizations are actually other
entity types, and that 5 percent of records coded as other entities are
actually nonprofits. (See appendix II for further details on our
approach and results of reliability testing.) Similarly, 27 percent of
the vendors in FPDS-NG with nonprofit contract actions also had
contract actions where they were classified as not being nonprofit
organizations. This represents 1,768 vendors, who constituted a
majority of reported nonprofit obligations ($8 billion of $12 billion
total).
We have previously reported concerns about the accuracy and
completeness of data in FPDS-NG and FAADS.[Footnote 24] For example, we
reported in February 2006 that data submitted for inclusion in FAADS on
financial assistance awards related to economic development were often
inaccurate and incomplete.[Footnote 25] During the course of our
current review we identified one program that FAADS data indicated
provided almost $1 billion to nonprofit organizations. However, program
officials told us that the program only provided a total of around $150
million to all recipients. According to OMB, figures in FAADS and FPDS-
NG have, in the past, been incomplete, untimely, and inaccurate. For
example, agencies have reported loan guarantee amounts only when a
default occurs.
In addition to these overall concerns about the reliability and
integrity of the databases, several ways in which the data are captured
and stored prevented us from distinguishing funding to nonprofit
organizations from funding to other groups. For example:
* Nonprofit institutions of higher education in FAADS are classified
along with other private higher-education institutions. Based on a
sample of these records, we estimate that 95 percent of the records in
this category were actually nonprofit organizations. (See appendix II
for further details.)
* Similarly, tax expenditure estimates in various areas include
benefits to nonprofit as well as other entities. For example, though
Treasury estimates that the low-income housing tax credit cost the
federal government $4.4 billion in 2006 in forgone revenues, the
portion of that total that is related to projects developed by
nonprofit organizations is not systematically assessed.
Limitations and Reliability Concerns Caused by Various Factors:
Limitations in the data presently collected may be caused by several
factors including a reliance on data that are not verified and a lack
of clear guidance defining a "nonprofit" organization. Agency officials
told us that the nonprofit status of organizations can be self-reported
by recipients or entered by agency officials and not verified in most
data systems we examined including FPDS-NG, FAADS, and Medicare's
Health Plan Management System (HPMS) which provides information on
Medicare managed care and prescription drug plan payments. Furthermore,
there is no consistent, governmentwide definition of "nonprofit."
Guidance for registrants in the Central Contractor Registration, which
agencies may use to identify the nonprofit status of entities for
federal assistance and contracts in FAADS, FPDS-NG, and
USAspending.gov, asks registrants simply to identify whether they are
"for profit", "non profit", or "other not for profit."[Footnote 26]
Similarly, HPMS provides no guidance for recipients. These concerns are
not new, as we have previously reported that data in FPDS-NG and FAADS
can be improved. For example, we have recommended automating data
checks and improving knowledge among program officials about reporting
requirements.[Footnote 27]
Efforts to Improve Data Collection May Improve Information on Federal
Funding to Nonprofit Organizations, Though Concerns Will Likely Remain:
Efforts are underway to improve the funding data collected by the
federal government and may, if appropriately implemented, provide
further and more accurate information on federal funding to nonprofit
organizations. In March 2008, OMB issued a memo with new guidelines,
emphasizing the need to report timely, accurate, and complete data for
FAADS and FPDS-NG, as prescribed by the Federal Funding Accountability
and Transparency Act of 2006 (FFATA). The act, and OMB's efforts to
implement it, may improve data collected on grants, contracts, credit,
and fee-for-service payments. First, the act requires data on subawards
such as subcontracts and subgrants to be collected and reported. These
indirect mechanisms are likely to be a major way nonprofit
organizations receive federal assistance and this will represent the
first time data will be collected to address it. Second, the act
requires the use of unique identifiers for entities receiving certain
types of federal assistance. It is currently very difficult to assess
the nonprofit status of a single recipient across federal funding
databases or over time because these databases do not have a unique
entity identifier. Having unique identifiers could facilitate agency
and outside analysts' verification and tracking of nonprofit
organizations and their status and therefore could facilitate the
identification of errors and improve the data. Third, recognizing that
data in the past have been incomplete, untimely, and inaccurate, OMB
has issued guidance for agency data submissions under FFATA that
specifies more exactly how agencies are to report credit assistance
(loans and loan guarantees) and requires agencies to ensure that they
provide appropriate oversight for the accuracy of data and validate all
data submissions. If appropriately pursued, such validation could
encourage agencies to implement policies and processes to improve the
quality of data they submit to federal funding sites.
Officials from the General Services Administration (GSA) and OMB
indicated they have considered an approach to verify the nonprofit
status of nonprofit organizations receiving grants. A GSA official
indicated that GSA is considering using the Central Contractor
Registration (CCR)[Footnote 28] to validate information on these
recipients' nonprofit status. While using the CCR to verify nonprofit
status presents challenges, such as there being no central registry for
state nonprofit designations and having a time lag with data from IRS's
publicly available master file of federally tax-exempt organizations,
an OMB official noted that this is potentially a source for validating
nonprofit status.
Data Sources Suggest Significant Federal Funds Reach Nonprofit
Organizations:
Our analysis of data presently collected suggests that significant
federal funds reached nonprofit organizations in 2006, as shown in
table 1. Although we identified a number of data limitations and
reliability concerns with several key data sources as discussed above,
we nevertheless found the data overall to be sufficiently reliable to
provide an approximate indication of the general magnitude of federal
assistance across these mechanisms. Available data, and our estimates
based on these sources, suggest that federal funding made up a
significant portion of nonprofit organizations' total revenues. The
Urban Institute estimated that nonprofit organizations that submitted
Forms 990 to the IRS received $1.6 trillion in revenues in 2005. (See
appendix I for specific information on data sources and analysis.)
Table 1: Amounts and Limitations of Data on 2006 Federal Funds
Involving Nonprofit Organizations:
Mechanism: Federal funds provided: Fee-for-service and vouchers;
Approximate amount of total funds to nonprofits: $135 billion through
Medicare;
Data source: Centers for Medicare & Medicaid Services (CMS) Automated
Plan Payment System, Health Plan Management System, Provider of
Services files, and Health Care Information System;
Limitations and data reliability concerns: Includes payments to some
Blue Cross/Blue Shield plans that are not nonprofits.
Mechanism: Federal funds provided: Fee-for-service and vouchers;
Approximate amount of total funds to nonprofits: $10 billion in
additional payments to nonprofits;
Data source: Federal Award and Assistance Data System (FAADS);
Limitations and data reliability concerns: Nonprofit status not
reliable, funding amounts potentially unreliable and incomplete.
Mechanism: Federal funds provided: Direct grants;
Approximate amount of total funds to nonprofits: $25 billion;
Data source: FAADS;
Limitations and data reliability concerns: Nonprofit status not
reliable, funding amounts potentially unreliable and incomplete.
Mechanism: Federal funds provided: Contracts;
Approximate amount of total funds to nonprofits: $10 billion;
Data source: Federal Procurement Data System--Next Generation (FPDS-
NG);
Limitations and data reliability concerns: Nonprofit status not
reliable, funding amounts potentially unreliable and incomplete.
Mechanism: Federal funds provided: Indirect grants and contracts;
Approximate amount of total funds to nonprofits: $55 billion from
Medicaid and State Children's Health Insurance Program (SCHIP) reached
nonprofits;
Data source: CMS Financial Management Report;
Limitations and data reliability concerns: Estimate based on limited
program data.
Mechanism: Additional funds available due to federal policies: Credit
(loans and loan guarantees);
Approximate amount of total funds to nonprofits: $450 million in direct
loans and $2.5 billion in loan guarantees;
Data source: FAADS;
Limitations and data reliability concerns: Amounts may not be
consistently captured, nonprofit status not reliable, funding amount
potentially unreliable and incomplete.
Mechanism: Additional funds available due to federal policies: Tax
expenditures (federal revenues forgone);
Approximate amount of total funds to nonprofits: $50 billion
specifically related to nonprofits and additional funds for activities
that involve nonprofit as well as other entities;
Data source: OMB, Analytical Perspectives, Budget of the United States
Government, Fiscal Year 2008;
Limitations and data reliability concerns: Unclear how much of the
value of these tax expenditures reach nonprofits.
Source: GAO analysis of data sources outlined above.
Note: Amounts are for fiscal year 2006 except for Medicare and tax
expenditures, which are for calendar year 2006. Tax expenditures and
credit amounts are not directly comparable to other funding amounts.
Also, we rounded our estimates to the nearest 5 billion. Additional
information on the methods used to calculate these amounts are found in
appendix I.
[End of table]
* Fee-for-Service and Vouchers--Data from the Medicare program and the
Federal Award and Assistance Data System (FAADS) indicate that federal
fee-for-service or voucher programs provided nonprofit organizations
with about $145 billion in 2006.[Footnote 29] Medicare was the largest
source of such funds, having paid nonprofit health care providers and
managed care plans about $135 billion in calendar year 2006.[Footnote
30] Other fee-for-service or voucher programs, such as federal Pell
Grants and the Federal Work-Study program, obligated about $10 billion
to nonprofit organizations in 2006. Together, these data suggest that
nonprofit organizations received about one-third of total federal fee-
for-service funding.
* Direct Grants--A large number of direct grant programs provided about
$25 billion to nonprofit organizations in 2006, about 5 percent of
total grant funding.
* Contracts--About $10 billion was obligated in actions with nonprofit
organizations, representing less than 3 percent of total contract
obligations in 2006.
* Indirect Grants--Comprehensive data on grant funds that indirectly
reach nonprofit subrecipients are not available. We examined two
specific programs that make up a large portion of total funding to
states, Medicaid and the State Children's Health Insurance Program
(SCHIP), and estimate that around $55 billion was passed on by states
to nonprofit organizations based on program-reported expenditures and
the share of nonprofit organizations in the health care sector overall.
There are a number of other programs for which federal funds flow
through states to nonprofit organizations but we did not attempt to
estimate that funding. We did attempt to identify information on
federal funds flowing through the three states that, according to
FAADS, received the highest amount of federal financial assistance--
California, New York, and Texas. However, state officials indicated
that none of these states collected data across agencies on federal
funding provided to nonprofit organizations, although we did identify
some individual state agencies that maintained these data. For example,
the Texas Department of State Health Services' records indicated that
over $280 million in federal funds were encumbered on active contracts
with nonprofit organizations during the state's fiscal year 2007. Since
we were unable to comprehensively assess such funding to nonprofit
organizations, we believe that total funding to nonprofits through
indirect grants was likely more than $55 billion in 2006.
* Indirect Contracts--We did not identify any information on which to
assess the funding nonprofit organizations received indirectly through
other contractors.
Further, some federal policies result in additional funds being
available to nonprofit organizations.
* Credit--Available data from FAADS indicates that about $450 million
in direct loans and $2.5 billion in loan guarantees were issued
directly to nonprofit organizations in 2006, though OMB has raised
concerns with how some of these data are reported.[Footnote 31] For
example, we found that these data do not include one of the largest
federal credit programs, the Federal Family Education Loan program.
Based on data from OMB, we estimate that in 2006, the federal
government had about $120 billion in outstanding loans or guarantees
involving nonprofit organizations through four key credit programs.
This includes our estimate of student loans that were used at nonprofit
institutions of higher education.[Footnote 32] Based on OMB's estimates
of the future costs to the federal government of these credit programs,
the future costs of credit involving nonprofit organizations is likely
to be about $15 billion.[Footnote 33]
* Tax Policies and Tax Expenditures--Though more difficult to assess
and not directly comparable to funding through other mechanisms,
federal tax policies provide significant financial benefits to
nonprofit organizations. As described above, federal tax policy
benefits nonprofit organizations by (1) exempting nonprofits from
having to pay federal income taxes on activities substantially related
to the purpose that led to the nonprofits' tax exemption, and (2)
through specific tax expenditures, or tax provisions that grant special
tax relief for certain behaviors by taxpayers or for taxpayers in
special circumstances. Researchers have estimated the amount of revenue
the federal government may forgo by not taxing nonprofit income, and
the Treasury's Office of Tax Analysis annually compiles a list of tax
expenditures and estimates of their cost.[Footnote 34] There has been
no comprehensive research on the revenue lost from not taxing nonprofit
organizations, although existing research offers estimates for specific
portions of the nonprofit sector. One study estimated that the value of
the federal and state income tax exemption for charitable nonprofit
organizations was about $10 billion in 2002.[Footnote 35] In 2005, the
Joint Committee on Taxation estimated that taxing large credit unions
similarly to the way that other thrift institutions are taxed would
raise $6.5 billion between 2006 and 2010. However, in their assessment
of the consequences of taxing nonprofit organizations more broadly, the
Congressional Budget Office found that taxing nonprofits would likely
yield less tax revenues than their size and share of economic activity
might suggest because nonprofits were likely to reduce their taxable
income by lowering prices and increasing compensation and other costs.
[Footnote 36]
Various specific tax expenditures also benefit nonprofit organizations.
Table 2 presents five tax expenditures that involve nonprofit
organizations and which Treasury estimated to represent $49 billion in
forgone revenue in 2006, primarily through the deductibility of
charitable contributions.[Footnote 37] The deductibility of charitable
contributions creates an incentive for corporations and individuals to
provide support for charitable activities, and the availability of tax-
exempt bond financing can enable certain nonprofit organizations to
borrow funds at lower interest rates. Other tax expenditures indirectly
benefit nonprofit organizations by increasing the demand for services
provided by nonprofits as well as other entities. For example, the
exclusion of employer contributions for health care insurance and
various education-related tax expenditures are aimed at broad health
and education objectives and not particularly targeted at nonprofit
provision of those services. However, since nonprofit organizations
provide a large portion of health care and educational services to the
nation, some of the value of these tax expenditures reaches nonprofits.
Table 2: Revenue Loss Estimates for Select Tax Expenditures Affecting
Nonprofit Organizations Reported for Fiscal Year 2006, with Budget
Function:
Tax expenditure: Tax expenditures involving nonprofits: Deductibility
of charitable contributions, other than education and health[A];
Revenue loss estimate (dollars in billions): $37.1;
Budget function: Training, employment and social services.
Tax expenditure: Tax expenditures involving nonprofits: Deductibility
of charitable contributions (education);
Revenue loss estimate (dollars in billions): $4.2;
Budget function: Education.
Tax expenditure: Tax expenditures involving nonprofits: Deductibility
of charitable contributions (health);
Revenue loss estimate (dollars in billions): $4.2;
Budget function: Health.
Tax expenditure: Tax expenditures involving nonprofits: Exclusion of
interest on bonds for private nonprofit educational facilities;
Revenue loss estimate (dollars in billions): $2.1;
Budget function: Education.
Tax expenditure: Tax expenditures involving nonprofits: Exemption of
credit union income;
Revenue loss estimate (dollars in billions): $1.3;
Budget function: Financial institutions and insurance.
Tax expenditure: Total;
Revenue loss estimate (dollars in billions): $48.9.
Tax expenditure: Examples of tax expenditures involving nonprofits as
well as others: Exclusion of employer contributions for medical
insurance premiums and medical care;
Revenue loss estimate (dollars in billions): $125;
Budget function: Health.
Tax expenditure: Examples of tax expenditures involving nonprofits as
well as others: Credit for low-income housing investments;
Revenue loss estimate (dollars in billions): $4.4;
Budget function: Housing.
Tax expenditure: Examples of tax expenditures involving nonprofits as
well as others: HOPE tax credit;
Revenue loss estimate (dollars in billions): $3.9;
Budget function: Education.
Tax expenditure: Examples of tax expenditures involving nonprofits as
well as others: Exclusion of interest on hospital construction bonds;
Revenue loss estimate (dollars in billions): $3.4;
Budget function: Health.
Tax expenditure: Examples of tax expenditures involving nonprofits as
well as others: Lifetime learning tax credit;
Revenue loss estimate (dollars in billions): $2.5;
Budget function: Education.
Tax expenditure: Examples of tax expenditures involving nonprofits as
well as others: Empowerment zones and renewal communities;
Revenue loss estimate (dollars in billions): $1.2;
Budget function: Community and regional development.
Tax expenditure: Examples of tax expenditures involving nonprofits as
well as others: Various other education-related tax expenditures[B];
Revenue loss estimate (dollars in billions): $3.4;
Budget function: Education.
Tax expenditure: Examples of tax expenditures involving nonprofits as
well as others: Various other health-related tax expenditures[C];
Revenue loss estimate (dollars in billions): $8.0;
Budget function: Health.
Source: GAO analysis of OMB data.
Notes: Data are from Analytical Perspectives, Budget of the United
States Government, Fiscal Year 2008. From year to year, revenue loss
estimates may change because Treasury updates its estimates for each
new budget to reflect legislation enacted, prevailing economic
conditions, and the latest taxpayer data available. Although there are
substantial revenues forgone for these tax expenditures, the estimated
amount of federal spending that would be required to provide equivalent
assistance is frequently larger than the revenue forgone because this
spending could be subject to income tax. For example, the so-called
"outlay equivalent" estimate for the income tax exclusion of employer
contributions for medical insurance premiums and medical care is $126.7
billion for fiscal year 2004.
[A] Some charitable deductions may also reach federal, state, and local
governments.
[B] Includes education individual retirement accounts, deductibility of
student-loan interest, deduction for higher education expenses, state
prepaid tuition plans, and the exclusion of interest on student-loan
bonds.
[C] Includes self-employed medical insurance premiums, Medical Savings
Accounts/Health Savings Accounts, and the deductibility of medical
expenses.
[End of table]
Conclusions:
The federal government interacts with nonprofit organizations and a
wide range of other partners to accomplish mutual goals--providing
health care, ensuring that youth are educated, providing job training,
increasing the supply of low-income housing, and many other goals. Much
of this interaction is tied to federal funding available to nonprofit
and other recipients, or funding made available as a result of federal
policies. The available data indicate that these sources represent a
significant portion of the nonprofit organizations' total revenues.
Such funds come in many forms, each with varying ways in which the
federal government is able to monitor and influence recipients'
performance. As a result, the federal government's ability to influence
which nonprofit organizations are involved and the quality of their
services varies, and the involvement of other parties--states, local
government, and individual contributors--varies.
The significant extent and diversity of the federal government's
partnering with the nonprofit sector should be better understood, but
this opportunity is being missed, in part, because of the absence of
complete and accurate data on federal funding reaching recipients of
different types. Although available data indicate that significant
federal funding reaches the nonprofit sector, the precise extent of
that funding is not known because of data limitations. As a result, the
extent of the federal government's dependence on various sectors for
delivering services also is unknown.
Some efforts are underway to improve information on the funding
reaching nonprofit organizations and other types of organizations. One
of the areas that is hard to measure is the funding reaching nonprofit
organizations through indirect grants and contracts. The changes in
FFATA should improve the availability of this information. However, as
we found in reviewing data collected by agencies, there are concerns
about the quality of those data, particularly the type of entity, a
data element that is critical to accurately understanding the amount of
federal funding reaching nonprofit organizations. We have reported our
concerns on the quality of the data and recommended improvements in the
past, but this additional problem--that nonprofit status is sometimes
incorrect and defined differently across the federal funding data--has
additional implications. It prevents the federal government from
accurately assessing the extent to which it uses this sector and the
potential effect of the sector's strength as a key partner in
delivering federal services.
Recommendation for Executive Action:
To better ensure the accuracy of information on federal funding
provided to nonprofit entities in the data available under FFATA, we
recommend that the Director, OMB, ensure that a consistent definition
is identified and used to categorize nonprofit organizations in
USAspending.gov.
Agency Comments and Our Evaluation:
We provided a draft of this report to OMB and the Departments of
Agriculture, Education, Health and Human Services, Housing and Urban
Development, and Labor. OMB responded in an e-mail that the use of CCR
would likely offer a consistent method of validating the Internal
Revenue Service tax-exempt status of nonprofit recipients at the prime
level and at lower tiers. However, in order to validate nonprofit
status and effectively capture award data of all nonprofits receiving
funds passed through other entities, the prime award recipients would
have to require that those receiving subawards at every award tier
register in CCR and report their award data directly to a central
repository. OMB noted that states would likely have the largest volume
of multitier award activity and would be responsible for ensuring
compliance at every tier and for validating the data, which could
impose a major resource burden on states.
We recognize the additional difficulty of ensuring the accuracy of
information on those receiving subawards. However, we identified
unreliable information on nonprofit status for funds that were provided
directly to nonprofits, and ensuring the accuracy of information on
these direct recipients would be a first step to improving the data. We
also believe, however, that as the FFATA data are expanded to include
data on those receiving subawards, efforts are needed to ensure the
accuracy of that data, including the nonprofit status of recipients of
federal funds. We believe that this is the appropriate time--as OMB is
continuing to develop its approach to implementing FFATA's subaward
data requirements--to identify approaches that could be effective in
improving the reliability of this information.
The Department of Housing and Urban Development also responded by e-
mail, stating that it concurred with the draft and offering comments
based on information from its own verification and validation of FPDS-
NG data. It concurred that data limitations and reliability concerns
contribute to an incomplete and unreliable picture of federal funding,
which limits the reliability and completeness of reported funds.
Further, it concurred that the CCR should be used to validate
information on recipients' nonprofit status and should have validation
checks and a consistent definition describing nonprofits. In addition
to these formal comments, the Department of Agriculture provided a
technical comment, which we incorporated. The Departments of
Agriculture, Education, Health and Human Services, and Labor did not
provide formal comments.
We will send copies of this report to the Director of OMB and the
Secretaries of Agriculture, Health and Human Services, Housing and
Urban Development, Labor, and Education. In addition, the report will
be available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
If you have any questions about this report, please contact me at (202)
512-6806 or czerwinskis@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report are listed in
appendix III.
Sincerely yours,
Signed by:
Stanley J. Czerwinski:
Director, Strategic Issues:
[End of section]
Appendix I: Detailed Scope and Methodology:
To identify the direct and indirect mechanisms through which nonprofit
organizations receive federal funds, we reviewed academic and
professional literature, met with experts on the nonprofit sector,
reviewed previous GAO reports on federal programs that involve
nonprofit organizations, reviewed 19 different programs (see table 3),
and met with agency officials. We judgmentally selected these programs
using three criteria: they (1) utilized a variety of direct and
indirect mechanisms, (2) provided services across a variety of policy
areas and sectors, and (3) represented programs among the higher dollar
values of all federal programs that involve nonprofit organizations.
Although the information obtained from this review cannot be
generalized as representative of all nonprofit programs or funding
mechanisms, we believe it provides valuable insight into how these
funding mechanisms operate and the relationship between the federal and
nonprofit sectors.
Table 3: Summary of Targeted Programs Discussed in the Report:
Grants provided directly to the nonprofit sector:
Program title: Head Start;
Agency: Health and Human Services (HHS)/Administration for Children and
Families (ACF);
Description: Provides grants to public and private nonprofit and for-
profit agencies that help prepare low-income children for kindergarten
by providing comprehensive early childhood development services--
including educational, health, nutritional, and social services--to
children and their families.
Program title: National Institutes of Health (NIH) Research Grants;
Agency: HHS/NIH;
Description: Provides grants to public and private, nonprofit and for-
profit organizations to support the advancement of high-caliber,
unique, and investigator-initiated research that promotes public
health.
Program title: Senior Community Service Employment Program;
Agency: Department of Labor (DOL)/Employment and Training
Administration (ETA);
Description: Funds nonprofit organizations and state and territorial
governments to provide subsidized, part-time work-based training to
older workers through employment in a variety of community-service
oriented jobs in nonprofit and public facilities, including hospitals
and day care services.
Indirect grants provided to the nonprofit sector through state
governments or other entities:
Program title: Child and Adult Care Food Program;
Agency: U.S. Department of Agriculture (USDA)/Food and Nutrition
Service (FNS);
Description: Provides grants to states that reimburse institutions and
organizations that provide nutritious meals and snacks to eligible
children and adults who are enrolled for care at participating child
care centers, day care homes, adult day care centers, emergency
shelters, and after-school care programs.
Program title: Emergency Shelter Grants Program;
Agency: Housing and Urban Development (HUD)/Office of Community
Planning and Development;
Description: Provides funding to states, large cities, urban counties,
and U.S. territories to provide homeless persons with basic shelter and
essential supportive services.
Program title: Medicaid;
Agency: HHS/Centers for Medicare & Medicaid Services (CMS);
Description: A state-administered program jointly funded by the federal
and state governments to provide medical assistance, including acute
and long-term care for low-income, aged, or disabled individuals.
Program title: Social Services Block Grant;
Agency: HHS/ACF;
Description: Provides funding to states to furnish social services
including daycare, protective services, adoption, health-related
services, transportation, or any other social services found necessary
by the state.
Program title: Temporary Assistance to Needy Families;
Agency: HHS/ACF;
Description: Provides grants to states for a range of benefits and
services, including providing cash assistance to needy families with
children.
Program title: Workforce Investment Act Youth Programs;
Agency: DOL/ETA;
Description: Provides formula grants to states to support training and
related services--including mentoring, leadership development, support
services such as childcare, and counseling--for certain low-income, at
risk youth ages 14-21.
Contracts:
Program title: Federally Funded Research and Development Centers;
Agency: Many federal departments and agencies, including the
Departments of Defense (DOD), Energy (DOE), HHS, and Homeland Security
(DHS);
Description: Privately owned but government-funded entities with long-
term contractual relationships with one or more federal agencies
conducting research in areas such as military space programs,
nanotechnology, microelectronics, nuclear warfare, and biodefense
countermeasures, among other areas.
Fee-for-service payments:
Program title: Medicare;
Agency: HHS/CMS;
Description: Provides health insurance to individuals aged 65 and older
as well as certain disabled individuals.
Program title: Pell Grant;
Agency: Department of Education (Education)/Office of Federal Student
Aid (FSA);
Description: Provides need-based grants to low income undergraduate and
certain postbaccalaureate students to promote access to postsecondary
education.
Tax expenditures:
Program title: Low-Income Housing Tax Credit;
Agency: Internal Revenue Service (IRS), HUD, and Department of Justice;
Description: Promotes lower, more affordable rents by providing federal
tax credits to developers of qualified low-income housing projects, who
can either use the credits or sell them to investors to raise capital
(or equity) for real estate projects.
Program title: Tax-Exempt 501(c)(3) Bonds;
Agency: IRS;
Description: Tax-exempt bonds issued by state and local governments,
the proceeds of which are used to finance property owned by 501(c)(3)
charitable organizations or a governmental unit.
Program title: Charitable Contribution Deduction;
Agency: IRS;
Description: Provides an incentive for individual and corporate
taxpayers to donate to nonprofits.
Credit programs:
Program title: Federal Direct Student Loans;
Agency: Education/FSA;
Description: Provides loans directly to vocational, undergraduate, and
graduate postsecondary school students and their parents.
Program title: Federal Family Education Loans;
Agency: Education/FSA;
Description: Provides guarantees to encourage private lenders to make
loans to vocational, undergraduate, and graduate students enrolled at
eligible postsecondary institutions to help pay for educational
expenses.
Program title: Hospital Mortgage Insurance;
Agency: HUD/Federal Housing Administration;
Description: Insures nonprofit and for-profit hospitals' loans that
finance the construction, modernization, equipping, or refinancing of
acute care hospitals.
Program title: Rural Development, Utilities Programs--Electric Program;
Agency: USDA/Rural Development, Utilities Programs;
Description: Provides financing to electric utilities serving rural
communities to construct electric distribution, transmission, and
generation facilities.
Source: GAO analysis of program data from agencies.
[End of table]
To assess federal funding reaching nonprofit organizations through
various mechanisms, we reviewed the literature on funding to
nonprofits, assessed the suitability of various potential data sources,
and analyzed data from those sources we determined to be most
appropriate. We did not validate all of the data provided through these
various sources. However, we took several steps to assess data quality.
Specifically, in sources where individual recipient-level data were
available, we tested a sample of records with the Internal Revenue
Service's (IRS) Master File listing of all tax-exempt organizations and
other sources. (For more information, see appendix II.) To assess the
reliability of funding figures in these data sources, we interviewed
agency officials, performed various quality checks, reviewed available
documentation, and where possible compared data to that from other
sources. Overall, we determined that the data were sufficiently
reliable for our engagement purposes. However, we identified
significant reliability concerns regarding data from two systems,
Federal Procurement Data System--Next Generation (FPDS-NG) and Federal
Awards and Assistance Data System (FAADS), which we highlight in the
body of the report and in appendix II.
We used the following data sources to estimate federal funding to
nonprofit organizations:
* FPDS-NG--We assessed federal contract funding to nonprofit
organizations by summing the funding for all contract actions involving
vendors identified as nonprofits in the FPDS-NG in fiscal year 2006.
* FAADS--To assess federal grant, fee-for-service or voucher, and
credit assistance to nonprofit organizations, we used data from FAADS.
We compiled quarterly files for all of fiscal year 2006 and removed any
actions reported during fiscal year 2006 that are corrections to data
from previous fiscal years. We did not include corrections to fiscal
year 2006 data that were reported in subsequent quarterly files. During
the course of our analysis, we identified a set of records with action
obligation dates outside of fiscal year 2006 and removed those we
determined did not relate to fiscal year 2006 actions. FAADS contains
several assistance types, and we considered grants to include those
actions coded as being block grants, formula grants, project grants,
and cooperative agreements. Direct payments for specified use include
payments under Medicare, and we consider these to be fee-for-service or
voucher programs. FAADS also reports data on direct loans and loan
guarantees. We did not comprehensively assess the accuracy of the
assistance types in FAADS. FAADS funding amounts are primarily based on
obligations.
* Medicare--To assess Medicare program funding to nonprofit
organizations, we analyzed data from Centers for Medicare & Medicaid
Services (CMS) data systems and assessed information provided by CMS
officials. For Medicare Part A and B payments to nonprofit
organizations, we combined data on payments to providers in CMS' Health
Care Information System (HCIS) with the nonprofit status of those
providers in the Provider of Services (POS) files. We divided entity
types in the POS into nonprofit and other categories based on our
review of documentation and, where documentation was lacking, tests of
some recipients. We did not consider entities coded as combined types,
such as combined government and voluntary home health facilities, to be
nonprofit organizations. CMS officials provided data on Medicare Part C
(managed care) and D (prescription drug benefit) payments to nonprofit
and other plan types, which officials told us represent nonprofit
status from CMS' Health Plan Management System (HPMS) and payment
figures to those plans from the Automated Plan Payment System (APPS).
All figures on Medicare payments are for the calendar year 2006.
* Medicaid and State Children's Health Insurance Program--We estimated
the amount of federal funds that may have reached nonprofit
institutions through Medicaid and the State Children's Health Insurance
Program (SCHIP) by examining program expenditure reports and assessing
a share of expenditures in select categories that may have reached
nonprofit organizations. Our calculations are based on a preliminary
version of CMS' Financial Management Report for fiscal year 2006 that
was provided to us by CMS and is subject to revisions. We combined
federal Medicaid and SCHIP expenditures in fiscal year 2006 in select
service categories that we identified during our review as
significantly involving nonprofit organizations. We then used nonprofit
organizations' share of total health care sector revenues from the
Census Bureau's Service Annual Survey 2006 as a proxy for the portion
of federal expenditures in these categories that may reach nonprofit
organizations.[Footnote 38] The actual amount of funds reaching
nonprofit organizations through Medicaid and SCHIP could be greater or
less than our estimate for several reasons including how similarly the
programs rely on nonprofit organizations compared with the health care
sector overall. To assess the reasonableness of our estimate, we
discussed our approach and findings with internal GAO experts,
officials at CMS, and compared our results with those of other
researchers.
* Other Indirect Grants through States--For perspective on the extent
to which states collect data on federal funding passed through to
nonprofit organizations, we spoke to officials from the three states
obtaining the most federal assistance funds in 2006, based on the FAADS
data from that year--California, New York, Texas--as well as two states
suggested by others as developing information systems to track those
funds--Michigan and Maryland. We discussed their present and planned
activities to track these funds and, when available, obtained limited
information that they collected.
* Credit--In addition to using data from FAADS, we assessed federal
funding to nonprofit organizations through credit programs by examining
the Office of Management and Budget's (OMB) compilation of data on
federal credit programs in the President's Budget.[Footnote 39] OMB
reports on the face value of federal credit outstanding as well as the
estimated future cost of outstanding federal credit.
* Tax Policy--To assess the costs of tax policies that benefit
nonprofit organizations, we reviewed the literature on nonprofits and
taxes and reviewed estimates of the value of nonprofits' tax exemption
and the revenue loss estimates associated with various specific tax
expenditures. In particular, we assessed estimates of the costs of
several specific tax expenditures that benefit nonprofit organizations
in the Department of the Treasury's Office of Tax Analysis list of tax
expenditures and estimates of their cost as reported by OMB in the
President's Budget submission.[Footnote 40] We had analyzed the
development of these estimates extensively for recent work.[Footnote
41] We did not attempt to identify all tax expenditures that involve
nonprofit organizations. In several cases, estimates of the cost of tax
expenditures include tax expenditures involving nonprofit and other
entities. For example, the exclusion of interest for hospital
construction bonds benefits nonprofit and other hospitals. We were
unable to distinguish the portion of these tax expenditures that
involved nonprofit organizations.
[End of section]
Appendix II: Nonprofit Identification in Key Data Systems:
To assess how reliably nonprofit organizations are identified within
key data systems for our purposes, we tested random samples of
populations from various segments of these databases against
alternative sources. We tested samples of records in the Federal Awards
and Assistance Data System (FAADS), Federal Procurement Data System--
Next Generation (FPDS-NG), and Medicare's Provider of Services (POS)
and Health Plan Management System (HPMS).[Footnote 42] For FAADS, our
testing is based on a sample of 96 records coded as nonprofit
organizations and 97 records coded as other entity types. For FPDS-NG,
we tested 95 vendors that were consistently coded as nonprofit
organizations, and 96 vendors of all other types. For the POS, we
tested 96 providers including nonprofit and other types. We tested 87
HPMS plans.
For each of these samples, we compared the nonprofit status of records
with organizations' status in several sources including the Internal
Revenue Service's Business Master File,[Footnote 43] the 2002 Census of
Governments,[Footnote 44] the 2005 Higher Education Directory,[Footnote
45] the American Hospital Association's 2007 Guide,[Footnote 46] and
information from the Department of Housing and Urban Development (HUD)
that is compiled by the National Housing Trust on housing developments.
Since we relied on matching organizations by name and location across
these data sources, we used our professional judgment based on the
preponderance of the evidence across multiple data sources in assessing
whether a given organization was a nonprofit or other entity type.
Because of limitations involved with name searches and the lack of
comprehensive sources for entities that are not nonprofit
organizations, we were unable to verify the status of a significant
portion of sampled records in many of these data sources, as shown in
table 4 below. We also estimate that a significant portion of records
in FAADS and vendors in FPDS-NG are miscoded for the purposes of our
assessment. These are not necessarily errors since these databases use
various definitions of nonprofit organizations in their systems, none
of which align exactly with our definition of a nonprofit.
Table 4: Estimated Reliability of Nonprofit Identification in Key Data
Systems Based on Samples of Records:
Database and segment of records: FAADS: Nonprofits;
Percent estimated to be correctly identified (with 95 percent
confidence interval): 70; (60-79);
Percent unable to verify (with 95 percent confidence interval): 22;
(14-31);
Percent estimated to be miscoded for our purposes (with 95 percent
confidence interval)[A]: 8; (4-16).
Database and segment of records: FAADS: All other recipients[B];
Percent estimated to be correctly identified (with 95 percent
confidence interval): 59; (48-69);
Percent unable to verify (with 95 percent confidence interval): 36;
(27-46);
Percent estimated to be miscoded for our purposes (with 95 percent
confidence interval)[A]: 5; (2-12).
Database and segment of records: FPDS-NG[C]: Nonprofits;
Percent estimated to be correctly identified (with 95 percent
confidence interval): 74; (64-82);
Percent unable to verify (with 95 percent confidence interval): 11;
(5-19);
Percent estimated to be miscoded for our purposes (with 95 percent
confidence interval)[A]: 16; (9-25).
Database and segment of records: FPDS-NG[C]: All other recipients;
Percent estimated to be correctly identified (with 95 percent
confidence interval): 100; (97-100);
Percent unable to verify (with 95 percent confidence interval): 0;
(0-3);
Percent estimated to be miscoded for our purposes (with 95 percent
confidence interval)[A]: 0; (0-3).
Database and segment of records: Medicare Provider of Services (POS);
Percent estimated to be correctly identified (with 95 percent
confidence interval): 91; (83-96);
Percent unable to verify (with 95 percent confidence interval): 8;
(4-16);
Percent estimated to be miscoded for our purposes (with 95 percent
confidence interval)[A]: 1; (0-6).
Database and segment of records: Medicare Health Plan Management System
(HPMS)[D];
Percent estimated to be correctly identified (with 95 percent
confidence interval): 82; (72-89);
Percent unable to verify (with 95 percent confidence interval): 2;
(0-8);
Percent estimated to be miscoded for our purposes (with 95 percent
confidence interval)[A]: 16; (9-26).
Source: GAO analysis of Census Bureau, CMS, General Services
Administration, and OMB data.
Notes: GAO analysis of Federal Awards and Assistance Data System
(FAADS), Federal Procurement Data System--Next Generation (FPDS-NG),
Medicare Provider of Services (POS) and Health Plan Management System
(HPMS) data.
[A] Though miscoded for the purposes of our assessment, these are not
necessarily errors because databases use various definitions of
nonprofit organizations in their systems none of which align exactly
with our definition of a nonprofit.
[B] This includes those records in FAADS that are not labeled as
nonprofit organizations or private institutions of higher education.
[C] FPDS-NG samples were drawn from the set of vendors who were
consistently labeled in FPDS-NG. This assessment excludes 1,768 vendors
in FAADS with some contract actions where they are labeled as nonprofit
organizations and other contract actions where they are labeled as
other recipient types.
[D] Most entities that we labeled as miscoded in the HPMS system were
due to Blue Cross/Blue Shield plans that were listed as nonprofit
organizations. Because these organizations are not federal tax-exempt
organizations, we did not include them in our definition of nonprofit
organizations.
[End of table]
We used the same approach and sources to assess the portion of records
in FAADS labeled as private institutions of higher education that were
nonprofit organizations. Based on our tests of a sample of 96 records,
we estimate that 95 percent are nonprofit organizations (with a 95
percent confidence interval of 88-98 percent).
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov:
Acknowledgments:
In addition to the contact named above, Thomas James, Assistant
Director; Carol Patey, Analyst-in-Charge; James Ashley; Kathleen Boggs;
David Dornisch; Kathryn Edelman; Mark Egger; Shannon Finnegan; Quindi
Franco; Arthur James; Martha Kelly; Julia Kennon; Thomas McCabe;
Jessica Nierenberg; and Carolyn Yocom made key contributions to this
report.
[End of section]
Footnotes:
[1] Except where otherwise noted, we use 2006 to refer to the federal
2006 fiscal year.
[2] The Federal Funding Accountability and Transparency Act of 2006
(FFATA) requires the federal government to collect and report data on
subawards.
[3] The Urban Institute, "The Nonprofit Sector in Brief: Facts and
Figures from the Nonprofit Almanac 2008" (2008), [hyperlink,
http://nccs.urban.org/statistcs/quickfacts.cfm] (downloaded Oct. 24,
2008). Data only include nonprofits with gross receipts greater than
$25,000 that filed Form 990 with the Internal Revenue Service (IRS).
Also, revenues from certain religious organizations, such as churches,
may not be included because they are not required to register with the
IRS, although some have chosen to do so.
[4] For the purposes of this review, we define nonprofit organizations
as any organization having federal tax-exempt status as approved by the
IRS under section 501(a) of the Internal Revenue Code. This includes
all organizations covered under section 501(c) of the Internal Revenue
Code, such as charities, social welfare organizations, and chambers of
commerce.
[5] U.S. Internal Revenue Service, Data Book, [hyperlink,
http://www.irs.gov/pub/irs-soi/07dbexemptact.pdf] (downloaded June 11,
2008).
[6] These figures only include revenues from charities classified as
501(c)(3) organizations and do not include 501(c)(3) private
foundations and other tax-exempt organizations, such as trade
organizations and labor unions. Also, revenues from certain religious
organizations, such as churches, may not be included because they are
not required to register with the IRS, although some have chosen to do
so.
[7] After receiving tax-exempt recognition, many nonprofit
organizations must annually file an information return, Form 990 (or
990-EZ), to report their financial transactions and activities. In
2005, certain religious organizations and entities with gross receipts
of $25,000 or less were not required to file annual information
returns.
[8] Amy Blackwood, Kennard T. Wing, and Thomas H. Pollak, "The
Nonprofit Sector in Brief--Facts and Figures from the Nonprofit Almanac
2008: Public Charities, Giving, and Volunteering" (Urban Institute,
2008), [hyperlink, http://nccs.urban.org/statistics/quickfacts.cfm]
(downloaded Oct. 24, 2008).
[9] See GAO, Nonprofit Sector: Increasing Numbers and Key Role in
Delivering Federal Services, [hyperlink,
http://www.gao.gov/products/GAO-07-1084T] (Washington, D.C.: July 24,
2007), 4. Data from National Center for Charitable Statistics (using
the IRS Business Master File, May 2006), [hyperlink,
http://nccsdataweb.urban.org/NCCS/Public/index.php] (downloaded Dec.
18, 2006).
[10] GAO, Tax-Exempt Sector: Governance, Transparency, and Oversight
Are Critical for Maintaining Public Trust, [hyperlink,
http://www.gao.gov/products/GAO-05-561T] (Washington, D.C.: Apr. 20,
2005), 10.
[11] [hyperlink, http://www.gao.gov/products/GAO-07-1084T].
[12] The Federal Grant and Cooperative Agreement Act of 1977 discusses
the use of grant relationships versus procurement contracts. The act's
provisions are intended to prescribe criteria for executive agencies in
selecting appropriate legal instruments to achieve uniformity in grant
and cooperative agreement use, a clear definition of the relationships
they reflect, and a better understanding of the responsibilities of the
parties to them. The distinction between these two forms of assistance
is that substantial involvement is expected between the executive
agency and the state, local government, or other recipient when
carrying out the activity contemplated in a cooperative agreement,
whereas such involvement is not expected in carrying out a grant
agreement (see 31 U.S.C. § 6304-05). Cooperative agreements are useful
where federal project management would be helpful due to the novelty or
complexity involved, where collaborative research is desirable, or
federal involvement is needed in early stages where standards are being
developed. Given the similarity between these two forms of assistance,
we refer to grants and cooperative agreements as grants in the
remainder of this report.
[13] Pub. L. No. 109-282, 120 Stat. 186 (Sept. 26, 2006).
[14] The Single Audit Act requires nonfederal entities that expend
$500,000 or more annually in federal awards to undergo an audit. 31
U.S.C. § 7502. However, entities spending less than $500,000 in federal
awards are not required to undergo an audit and therefore information
on these entities is not provided in the Federal Audit Clearinghouse.
[15] See GAO, Temporomandibular Joint and Muscle Disorders: NIH
Supports a Wide Range of Research, [hyperlink,
http://www.gao.gov/products/GAO-08-454R] (Washington, D.C.: Apr. 4,
2008).
[16] Although electricity cooperatives may not be traditionally
considered nonprofit organizations, they fall under the definition of
"nonprofit" used in this report because they are classified as tax-
exempt entities under the tax code.
[17] However, exempt organizations are subject to tax on income earned
through activities that are unrelated to their tax-exempt purpose,
commonly referred to as unrelated business income tax. 26 U.S.C. §
501(b).
[18] For additional information on tax expenditures, see GAO,
Government Performance and Accountability: Tax Expenditures Represent a
Substantial Federal Commitment and Need to Be Reexamined, [hyperlink,
http://www.gao.gov/products/GAO-05-690] (Washington, D.C.: Sept. 23,
2005).
[19] Individuals may also deduct charitable contributions to federal,
state, and local governments if the contribution is solely for public
purposes.
[20] Depending on the state, nonprofit organizations may compete with
for-profit entities for state-allocated Social Services Block Grant
funds.
[21] An official from the Centers for Medicare & Medicaid Services
stated that oversight over nonprofit and for-profit contract providers
is the same within the managed care and part B components of Medicare,
which cover hospital insurance and insurance coverage for physician
visits.
[22] Pub. L. No. 97-255, 96 Stat. 814 (Sept. 8, 1982), codified at 31
U.S.C. § 3512(c); see also Office of Management and Budget, Revisions
to OMB Circular A-123, Management's Responsibility for Internal Control
(Washington, D.C.: Dec. 21, 2004).
[23] Woods Bowman and Marion Fremont-Smith, "Nonprofits and State and
Local Governments," in Nonprofits and Government: Collaboration and
Conflict (Washington, D.C.: The Urban Institute Press, 2006), 193.
[24] See GAO, Reliability of Federal Procurement Data, [hyperlink,
http://www.gao.gov/products/GAO-04-295R] (Washington, D.C.: Dec. 30,
2003); Improvements Needed to the Federal Procurement Data System-Next
Generation, [hyperlink, http://www.gao.gov/products/GAO-05-960R]
(Washington, D.C.: Sept. 27, 2005); Alaska Native Villages: Recent
Federal Assistance Exceeded $3 Billion, with Most Provided to Regional
Nonprofits, [hyperlink, http://www.gao.gov/products/GAO-05-719]
(Washington, D.C.: Aug. 2, 2005).
[25] GAO, Rural Economic Development: More Assurance Is Needed That
Grant Funding Information Is Accurately Reported, [hyperlink,
http://www.gao.gov/products/GAO-06-294] (Washington, D.C.: Feb. 24,
2006), 23.
[26] Central Contractor Registration, CCR Handbook (March 2008), p. 12.
[27] See [hyperlink, http://www.gao.gov/products/GAO-04-295], 5;
[hyperlink, http://www.gao.gov/products/GAO-05-960R], 5; and
[hyperlink, http://www.gao.gov/products/GAO-06-294], 32.
[28] CCR is the primary registrant database used by the federal
government to collect, validate, store, and disseminate data in support
of agency procurement activities. Currently, organizations must
register in CCR to be awarded contracts by the federal government.
[29] Figures from these two data systems are not entirely comparable
because (1) funding in FAADS is primarily obligations, whereas Medicare
figures refer to outlays; and (2) FAADS refers to the federal fiscal
year while Medicare figures are for the calendar year.
[30] Figures for Medicare managed care and prescription drug care
plans, totaling $26 billion in calendar year 2006, include some
payments to Blue Cross/Blue Shield plans that are not federal tax-
exempt organizations.
[31] According to the FAADS reporting manual, amounts in FAADS for
direct loans are "the gross amount of the loan" and guaranteed loans
are the "amount of the Federal Government's contingent liability." OMB
and U.S. Department of Commerce, Bureau of the Census, Federal
Assistance Award Data System Reporting Manual for Federal Fiscal Year
2006 (2006), 25. However, OMB has reported that FAADS only includes
loan guarantee information when a default claim payment has been made.
[32] According to data from FAADS, 20 percent of Federal Direct Student
Loans went to nonprofit organizations in 2006. We therefore estimated
that 20 percent of total outstanding direct and guaranteed federal
student loans were used at nonprofit schools.
[33] The future costs are the subsidy cost and estimated uncollectible
principal and interest for direct loans, and estimated liabilities for
loan guarantees. The subsidy cost, as defined by the Federal Credit
Reform Act of 1990, is the government's estimated net long-term cost,
in present value terms, of direct or guaranteed loans over the entire
period the loans are outstanding.
[34] Generally, tax expenditure costs are estimated by comparing the
revenue raised under current law with revenue that would have been
raised if a given provision did not exist, assuming all other parts of
the tax code remain constant and taxpayer behavior is unchanged. These
revenue loss estimates are intended to provide information about the
value of tax expenditures. However, tax expenditure estimates do not
incorporate any behavioral responses and thus do not necessarily
represent the exact amount of revenue that would be gained if a
specific tax expenditure were repealed. In addition, the value of the
tax expenditure depends on baselines used and various other
assumptions.
[35] Evelyn Brody and Joseph J. Cordes, "Tax Treatment of Nonprofit
Organizations: A Two-Edged Sword?" in Nonprofits and Government:
Collaboration & Conflict, 2nd ed. (Washington, D.C.: The Urban
Institute Press, 2006), 141-180.
[36] Congressional Budget Office, Taxing the Untaxed Business Sector
(Washington, D.C., July 2005).
[37] Aggregate tax expenditure estimates must be interpreted carefully
because of inherent limitations in the meaning of the summed estimates.
The sum of the individual tax expenditure estimates is useful for
gauging the general magnitude of revenue forgone through provisions of
the tax code but does not take into account interactions between
individual provisions.
[38] The Service Annual Survey 2006 includes revenues at government-
operated hospitals along with revenues at tax-exempt establishments.
Therefore, in order to get revenues at private tax-exempt institutions
corresponding to our definition of nonprofit organizations, we subtract
revenues to government hospitals from total revenues at tax-exempt
firms.
[39] Office of Management and Budget, Analytical Perspectives, Budget
of the United States Government, Fiscal Year 2009 (Washington, D.C.:
2008).
[40] Generally, tax expenditure costs are estimated by comparing the
revenue raised under current law with revenue that would have been
raised if a given provision did not exist, assuming all other parts of
the tax code remain constant and taxpayer behavior is unchanged. These
revenue loss estimates are intended to provide information about the
value of tax expenditures. However, tax expenditure estimates do not
incorporate any behavioral responses and thus do not necessarily
represent the exact amount of revenue that would be gained if a
specific tax expenditure were repealed. In addition, the value of the
tax expenditure depends on baselines used and various other
assumptions.
[41] GAO, Government Performance and Accountability: Tax Expenditures
Represent a Substantial Federal Commitment and Need to Be Reexamined,
[hyperlink, http://www.gao.gov/products/GAO-05-690] (Washington, D.C.:
Sept. 23, 2005), 79-81.
[42] Each of these systems was tested at different levels because of
how the data are collected. We tested FAADS records at the obligation
or award level such that one recipient may be associated with multiple
records. FPDS-NG and Medicare data were tested at the vendor or
provider level and may have multiple funding actions associated with
each vendor.
[43] Internal Revenue Service, Business Master File [hyperlink,
http://www.irs.gov/taxstats/charitablestats/article/0,,id=97186,00.html,
downloaded on Aug. 6, 2008, containing data that had been updated as
of July 31, 2008).
[44] U.S. Census Bureau, 2002 Census of Governments: Governments
Integrated Directory Public Use Files [hyperlink,
http://www.census.gov/govs/www/cog2002.html], downloaded Sept. 18,
2008).
[45] Higher Education Publications, Inc., 2005 Higher Education
Directory (Falls Church, Va., 2005).
[46] American Hospital Association, AHA Guide 2007 (Chicago, Ill.,
2007). We considered the following control codes in the AHA Guide to be
nonprofit organizations: church operated nongovernment nonprofit, other
nongoverment nonprofit, church operated osteophathic, and other not-for-
profit osteophathic. All other control codes were considered to be
other entity types.
[End of section]
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