How Do Government Grants Affect Nonprofit Financial Effectiveness? The Mediation Role of Process Accountability

Abstract

This study examines the role of process accountability in the association between government grants and nonprofit financial effectiveness. Using the Internal Revenue Service Form 990 from 2013 to 2017, our mediation analyses find that government grants make nonprofits accountable for their processes. However, process accountability can reduce nonprofit financial effectiveness and suppress the positive relationship between government grants and nonprofit financial effectiveness. We uncover the underlying mechanism by which government grants affect nonprofit financial efficacy and suggest that too much emphasis on process accountability may hamper the benefits of government support of nonprofit service provision and financial effectiveness.

Keywords

process accountability financial effectiveness government grants nonprofit-government relationship

Get full access to this article

View all access options for this article.

References

Alexander

Brudney

J. L.

Yang

(2010). Introduction to the symposium: Accountability and performance measurement: The evolving role of nonprofits in the hollow state. Nonprofit and Voluntary Sector Quarterly, 39(4), 565–570. https://doi.org/10.1177/0899764010369662

Baber

W. R.

Gore

A. K.

(2008). Consequences of GAAP disclosure regulation: Evidence from municipal debt issues. Accounting Review, 83(3), 565–591. https://doi.org/10.2308/accr.2008.83.3.565

Benjamin

L. M.

(2008). Bearing more risk for results: Performance accountability and nonprofit relational work. Administration & Society, 39(8), 959–983.

Blomqvist

Winblad

(2022). Contracting out welfare services: How are private contractors held accountable? Public Management Review, 24(2), 233–254. https://doi.org/10.1080/14719037.2020.1817530

Boris

E. T.

de Leon

Roeger

Nikolova

(2010). Human service nonprofits and government collaboration. Urban Institute.

Bovens

(2009). Public accountability. In E. Ferlie, L. E. Lynn Jr., & C. Pollitt (Eds.), The Oxford handbook of public management (pp. 182–208). Oxford University Press. https://doi.org/10.1093/oxfordhb/9780199226443.003.0009

Bovens

Schillemans

Hart

P. T.

(2008). Does public accountability work? An assessment tool. Public Administration, 86(1), 225–242. https://doi.org/10.1111/j.1467-9299.2008.00716.x

Bowman

(2011). Financial capacity and sustainability of ordinary nonprofits. Nonprofit Management and Leadership, 22(1), 37–51. https://doi.org/10.1002/nml.20039

Calabrese

T. D.

(2011). Public mandates, market monitoring, and nonprofit financial disclosures. Journal of Accounting and Public Policy, 30(1), 71–88. https://doi.org/10.1016/j.jaccpubpol.2010.09.007

10.

Carroll

D. A.

Stater

K. J.

(2009). Revenue diversification in nonprofit organizations: Does it lead to financial stability. Journal of Public Administration Research and Theory, 19, 947–966.

11.

Cheng

Y. D.

(2019). Nonprofit spending and government provision of public services: Testing theories of government-nonprofit relationships. Journal of Public Administration Research and Theory, 29(2), 238–254. https://doi.org/10.1093/jopart/muy054

12.

Christensen

R. A.

Ebrahim

(2006). How does accountability affect mission? The case of a nonprofit serving immigrants and refugees. Nonprofit Management and Leadership, 17, 195–209. https://doi.org/10.1002/nml.143

13.

Coule

T. M.

(2015). Nonprofit governance and accountability: Broadening the theoretical perspective. Nonprofit and Voluntary Sector Quarterly, 44(1), 75–97. https://doi.org/10.1177/0899764013503906

14.

Coupet

Albrecht

Williams

Farruggia

(2020). Collaborative value in public and nonprofit strategic alliances: Evidence from transition coaching. Administration & Society, 52(3), 405–430. https://doi.org/10.1177/0095399719834270

15.

Coupet

Schehl

(2022). Government grants, donors, and nonprofit performance. Journal of Public Administration Research and Theory, 32(1), 97–110. https://doi.org/https://doi.org/10.1093/jopart/muab022

16.

Cunningham

J. B.

(1978). A systems-resource approach for evaluating organizational effectiveness. Human Relations, 31(7), 631–656.

17.

DiMaggio

P. J.

Powell

W. W.

(1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147–160. https://doi.org/10.2307/2095101

18.

Dubnick

M. J.

Yang

(2010). The pursuit of accountability: Promise, problems, and prospects. In Menzel

White

(Eds.), The state of public administration, issues, challenges, opportunities (pp. 171–186). M. E. Sharpe.

19.

Ebrahim

(2003). Making sense of accountability: Conceptual perspectives for northern and southern nonprofits. Nonprofit Management and Leadership, 14(2), 191–212. https://doi.org/10.1002/nml.29

20.

Ebrahim

(2016). The many faces of nonprofit accountability. In Renz

D. O.

Herman

R. D.

(Eds.), The Jossey-Bass handbook of nonprofit leadership and management (pp. 102–123). https://doi.org/10.1002/9781119176558.ch4

21.

Edwards

Hulme

(1996). Beyond the magic bullet: NGO performance and accountability in the post-cold war world. Kumarian.

22.

Eikenberry

A. M.

Kluver

J. D.

(2004). The marketization of the nonprofit sector: Civil society at risk? Public Administration Review, 64(2), 132–140. https://doi.org/10.1111/j.1540-6210.2004.00355.x

23.

Forbes

D. P.

(1998). Measuring the unmeasurable: Empirical studies of nonprofit organization effectiveness from 1977 to 1997. Nonprofit and Voluntary Sector Quarterly, 27(2), 183–202.

24.

Froelich

K. A.

(1999). Diversification of revenue strategies: Evolving resource dependence in nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 28(3), 246–268. https://doi.org/10.1177/0899764099283002

25.

Frumkin

Kim

M. T.

(2002). The effect of government funding on nonprofit administrative efficiency: An empirical test. Kennedy School of Government.

26.

Gammelgaard

McDonald

Stephan

Tüselmann

Dörrenbächer

(2012). The impact of increases in subsidiary autonomy and network relationships on performance. International Business Review, 21, 1158–1172. https://doi.org/10.1016/j.ibusrev.2012.01.001

27.

Garven

S. A.

Hofmann

M. A.

McSwain

D. N.

(2016). Playing the numbers game. Nonprofit Management and Leadership, 26, 401–416.

28.

Girth

A. M.

(2014). A closer look at contract accountability: Exploring the determinants of sanctions for unsatisfactory contract performance. Journal of Public Administration Research and Theory, 24(2), 317–348. https://doi.org/10.1093/jopart/mus033

29.

Greiling

Stötzer

(2015). Performance accountability as a driver for changes in nonprofit–Government relationships: An empirical insight from Austria. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations Volume, 26, 1690–1717.

30.

Guo

(2007). When government becomes the principal philanthropist: The effects of public funding on patterns of nonprofit governance. Public Administration Review, 67(3), 458–473.

31.

Guo

Acar

(2005). Understanding collaboration among nonprofit organizations: Combining resource dependency, institutional, and network perspectives. Nonprofit and Voluntary Sector Quarterly, 34(3), 340–361.

32.

Hager

M. A.

(2001). Financial vulnerability among arts organizations: A test of the Tuckman-Chang measures. Nonprofit and Voluntary Sector Quarterly, 30(2), 376–392. https://doi:10.1177/0899764001302010

33.

Han

(2020). The impact of accountability deficit on agency performance: Performance-accountability regime. Public Management Review, 22(6), 927–948. https://doi.org/10.1080/14719037.2019.1679237

34.

Han

Hong

(2019). The impact of accountability on organizational performance in the U.S. federal government: The moderating role of autonomy. Review of Public Personnel Administration, 39(1), 3–23. https://doi.org/10.1177/0734371X16682816

35.

Hatry

H. P.

Morley

Rossman

S. B.

Wholey

(2005). How federal programs use outcome information: Opportunities for federal managers. In Kamensky

J. M.

Morales

(Eds.), Managing for results 2005 (pp. 197–274). Rowman & Littlefield Publishers.

36.

Herman

R. D.

(2009). Are public service nonprofit boards meeting their public responsibilities? Public Administration Review, 69(3), 387–390.

37.

Hung

Hager

M. A.

(2019). The impact of revenue diversification on nonprofit financial health: A meta-analysis. Nonprofit and Voluntary Sector Quarterly, 48(1), 5–27.

38.

Internal Revenue Service. (n.d.-a). Form 990 resources and tools. Form 990 Resources and Tools. https://www.irs.gov/charities-non-profits/form-990-resources-and-tools

39.

Internal Revenue Service. (n.d.-b). Instructions for form 990 return of organization exempt from income tax. https://www.irs.gov/pub/irs-pdf/i990.pdf

40.

Internal Revenue Service. (n.d.-c). IRS makes electronically filed form 990 data available in new format. https://www.irs.gov/newsroom/irs-makes-electronically-filed-form-990-data-available-in-new-format

41.

James

L. R.

Brett

J. M.

(1984). Mediators, moderators, and tests for mediation. Journal of Applied Psychology, 69(2), 307–321. https://doi.org/10.1037/0021-9010.69.2.307

42.

Jaskyte

(2013). Does size really matter? Organizational size and innovations in nonprofit organizations. Nonprofit Management and Leadership, 24(2), 229–247. https://doi.org/https://doi.org/10.1002/nml.21087

43.

Kearns

K. P.

(1996). Managing for accountability: Preserving the public trust in public and nonprofit organizations. Jossey-Bass.

44.

Kim

(2017). The relationship of nonprofits’ financial health to program outcomes empirical evidence from nonprofit arts organizations. Nonprofit and Voluntary Sector Quarterly, 46(3), 525–548. https://doi.org/https://doi.org/10.1177/0899764016662914

45.

Knutsen

W. L.

Brower

R. S.

(2010). Managing expressive and instrumental accountabilities in nonprofit and voluntary organizations: A qualitative investigation. Nonprofit and Voluntary Sector Quarterly, 39, 588–610. https://doi.org/10.1177/0899764009359943

46.

Koppell

(2005). Pathologies of accountability: ICANN and the challenge of multiple accountabilities disorder. Public Administration Review, 65 (1), 94-108. https://doi.org/10.1111/j.1540-6210.2005.00434.x

47.

Kramer

R. M.

Grossman

(1987). Contracting for social services: Process management and resource dependencies. Social Service Review, 61(61), 35–55. https://doi.org/10.1086/644417

48.

Lambright

K. T.

(2009). Agency theory and beyond: Contracted providers’ motivations to properly use service monitoringTools. Journal of Public Administration Research and Theory, 19(2), 207–227. https://doi.org/10.1093/jopart/mun009

49.

Lee

Rethemeyer

R. K.

Park

H. H.

(2018). How does policy funding context matter to networks? Resource dependence, advocacy mobilization, and network structures. Journal of Public Administration Research and Theory, March, 28(3), 388–405. https://doi.org/10.1093/jopart/muy016

50.

Lee

(2021). When tensions become opportunities: Managing accountability demands in collaborative governance. Journal of Public Administration Research and Theory. muab051, https://doi.org/10.1093/jopart/muab051

51.

Lee

Y.-J.

(2016). What encourages nonprofits’ adoption of good governance policies? Nonprofit Management and Leadership, 27(1), 95–112.

52.

LeRoux

(2009). Managing stakeholder demands balancing responsiveness to clients and funding agents in nonprofit social service organizations. Administration & Society, 41(2), 158–184.

53.

Liket

K. C.

Maas

(2015). Nonprofit organizational effectiveness: Analysis of best practices. Nonprofit and Voluntary Sector Quarterly, 44(2), 268–296. https://doi.org/10.1177/0899764013510064

54.

(2016). The performance of performance-based contracting in human services: A quasi-experiment. Journal of Public Administration Research and Theory, 26(2), 277–293. https://doi.org/10.1093/jopart/muv002

55.

(2015). Which nonprofit gets more government funding? Nonprofits’ organizational attributes and their receipts of government funding. Nonprofit Management and Leadership, 25(3), 297–312. https://doi.org/https://doi.org/10.1002/nml.21124

56.

Luksetich

(2008). Government funding and nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 37(3), 434–442. https://doi.org/10.1177/0899764007310415

57.

MacKinnon

D. P.

Fairchild

A. J.

Fritz

M. S.

(2007). Mediation analysis. Annual Review of Psychology, 58, 593–614.

58.

MacKinnon

D. P.

Krull

J. L.

Lockwood

C. M.

(2000). Equivalence of the mediation, confounding and suppression effect. Prevention Science, 1(4), 173–181. https://doi.org/10.1023/A:1026595011371

59.

Matsunaga

Yamauchi

Okuyama

(2010). What determines the size of the nonprofit sector?: A cross-country analysis of the government failure theory. Voluntas, 21(2), 180–201. https://doi.org/10.1007/s11266-010-9125-9

60.

Mitchell

G. E.

(2017). Fiscal leanness and fiscal responsiveness: Exploring the normative limits of strategic nonprofit financial management. Administration & Society, 49(9), 1272–1296. https://doi.org/10.1177/0095399715581035

61.

Mitchell

G. E.

(2018). Modalities of managerialism: The “double bind” of normative and instrumental nonprofit management imperatives. Administration & Society, 50(7), 1037–1068. https://doi.org/10.1177/0095399716664832

62.

Moynihan

D. P.

Ingraham

P. W.

(2007). The reality of results: Managing for results in state and local government. In Ingraham

P. W.

(Ed.), In pursuit of performance: Management systems in state and local government (pp. 151–177). The Johns Hopkins University Press.

63.

Najam

(1996). NGO accountability: A conceptual framework. Development Policy Review, 14, 339–353. https://doi.org/10.1111/j.1467-7679.1996.tb00112.x

64.

Office of Management and Budget. (2014). Uniform administrative requirements, cost principles, and audit requirements for federal awards. Author. https://www.grants.gov/web/grants/learn-grants/grant-policies/omb-uniform-guidance-2014.html

65.

Ostrower

(2007). Nonprofit governance in the United States: Findings on performance and accountability from the First National Representative Study. The Urban Institute.

66.

Park

H. H.

Rethemeyer

R. K.

(2014). The politics of connections: Assessing the determinants of social structure in policy networks. Journal of Public Administration Research and Theory, 24(2), 349–379. https://doi.org/10.1093/jopart/mus021

67.

Park

Mosley

(2017). Nonprofit growth and decline during economic uncertainty. Human Service Organizations Management, Leadership and Governance, 41(5), 515–531. https://doi.org/10.1080/23303131.2017.1347539

68.

Park

Y. J.

Peng

(2020). Advancing public health through tax-exempt hospitals: Nonprofits’ revenue streams and provision of collective goods. Nonprofit and Voluntary Sector Quarterly, 49(2), 357–379. https://doi.org/https://doi.org/10.1177/0899764019872007

69.

Park

Y. J.

Shon

(2021). Predicting organizational mortality: How financial management matters. Administration & Society, 54(5), 828–856.https://doi.org/https://doi.org/10.1177/00953997211045068

70.

Parks

(2008). The rise and fall of donor funding for advocacy NGOs: Understanding the impact. Development in Practice, 18(2), 213–222. https://doi.org/10.1080/09614520801899036

71.

Pfeffer

(1982). Organizations and Organization Theory. Pitman.

72.

Pfeffer

Salancik

G. R.

(1978). The external perspective on organizations: A resource dependence perspective. Harper & Row.

73.

Posner

P. L.

(2002). Accountability challenges of third-party government. In Salamon

Lester M.

(Ed.), Tools of government: A guide to the new governance (pp. 523–51). Oxford University Press.

74.

Romzek

B. S.

Dubnick

M. J.

(1987). Accountability in the public sector: Lessons from the challenger tragedy. Public Administration Review, 47(3), 227–238. https://doi.org/10.2307/975901

75.

Romzek

B. S.

Johnston

J. M.

(2005). State social services contracting: Exploring the determinants of effective contract accountability. Public Administration Review, 65(4), 436–449. https://doi.org/10.1111/j.1540-6210.2005.00470.x

76.

Romzek

B. S.

LeRoux

Johnston

Kempf

R. J.

Piatak

J. S.

(2014). Informal accountability in multisector service delivery collaborations. Journal of Public Administration Research and Theory, 24(4), 813–842. https://doi.org/10.1093/jopart/mut027

77.

Saidel

J. R.

(1991). Resource interdependence: The relationship between state agencies and nonprofit organizations. Public Administration Review, 51(6), 543–553. https://doi.org/10.2307/976605

78.

Salamon

L. M.

(1987). Of market failure, voluntary failure, and third-party government: Toward a theory of government-nonprofit relations in the modern welfare state. Nonprofit and Voluntary Sector Quarterly, 16(1–2), 29–49. https://doi.org/10.1177/089976408701600104

79.

Saxton

G. D.

Kuo

J. S.

Y. C.

(2012). The determinants of voluntary financial disclosure by nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 41(6), 1051–1071. https://doi.org/10.1177/0899764011427597

80.

Scott

W. R.

(1987). The adolescence of institutional theory. Administrative Science Quarterly, 32(4), 493–511.

81.

Siegel

G. B.

(1999). Where are we on local government service contracting? Public Productivity & Management Review, 22(3), 365–388. https://doi.org/10.2307/3380709

82.

Sinclair

(1995). The chameleon of accountability: Forms and discourses. Accounting, Organizations and Society, 20 (2-3), 219–237. https://doi.org/10.1016/0361-3682(93)E0003-Y

83.

Snavely

Tracy

M. B.

(2000). Collaboration among rural nonprofit organizations. Nonprofit Management and Leadership, 11(2), 145–165. https://doi.org/10.1002/nml.11202

84.

Tacon

Walters

Cornforth

(2017). Accountability in nonprofit governance: A process-based study. Nonprofit and Voluntary Sector Quarterly, 46(4), 685–704. https://doi.org/10.1177/0899764017691637

85.

Tuckman

H. P.

Chang

C. F.

(1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4), 445–460. https://doi.org/10.1177/089976409102000407

86.

Van Slyke

D. M

. (2007). Agents or stewards: Using theory to understand the government-nonprofit social service contracting relationship. Journal of Public Administration Research and Theory, 17(2), 157–187. https://doi.org/10.1093/jopart/mul012

87.

Vermeer

T. E.

Raghunandan

Forgione

D. A.

(2006). The composition of nonprofit audit committees. Accounting Horizons, 20(1), 75–90. https://doi.org/10.2308/acch.2006.20.1.75

88.

Vermeer

T. E.

Raghunandan

Forgione

D. A.

(2009). Audit fees at U.S. non-profit organizations. Auditing: A Journal of Practice & Theory, 28(2), 289–303. https://doi.org/10.2308/aud.2009.28.2.289

89.

Whitaker

G. P.

Altman-Sauer

Henderson

(2004). Mutual accountability between governments and nonprofits: Moving beyond “surveillance” to “service.” American Review of Public Administration, 34(2), 115–133. https://doi.org/10.1177/0275074004264091

90.

Wholey

(2001). Managing for results: Roles for evaluators in a new management era. American Journal of Evaluation, 23(3), 343–347.

91.

Williams

A. P.

Taylor

J. A.

(2013). Resolving accountability ambiguity in nonprofit organizations. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 24(3), 559–580.

92.

Williams

Allison

P. D.

Moral-Benito

(2018). Linear dynamic panel-data estimation using maximum likelihood and structural equation modeling. The Stata Journal, 18(293), 326. https://doi.org/10.1177/1536867x1801800201

93.

Williamson

O. E.

(1981). The economics of organization: The transaction cost approach. American Journal of Sociology, 548–577.

94.

Wooldridge. (2010). Econometric Analysis of Cross Section and Panel Data (2nd ed.). The MIT Press.

95.

Young

D. R.

(2002). The influence of business on nonprofit organizations and the complexity of nonprofit accountability: Looking inside as well as outside. American Review of Public Administration, 32(1), 3–19. https://doi.org/10.1177/0275074002032001001