Nancy Lublin's Advice to Nonprofits

The Economist recently interviewed Nancy Lublin, who founded Dress for Success and runs dosomething.org, about nonprofits. I disagree with the way Nancy characterizes one piece of advice that she gave to her listeners. She suggests, toward the end of the interview, that nonprofits do a good job of breaking out their SG&A, the sales, general and administrative costs that they incur as part of their normal operations, whereas for-profits are opaque and report them as one lumped category.

First, if a for-profit's financial statements to the SEC, the 10-K and the 10-Q, do not break out SG&A, that does not mean that the company does not break out these costs in internal memos to its employees.  Companies could, and I am sure that some do, explain some expenses internally at a greater length than they explain them to outsiders.

Second, the extent to which nonprofits must break out their administrative expenses on their 990 forms to the SEC is regulated by law.  The detail into which nonprofits go, therefore, is not necessarily the detail to which they would have liked to go if they had been given the choice.

Third, I doubt that many nonprofits distribute the 990s to their employees, teach them how to read those forms, or even that all employees of large nonprofits are aware that these forms exist.  These forms are not the most complex financial disclosure documents, but they do require a level of financial literacy to understand (plus one must know where to find these forms).  Therefore, it is not necessarily the case that nonprofit employees know how much their organization spent on, say, postage, as Nancy Lublin claims.

Overall, although greater financial disclosure does offer some benefits -- such as keeping runaway spending in check -- nonprofits are not the shining beacon of financial disclosure that Nancy, for a brief second, made them appear to be.