Accountability, efficiency, and the "bottom line" in non-profit organizations

Financial reporting by non-profit organizations deals only with accountability for propriety and regularity, and ignores output measurement. The development of output measures of a physical or index nature offers a means of relating dollar costs to output in the form of cost-efficiency or cost-effectiveness measures, but does not provide any measure of the absolute value or worthwhileness of such programs. This fundamental absolute value question should be asked of all non-profit programs and documented to the greatest possible extent in budgetary submissions, and subsequent control and audit. In public sector non-profit programs, the posing of this question requires information on consumer demand other than in aggregative and imprecise form through the political process, and much improved information on the cost side. Eliciting demand information is feasible in the case of public programs with separable benefits by the use of a variety of pricing techniques, direct or imputed, whether or not the service in question is ultimately financed on a user-pay basis. The problem of eliciting demand is more difficult in the case of public goods, but improved demand information can be obtained, ideally by an approach such as the use of a Clarke tax. The argument can be extended to encompass questions of income distribution, stabilization, regulation and tax policy. Recent developments in program evaluation in the federal government are important, but remain deficient in failing to address the question of absolute value.