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JPBAFM
31,2 Stakeholder groups and
accountability accreditation of
non-profit organizations
218 Nancy Chun Feng
Department of Accounting, Suffolk University,
Received 28 August 2018
Revised 19 November 2018 Boston, Massachusetts, USA
25 January 2019
Accepted 20 February 2019
Daniel Gordon Neely
Sheldon B. Lubar School of Business,
University of Wisconsin-Milwaukee, Milwaukee, Wisconsin, USA, and
Lise Anne D. Slatten
Department of Management,
University of Louisiana at Lafayette, Lafayette, Louisiana, USA

Abstract
Purpose – The purpose of this paper is to test the association between various stakeholder groups and
whether nonprofit organizations (NPOs) have obtained accountability accreditation. In particular, the study
intends to answer the following research questions: Does the governance of an NPO have any impact on the
likelihood that the organization obtains certification? Does an NPO’s investment in executives affect
certification efforts? Does employing a professional fundraiser play a significant role in whether an
organization seeks accreditation? and Are certification efforts influenced by the relative sophistication of
donors of the NPO?
Design/methodology/approach – Data were analyzed by examining information provided in the Internal
Revenue Service revised Form 990, Part VI specifically from organizations holding the Standards for
Excellence® (SFX) certification. This study uses a size- and sector-matched sample of 228 NPOs (half of
which with the SFX certification and half without) to examine the association between accountability and
governance in NPOs in both univariate and multivariate contexts.
Findings – The findings of this study indicate that organizations with strong internal governance (indicated
by their answers to the governance-related questions in Form 990) are more likely to have obtained
certification when compared to a group of nonprofits that did not receive the certification. In addition,
nonprofits that invest more in their executives are more likely to receive SFX certification. Interestingly,
external stakeholders (donors making restricted gifts, and professional fundraisers) are not associated with
the likelihood of holding the SFX certification.
Research limitations/implications – Even though the study has attempted to control for factors that
may have contributed to the findings (e.g. a size- and sector-matched peer for each NPO that secures the
SFX seal in the final sample), it is not feasible to perfectly tease out all alternative explanations for the
findings. Endogeneity issues may still be present given that the sample and comparison groups possess
significantly different governance characteristics (i.e. governance scores, board independence, investments
on executives).
Practical implications – The positive association between organization governance and investment in
executives and the NPO’s certification credentials implies that certification may be used by these certified
organizations as a signaling mechanism for strong governance. This would be consistent with the positive
stakeholders’ reactions to NPOs’ accountability certifications that have been documented by Feng et al. (2016).
The findings should help NPO board and staff members, researchers, and regulators to further understand
the association between stakeholder groups and whether NPOs have obtained accreditation.
Originality/value – A thorough search of the relevant literature suggests that this study is the first one to
link the association between stakeholder influence (proxied by the NPO’s governance strength, investments
in executives, employing a professional fundraiser and donor sophistication) and an NPO’s decision to seek
Journal of Public Budgeting,
accountability accreditation. The findings should provide insights to stakeholders and researchers
Accounting & Financial
Management
Vol. 31 No. 2, 2019
pp. 218-236 The authors wish to thank Amy Coates Madsen, the Director of the Standards for Excellence Institute,
© Emerald Publishing Limited for her assistance in providing the initial list of organizations that obtained the Standards for
1096-3367
DOI 10.1108/JPBAFM-08-2018-0088 Excellence Institute certification and her useful comments.
interested in examining the value of third-party accountability certifications and signaling mechanisms Accountability
in NPOs and inform regulators regarding significant stakeholder influence on NPOs’ accreditation
decision-making process. The results of this study also add to the body of literature on certification accreditation
programs for NPOs. of NPOs
Keywords Governance, Nonprofit organizations, Disclosure, Accountability accreditation,
Nonprofit certification, Stakeholder influence, Standards for excellence®
Paper type Research paper
219
Introduction
The tax-exempt sector has had an interesting history related to transparency, accountability,
governance and oversight. Public serving organizations (those now recognized under Section
501(c)(3) of the Internal Revenue Code) have existed since the USA was organized and created
a democratic form of government. The unique function of these organizations in society was
recognized by the founding fathers and so exemptions from income and other taxes were
established (Arnsberger et al., 2008). The earliest reference to exemptions was in the
Wilson-Gorman Tariff Act of 1894 wherein the requirement that tax-exempt organizations
operate for a charitable purpose was established (Arnsberger et al., 2008). Legislation during
the period between 1894 and 1943 addressed private inurement, created a variety of allowable
tax deductions for charitable donations (individuals and corporations) and set limits on
lobbying activities by charities. The Revenue Act of 1943 required the first Forms 990
(information return) to be filed and reforms in 2007 required that Section 501(c)(3)
organizations make their returns available to the public.
For nearly 75 years in the USA, tax-exempt nonprofit organizations (NPOs) have had the
obligation to file a tax return disclosing specific financial information about their operations
and compliance with tax laws and regulations. In 2008, as a part of the call for more
oversight in the nonprofit sector, a comprehensive list of governance questions was added
with the addition of Part VI on Form 990, entitled “Governance, Management and
Disclosure” (Harris et al., 2015)[1]. Three sections of questions related to governing body and
management, policies, and disclosure are posed to the organizations filing the return.
Questions related to topics such as delegation of authority to an executive committee,
governing documents, meeting minutes, independence of voting members, conflict of
interest policies, whistleblower policies, and the means by which the organization makes
their 990 available for public inspection are in Part VI. The focus of this paper will be on
these governance topics and policies.
Form 990 has evolved and become more complex over the years. At the same time, it
appears that more and more of the information required is not financial information or hard
data – but rather a shift in focus to the programmatic aspects of the organization. More
information is required that tells the story about governance aspects of the organization’s
operations, including information regarding policies and procedures.
Nonprofit governance can generally be described as a wide-reaching set of activities
performed by boards of directors and staff members centered on mission, values and the
strategies to achieve specific objectives. The Board of Directors engages in governance
activities inside and outside of the boardroom. Internal practices may relate to strategic
planning, financial oversight, and monitoring the organization’s performance; while external
practices consist of fundraising and community outreach (Buse et al., 2016). According to the
information asymmetry and signaling theory proposed by Akerlof (1978), Greenwald and
Stiglitz (1986) and Spence (2002), organizations may utilize certification as a signaling
mechanism to demonstrate their strong governance to the public. Certification and
accreditation makes it easier for donors and other stakeholders to identify accountable
organizations and thereby make donation decisions, as well as examine the service quality
metrics related to administration and programming. Today, many use the terms “certification”
JPBAFM and “accreditation” interchangably. While the meanings are similar, there are some slight
31,2 distinctions of note in the context of this paper: “certification” has typically been associated
with manufacturing quality (i.e.: ISO 9000 Certification) and over the last 100 years in the USA,
“accreditation” is generally known as a process to evaluate institutions and programs (Eaton,
2009). “Certification” is viewed as a form of accreditation since accreditation usually indicates
an organization’s overall ability to show competency in multiple areas of management,
220 financial operations and organizational capacity. For the purposes of this paper, the preferred
term is “accreditation.”
It sounds simple, but governance work has proven to be rather complex at all levels. In recent
years the media has had many opportunities to report on NPOs operating under questionable
terms – scandals, self-dealing, lack of appropriate board oversight, corruption and fraud,
unethical business practices and cronyism. These cases of mismanagement, inefficient
management, malfeasance, and ethical lapses have caused many stakeholders – including
regulators, donors, funding organizations, volunteers and the general public – to call for more
scrutiny of NPOs. Generally speaking, public access to governance information has been limited
and difficult to obtain (including on Form 990) until 2008 when mandatory governance
questions were added (Harris et al., 2015).
External stakeholders also have a role in influencing governance. When examining the
issue of stakeholders and the implications of accreditation in NPOs, Slatten et al. (2015)
concluded this group can affect the actions of the organization in a significant way. Donors,
government entities, the media, funding organizations, and other community partners may
all have an interest in high performance standards and improved program/service delivery.
While the Internal Revenue Service (IRS) has been changing the reporting requirements for
NPOs, another contemporaneous movement toward more transparency and accountability
has been unfolding and gaining traction. Many in the nonprofit sector have been engaged in
activities to adopt more uniform operating standards by becoming “certified” or “accredited.”
One, in particular, the Standards for Excellence® (SFX) program, created by the Maryland
Association of Nonprofit Organizations in 1998, offers NPOs a certification process focused on
process improvements and self-assessments (see www.standardsforexcellenceinstitute.org for
complete information). NPOs, consultants and partners throughout the USA participate in the
SFX efforts to help organizations develop and maintain practices and principles that will
improve operations and accountability. The SFX program is one of a handful of such
accreditation efforts. Organizations earn a modern-day version of the “Good Housekeeping
Seal” of approval which can be displayed on all forms of written and digital communications.
GuideStar recently began allowing NPOs to display the seal on their profile page. Such
designations offer stakeholders guidance in a marketplace glutted with a growing number of
NPOs when seeking information, making decisions related to financial support and seeking
volunteer opportunities.
This paper studies the stakeholder influences associated with accountability accreditation.
While prior research has found different dimensions of governance have a positive impact on
the organization (i.e. more donations, better disclosure, and improved financial reporting
accuracy), this study applies a different lens and examines the connection between stakeholders
and the accountability accreditation[2]. In particular, we strive to answer the following
questions: does the governance strength of an NPO influence whether the organization obtains
certification; does the organization’s investment in executives impact certification efforts; does
employing a professional fundraiser influence whether an organization obtains accreditation;
and are certification efforts influenced by the relative sophistication of the donor base? Limited
research has been done on this important aspect of nonprofit management, so we seek to add to
the body of literature on this timely topic.
To address our research questions, we measure the governance of an NPO using a
composite governance index based on the governance disclosure in Form 990s as well as the
percentage of independent board members, the investment in executives by the proportion Accountability
of the budget spent on officer compensation, having a professional fundraiser by whether an accreditation
organization identified this fact on the Form 990, and the sophistication of the donor base by of NPOs
the percentage of net assets that are restricted[3]. We examine the associations between
these four stakeholder influencing factors (two internal and two external) and whether an
NPO has obtained accountability accreditation. The results of our study suggest
organizations holding the SFX certification also indicate the presence of strong internal 221
governance mechanisms as demonstrated by the answers to particular questions in Part VI
of Form 990, and the relative independence of the board. Further, the investment in
executives appears to encourage the pursuit of accreditation. These organizations perhaps
use certification to signal their strong governance to the public and other stakeholders.
Interestingly, the certification process is not associated with external stakeholders.
Specifically, the employing of a professional fundraiser and the relative sophistication of the
donor base are not associated with an organization’s decision to get accredited.
To the best of our knowledge, this study is the first one to link the association between
NPOs’ stakeholder influence and NPOs’ accountability accreditation. Our findings should
provide insights to stakeholders and researchers interested in examining the value of third-
party accountability certifications and signaling mechanisms in NPOs. Our results should also
inform regulators on how stakeholders influence NPOs’ decisions to seek accreditation. The
results of our study also add to the body of literature on certification programs for NPOs.
The organization of the rest of the paper is as follows: in the next section, we provide
background information and develop our hypotheses. In the third section, we discuss our
research design and present our empirical results. In the last section, we summarize our
findings and draw conclusions.

Background and hypothesis development

Certified vs rated
There are multiple organizations setup to evaluate NPOs and “rate” or “grade” the
organization on their performance (Lowell et al., 2005). For example, Charity Navigator rates
charities on a scale of zero to four stars with four stars being the best score. Charity
Navigator rates charities primarily on their financial performance and how accountable and
transparent they are. Prior literature has found that nonprofits with a higher Charity
Navigator rating receive more contributions (Gordon et al., 2009; Yörük, 2016), although
some have questioned whether most stakeholders respond to the ratings (Szper and
Prakash, 2011; Cnaan et al., 2011). In addition, to rating charities, there are organizations
that are setup to accredit charities. Perhaps, the best know accrediting organization is the
Better Business Bureau Wise Giving Alliance (BBB). The BBB accredits charities that have
passed 20 standards of accountability. Unlike rating organizations, the BBB accreditation is
a simple pass/fail test.

Certification processes
NPOs continue to seek effective means to evaluate their often complex work. As the work
becomes more advanced and complex, donors of all kinds (including private funders,
government contracting agencies and grant-making charity groups) are demanding
measurable results. At the same time, the public is becoming more sophisticated and insists
on evidence of effectiveness and efficiency. These pressures are moving NPOs into a
business model that asks staff and board members to manage for accountability (Slatten
et al., 2011). Such a model borrows from for-profit business practices like benchmarking,
TQM, ISO certification, Six Sigma, lean manufacturing/Kaizen, the Malcolm Baldrige
National Quality Award, and numerous other accreditation and certification programs.
JPBAFM Per the signaling theory proposed by Akerlof (1978), Greenwald and Stiglitz (1986) and
31,2 Spence (2002), some NPOs may seek credible signals (e.g. certification) for setting
themselves apart from other organizations.
“Certification” has been associated with the use of quality standards in manufacturing (i.e.
ISO 9000 Certification) since the 1940s, so the terminology is not new. Rao (1994) suggests that
certification offers legitimacy and a favorable reputation to organizations when the outcome is
222 improved quality and excellence in all aspects of business operations. Certification can serve
as a proxy for current rankings (i.e. Charity Navigator and GuideStar) when organizations
focus on improving administrative and management practices, developing policies and
procedures, and implementing proper accounting procedures. Certified organizations often
leverage their certification as a competitive advantage when competing in today’s crowded
marketplace for financial support, high-quality board members, program volunteers and
experienced staff.
However, scandals and misbehavior for years in some of the most trusted organizations
like United Way, Planned Parenthood, Boy Scouts of America and American Red Cross
have shaken the public trust. Large and small community-based organizations providing
public benefits such as low-income housing, educational services, arts programming and
Little League baseball are often in the news as well – and not for reasons to be admired
(Pennington, 2016). Prakash and Gugerty (2010) suggest that “it is not an exaggeration to
say that the negative reputational effects of a few ‘bad apples’ are beginning to undermine
the reputation of the sector as a whole” (p. 17). There appears to be widespread agreement
that accountability in NPOs has become an important issue (Gugerty, 2009).
Certification programs may be able to help distinguish those engaged in best practices
and quality program delivery from others who may not quite measure up to the same
standard. The differentiation process is well supported by the signaling theory (Akerlof,
1978; Greenwald and Stiglitz, 1986; Spence, 2002). More recent research also emerges on this
specific topic. Today, many NPOs are seeking ways to improve their competitive position
and enhance their ability to compete for different types of resources by becoming certified or
accredited (Slatten et al., 2011). In total, 20 human service NPOs accredited by the Council on
Accreditation indicated three primary benefits of accreditation: comparative advantage in
the marketplace; implementation of best practices; and improved policies and procedures
(Carman and Fredericks, 2013). The association between governance and donor support was
explored by examining a sample of 10,800 NPOs and it was determined that donations and
government grants are positively associated with good governance (Harris et al., 2015).
In a more recent study, the SFX certification was shown to contribute to larger increases in
public support relative to a comparison group of non-certified NPOs (Feng et al., 2016).
Also, Williams-Gray (2016) found when engaging in a self-assessment as a part of
implementing an accreditation program, organizational capacity is enhanced. Finally, when
evaluating NPOs engaged in social enterprise activities, Child (2016) concluded NPO
certification programs provided credibility (trust and accountability) to businesses in the
fair-trade industry.

Standards for excellence®

The SFX program certification process offers a means of self-regulation that is more
comprehensive than any other third-party accountability group or watchdog organization
(Feng et al., 2016). Organizations typically engage in a serious conversation at both the staff
and board level before seeking any type of accreditation. Factors to consider include staff
time, organizational capacity, board engagement, the costs associated with the application
and the ongoing annual fees. To complete the application, the staff and Executive Director
gather information on risk management practices, financial activities, fundraising,
advocacy efforts, operational efficiencies, cultural competency and may even be creating
new board policies in areas that map to the guiding principles of the standards (Slatten et al., Accountability
2011). NPOs are evaluating and benchmarking their current operations throughout the accreditation
application process. of NPOs
Lloyd and de las Casas (2005) reviewed codes of conduct and certification programs from
around the world and included the SFX program among the list of 35 when examining
effective enforcement mechanisms. The concept of external accountability can be addressed
in several different ways; however, because of the emphasis on comprehensive standards 223
and a track record of noted recognitions, the SFX program is the basis for this study.
The SFX certification process starts with an organizational self-assessment to determine
alignment with sixty-seven standards or benchmarks and 27 topic areas relative to measuring
success (see Standards for Excellence Institute, 2014)[4]. The assessment requires a
comprehensive review of organizational operations related to important areas of nonprofit
governance and management: mission and program, governing body, conflict of interest,
human resources (including volunteers), financial and legal, openness (or transparency) with
the public, fundraising and public affairs/public policy (Maryland Association of Nonprofit
Organizations, 2010). Such a comprehensive review of the applicant organizations’ finances,
operations, and management require a significant investment of time and resources (some
reporting 9–12 months).
The SFX program is typically administered in a state or region by a licensed partner.
Licensed partners include state associations of NPOs, community-based management
support organizations and national nonprofits. The partners have the latitude to offer the
program in many different formats and often with some customization. Unlike some other
third-party rating or watchdog organizations, NPOs seeking to be certified by the SFX
Institute must present written documentation substantiating compliance with standards
and may participate in an on-site program evaluation by a trained observer (staff person or
volunteer consultant).
For more information on the documentation required and the application process, see
Feng et al. (2016). Those organizations successful in the review process are awarded the Seal
of Excellence – a type of “Good Housekeeping Seal” of approval (Maryland Association of
Nonprofit Organizations, 2010). Such a designation allows those who become certified the
opportunity to display a seal (or logo) indicating to stakeholders the importance of
continuous improvement, adherence to ethical practices, program evaluation and
assessment, human resource management and sound financial management. The Seal of
Excellence is initially awarded for a three-year period and organizations may apply for
recertification every five years thereafter. Licensing fees are collected and typically are
determined using a sliding scale based on the organization’s budget size (see more details in
Slatten et al., 2011).
In a recent SFX program annual report, the majority of certified groups are categorized as
human service, health and educational organizations but all types of NPOs are certified.
Recognizing the need for NPOs to demonstrate credibility and trust, GuideStar recently began
allowing NPOs to include ratings, accreditations and awards on their profile page (Wade,
2017). GuideStar offers digitized IRS Form 990 information on more than two million NPOs via
an individual profile page for each organization. The SFX seal is one of the possible
accreditations that can be listed on a profile page signaling GuideStar’s commitment to
promoting transparency and recognizing nonprofit excellence. In 2015, the Ohio Attorney
General’s Office endorsed use of the SFX noting “every charity could benefit from using these
guidelines” (www.prlog.org, 2015).

Hypothesis development
Nonprofits have a variety of stakeholders, each playing an active role in the monitoring and
performance of the organization. Broadly, a nonprofit’s stakeholders can be divided into two
JPBAFM groups: internal stakeholders and external stakeholders. Notable internal stakeholders
31,2 include the board of directors, volunteers and the executives/staff of the organization.
Notable external stakeholders include the donor base, funding organizations, community
partners and professional development consultants acting as a guide to a nonprofit’s
fundraising activities.
Focusing first on internal stakeholders, the nonprofit literature finds a positive association
224 between governance and donations that an NPO receives (Harris et al., 2015). It is reasonable
to assume that NPOs seek stronger governance to obtain these economic benefits. This is also
consistent with the signaling theory proposed by Akerlof (1978), Greenwald and Stiglitz (1986)
and Spence (2002). As we discussed in the previous section, the SFX certification process
offers guidance and detailed requirements for strong governance in an NPO (e.g. Feng et al.,
2016). Therefore, we expect that stronger well-governed organizations strive for best practices
and recognition of strong accountability such as SFX certification. Harris et al. (2015) using
factor analysis found governance factors affect donations that NPOs receive. These
governance factors are closely linked with an NPO’s answers to the governance-related
questions on Form 990s. Thus we build a governance score based on answers to these
governance-related questions on Form 990s (see Appendix 1 for more details).
An NPO’s board of directors is crucial for the organization’s accountability (Ostrower, 2014).
Wellens and Jegers (2014) emphasize the importance of the objectiveness of the board (one of
the key stakeholders) in achieving effectiveness in NPOs’ governance and overall operations.
We consider board independence to be a key feature for maintaining the objectiveness of the
board. In addition, Fama and Jensen (1983) argue that the degree to which the NPO board
operates independently impacts the degree to which interests of principals and agents are
properly aligned. Therefore, we expect that an NPO with a more independent board will strive
to meet best practices and improve the accountability of the organization. This discussion leads
to our first hypothesis as follows:
H1. The governance strength of an NPO is positively associated with the likelihood that
the NPO is accredited.
Executive compensation and adoption of more business-like practices in NPOs have long
attracted attention (see comprehensive review in Maier et al., 2016). While compensation for
NPO executive level staff (i.e. CEO, COO, Finance Director, Development Director and
Program Director) typically lag behind their counter-partners in for-profit entities, the
nonprofit sector has evolved from the amateurs and volunteer staffing model to a highly
formalized staffing structure of professional managers, cost accountants and subject matter
experts (Hwang and Powell, 2009). Also, foundations and pressure from regulators have
forced NPOs to adopt more efficient business practices and increase their accountability
(Hwang and Powell, 2009). NPOs led by highly trained and professional degreed staff are
more inclined to adopt current management practices, design formal workplace procedures,
engage in analytical planning and develop sector specific business processes (Hwang and
Powell, 2009). Thus, we expect that NPOs with a greater investment in executives (measured
by the percentage of the budget spent on officer compensation) are more likely be aware of
and seek out accountability accreditation to signal better quality and performance. The
above discussion results in our second hypothesis:
H2. The degree of investment an NPO makes in their executives is positively associated
with the likelihood that the NPO is accredited.
External stakeholders also play a crucial role in shaping the governance and performance of
an organization. Sophisticated donors, such as large foundations, can be expected to
scrutinize the performance of an organization and demand accountability in return for their
funding. Sloan (2009) finds that Wise Giving Alliance “pass” ratings have a significantly
positive impact on contributions that NPOs receive. Sophisticated donors generally use such Accountability
professional ratings of NPOs to make donation decisions. One way an organization can accreditation
signal that they are accountable is by obtaining the SFX accreditation. We therefore expect of NPOs
organizations with more sophisticated donors (represented by the percentage of restricted
net assets an organization has) to be more likely to obtain SFX accreditation. Hence, our
third hypothesis is as follows:
H3. The level of donor sophistication in an NPO is positively associated with the 225
likelihood that the NPO is accredited.
A key source of revenue for many nonprofits is donations. While large nonprofits can have
robust development departments assisting with raising donations, many nonprofits operate
on a shoestring development budget. One way a nonprofit can increase development
expertise is by hiring a professional fundraiser. Scaife et al. (2016) emphasize the pressing
need to attract and retain effective professional fundraisers because these professionals can
help build stronger funding relationships. We include professional fundraising fees in the
model because we expect that NPOs engaging a professional fundraiser are more active in
external fundraising markets and are therefore more likely to signal their quality via a SFX
seal. Professional fundraisers are connected to the community and can potentially increase
the amount of donations and the yield the nonprofit receives from their investment in
development activities. We expect professional fundraisers to be more plugged in with the
state of the art in development techniques, and cognizant of the benefits to signaling
the credibility of the charity that employs them. We therefore expect organizations that are
employing professional fundraisers to be more likely to have obtained the SFX
accreditation. Hence, our fourth hypothesis is as follows:
H4. Employing a professional fundraiser in an NPO is positively associated with the
likelihood that the NPO is accredited.

Research design
Multivariate models
Based on our discussion in the previous section, we estimate the following regression model:
ProbðSFX CertifiedÞ ¼ a0þa1 Governance Score þa2 Compensation Percentage
þa3 Independent Board þa4 Program Revenue Percentage
þa5 Professional Fundraising Fees þa6 Restrict Percentage
þ a7 Total Assets þj:
Governance Score, Compensation Percentage, Professional Fundraising Fees and Independent
Board are our variables of interest in this study. Appendix 1 includes variable definitions.
According to our hypotheses, we expect positive coefficients for Governance Score,
Independent Board, Compensation Percentage, Restricted Percentage and Professional
Fundraising Fees because we hypothesize that NPOs with stronger governance, greater
executive investment, a sophisticated donor base, and employing a professional fundraiser are
more likely to hold certification from the SFX program.
We chose the set of control variables based on a survey of the related prior literature. Program
revenue has been used in the nonprofit research as a proxy for effectiveness and performance
(Petrovits et al., 2011). We use the percentage of program revenue in total revenue to control for
NPOs’ effectiveness and performance and expect a positive coefficient for this variable because
NPOs with more earned fees are more likely to focus on program-related activities and thereby
seek accreditation to enhance their reputations. To control for organization size and NPO
JPBAFM reputation (Tinkelman, 2004), we include total assets in the model. In addition, NPOs with more
31,2 resources (measured by total assets) are more likely to find accreditation worth the cost and have
the financial support to seek accreditation.

Sample selection
We obtained the list of 156 NPOs that received the SFX certification as of the fiscal year of
226 2011, directly from the SFX certification staff in 2015[5]. We then merged the list with the
CORE Full data file from the National Center for Charitable Statistics (NCCS) database. We
removed 42 sample NPOs due to missing financial data. To test our hypotheses, we matched
each sample NPO in the same sector with a comparative NPO that has the closest size
measured by total revenues. We hand-collected the governance data of the sample NPOs
from Form 990s. Our final sample consists of 228 NPOs (i.e. 114 pairs of size and sector
matched NPOs).
Table I Panel A presents the sector distribution of our sample. More than half of the sample
NPOs are from the human services sector. One-quarter of the sample is from the health sector
and about 12 percent of NPOs are in the public and societal benefit sector. The percentages of
NPOs in the remaining sectors are fairly small. Turning to geographic location, Table II Panel
B presents the sample distribution by geographic location. The majority of the sample is
concentrated in one of three states: Maryland (21.93 percent of the sample), Pennsylvania
(16.67 percent) or Ohio (11.84 percent). Each of these states have strong statewide membership
associations in place for NPOs where training, collaboration, public policy/advocacy
initiatives and capacity building activities are an important part of their work. In particular,

NTEE1 n Percentage of total

Arts, culture, and humanities 10 4.39

Education 4 1.75
Environment and animals 6 2.63
Health 58 25.44
Human services 118 51.75
International, foreign affairs 2 0.88
Public, societal benefit 28 12.28
Religion related 2 0.88
Total 228 100.00
Notes: The national taxonomy of exempt organizations codes (in parentheses) for sectors are as follows:
Table I. Arts, culture, and humanities (A); Education (B); Environment and animals (“C” or “D”); Health (“E”, “F”, “G”,
Panel A: frequencies “H”), Human services (“I”, “J”, “K”, “L”, “M”, “N”, “O”, “P”), International, foreign affairs (Q), Public, social
of sample by sector benefits (“R”, “S”, “T”, “U”, “V”, “W”) and Religion related (X)

State n Percentage of total

California 12 5.26
Florida 10 4.39
Maryland 50 21.93
Ohio 27 11.84
Pennsylvania 38 16.67
Table II. All Other 91 39.91
Panel B: frequencies Total 228 100.00
of sample by location Note: All other locations includes 31 states and the District of Columbia
Maryland, in the shadow of Capitol Hill, is the home for Maryland Nonprofits, one of the Accountability
largest and most active nonprofit associations in the country. Maryland Nonprofits is also the accreditation
creator and sponsor of the SFX accreditation program. Pennsylvania and Ohio also have of NPOs
strong statewide membership associations for NPOs. The Pennsylvania Association for
Nonprofit Organizations and the Ohio Association of Nonprofit Organizations were early
adopters of the SFX program (since 2001) and both are an Accrediting Replication Partner
offering accreditation and recognition for the nonprofit sector in their respective states. 227
Outside of these three states, broad geographic representation is achieved in the sample with
34 other states and the District of Columbia being represented.

Results
Descriptive statistics
We identify a group of comparable NPOs from the CORE full data file of the NCCS database
that have not received certification but have necessary financial data as our comparison
group. Each matched comparable NPO has the closest total revenue to the total revenue of
each sample NPO within the same sector. Table III presents the descriptive statistics of the
sample and comparison groups. The sample NPOs have significantly higher governance
scores (9.08 vs 7.8) and compensation percentage (7 vs 4 percent) and more independent
board (99 vs 91 percent), compared to the comparable NPOs. There are no significant
differences in Program Revenue Percentage, Professional Fundraising Fees, Restrict
Percentage, and Total Assets between the sample and comparison groups. The univariate
comparisons seem to suggest that the sample and the comparison groups are similar in
terms of owning financial resources, but the sample NPOs have stronger governance, higher
investment in executives and a more independent board of directors.
Table IV shows the correlation matrix. The Governance Score variable is positively
correlated with SFX Certified (0.37, p-value o 0.01). The Compensation Percentage variable
also has a significantly positive correlation with SFX Certified (0.22, p-value o 0.01).
The Independent Board variable has a significantly positive correlation with SFX Certified as
well (0.24, p-value o 0.01). Independent Board is also positively correlated with Governance
Score (0.25, p-value o 0.01), but negatively correlated with Program Revenue Percentage
(−0.14, p-value ¼ 0.04). The Compensation Percentage variable is only marginally correlated
with Program Revenue Percentage (−0.13, p-value ¼ 0.05) and Restrict Percentage
(0.12, p-value ¼ 0.07). Other correlation coefficients are not statistically significant. The
correlation coefficients suggest that there should be no concern of multicollinearity issues.

Variable Sample (1) Control (2) ((2)−(1)) (3)

Governance Score 9.08 (1.11) 7.80 (2.00) ***

Compensation Percentage 0.07 (0.07) 0.04 (0.06) ***
Independent Board 0.99 (0.03) 0.91 (0.22) ***
Program Revenue Percentage 0.33 (0.37) 0.38 (0.41) NS
Professional Fundraising Fees 6,687 (51,419) 12,226 (122,121) NS
Restrict Percentage 0.18 (0.40) 0.13 (0.31) NS
Total Assets 18,100,000 (101,000,000) 11,000,000 (33,800,000) NS
Sample Size 114 114
Notes: NS signifies a difference is not significant. The sample represents the organizations that are
accredited per the Standards for Excellence® Institute. The control group represents the best match of
organizations not receiving the certification to an organization receiving the certification based on the same Table III.
NTEE code and closest to total revenues. All variables defined in Appendix 1. Average values are reported Descriptive statistics
with standard deviation in parenthesis. *,**,***Significant at 10, 5 and 1 percent levels, respectively. The for the sample and
z-statistic is the reported test statistic for test of differences control group
 31,2

228

Table IV.
Correlations
JPBAFM

1 2 3 4 5 6 7 8

1. SFX Certified 1.00

2. Governance Score 0.37*** (0.00) 1.00
3. Compensation Percentage 0.22*** (0.00) 0.08 (0.24) 1.00
4. Independent Board 0.24*** (0.00) 0.25*** (0.00) 0.06 (0.35) 1.00
5. Program Revenue Percentage −0.07 (0.32) −0.02 (0.79) −0.13* (0.05) −0.14** (0.04) 1.00
6. Professional Fundraising Fees −0.03 (0.65) 0.02 (0.72) −0.04 (0.55) 0.03 (0.68) −0.08 (0.25) 1.00
7. Restrict Percentage 0.07 (0.27) 0.08 (0.23) 0.12* (0.07) 0.07 (0.27) −0.05 (0.46) 0.08 (0.21) 1.00
8. Total Assets 0.05 (0.48) 0.05 (0.44) −0.08 (0.23) 0.02 (0.72) −0.07 (0.29) 0.01 (0.91) −0.04 (0.59) 1.00
Notes: All variables defined in Appendix 1. p-values in parentheses. *,**,***Significant at 10, 5 and 1 percent levels, respectively
Overall, the results from univariate analyses indicate that the likelihood of an NPO becoming Accountability
SFX certified has a significant and positive association with the NPO’s governance, and accreditation
investment in executives. Notably, there is not a correlation between SFX certified and our of NPOs
measures of external stakeholders.

Multivariate results
As stated earlier, the thrust of our analysis revolves around whether an NPO seeking 229
accountability accreditation (such as SFX) is linked to the organization’s governance, investment
in executives, sophistication of the donor base, and/or employing a professional fundraiser. Our
results in univariate analyses provide supporting evidence for internal stakeholders, and now
we further investigate the above question in a multivariate context.
Table V presents the Logit regression results. The first column shows the regression results
using the main model. Consistent with H1, Governance Score (0.566, p-value o 0.01) is
significantly and positively associated with the probability of getting SFX certified, suggesting
that NPOs with stronger governance perhaps seek accountability certification as a positive
signal for reputation compared to those without SFX certification. In addition, the more
independent the board (10.849, p-valueo0.01) is, the more likely the NPO becomes SFX
certified, which suggests that NPOs with a more independent board are more likely to have
obtained accountability certification to strengthen their governance. In line with H2, we find
that the proportion of investment in executives (measured by Compensation Percentage, 9.15,
p-valueo0.01) is positively associated with the likelihood of becoming SFX certified, indicating
that NPOs investing more of their budget in officer compensation are motivated to get
accredited. As per H3 and H4, we find no supporting evidence that external stakeholders are
associated with the SFX accreditation. The second column of Table V shows the Logit results
after we add the squared Governance Score in the model because we posit that its impact on the
likelihood of becoming SFX certified may not be linear. The squared Governance Score is not
statistically significant and all the inferences from the main results remain the same. All the
control variables have coefficients that are not statistically significant, which suggests that
financial resources seem not to be a major influencing factor in obtaining and maintaining SFX
certification. The pseudo R2 are around 20 percent for the two regression models[6].
To examine whether accountability certification varies across sectors, we re-estimate our
main model using a subset of our data set (Human Services, the largest sector in our sample)
and another subset with NPOs in all other sectors as robustness tests. The results are shown
in Table VI. The first column presents the estimation results using the Human Services
subset. Except for an insignificance coefficient of Compensation Percentage, both

SFX certified SFX certified

Governance Score 0.566*** (4.35) 2.315* (1.93)

Governance Score Squared −0.100 (−1.52)
Compensation Percentage 9.15*** (3.08) 8.721*** (2.92)
Independent Board 10.849*** (3.01) 10.157*** (2.81)
Program Revenue Percentage −0.128 (−0.32) −0.085 (−0.21)
Professional Fundraising Fees −0.000 (−0.59) −0.000 (−0.67)
Restrict Percentage 0.096 (0.19) 0.162 (0.29)
Total Assets 0.000 (0.64) 0.000 (0.58)
Pseudo R2 0.203 0.212
Notes: n ¼ 228. All variables defined in Appendix 1. Standardized β coefficients. z statistics in parentheses. Table V.
With maximum-likelihood models such as in logistic regression, there is no traditional R2; for this reason, an Logit results,
analogous “pseudo-R2” is typically reported. The R2 shown here is McFadden’s pseudo- R2. *,**,***Significant dependent variable is
at 10, 5 and 1 percent levels, respectively SFX certified
JPBAFM Human services All other
31,2
Governance Score 0.753*** (3.46) 0.678*** (3.17)
Compensation Percentage 3.453 (0.82) 15.811*** (3.20)
Independent Board 12.239** (2.18) 11.601* (1.96)
Program Revenue Percentage −0.411 (−0.76) 0.154 (0.21)
Professional Fundraising Fees 0.000 (0.66) −0.000 (−0.81)
230 Restrict Percentage −0.839 (−1.44) 1.406* (1.91)
Total Assets 0.000 (0.58) 0.000 (0.91)
n 118 110
Pseudo R2 0.202 0.295
Table VI.
Robustness tests: logit Notes: All variables defined in Appendix 1. Standardized β coefficients. z statistics 2in parentheses. With
results by sectors, maximum-likelihood models such as in logistic regression, there is no traditional R ; for this reason, an
dependent variable is analogous “pseudo-R ” is typically reported. The R shown here is McFadden’s pseudo- R . *,**,***Significant
2 2 2

SFX certified at 10, 5 and 1 percent levels, respectively

Governance Score and Independent Board are significantly positively associated with the
likelihood of becoming SFX certified. The second column shows the results with the
subsample of NPOs with all other sectors. All but one of the inferences drawn from the main
regression remain the same; the exception is this regression also shows a marginally
significant association between Restrict Percentage and the likelihood of becoming certified.
It seems that the level of sophistication of funders has some influence in the SFX
certification process for the NPOs in sectors other than Human Services. The pseudo R2 are
again within the 20 to 30 percent range. The overall evidence from robustness tests supports
that from the main analyses. The positive association between strong governance and the
likelihood of getting certified suggests that the certified NPOs may use certification as a
signaling mechanism to publicize their strength.
Our study is not without limitations. While we have attempted to control for factors that
may have contributed to our findings (e.g. a size- and sector-matched peer for each NPO that
secures the SFX seal in our final sample), it is not feasible to perfectly tease out all alternative
explanations for our findings. Endogeneity issues may still be present given that the sample
and comparison groups possess significantly different governance characteristics (i.e.
governance scores and board independence). Future studies may adopt more advanced
econometric models with additional data to further mitigate the endogeneity issue. In addition,
with more data collected for the pre-certification, future studies could draw more definite
inferences regarding the determinants of NPOs’ obtaining accreditation.

Conclusion
Prior studies have shown that stakeholders of NPOs play a critical role in enhancing
performance. However, none of these studies have considered linking NPOs stakeholders
with the likelihood that NPOs obtain accountability accreditation. Our study fills this
literature gap by examining the association between the stakeholders of NPOs and NPOs’
decision to seek the accountability accreditation offered by the SFX Institute. The SFX
Institute engages NPOs in a rigorous voluntary application process that includes training at
all levels of the organization to ensure all standards are met prior to receiving the SFX
certification (Standards for Excellence Institute, 2014).
Overall, our findings provide supporting evidence of a significant and positive association
between the likelihood of securing an accountability accreditation and the internal
stakeholders of NPOs. Such a positive association implies that NPOs may utilize certification
as a way of differentiating themselves from others, which is consistent with the signaling
theory proposed by Akerlof (1978), Greenwald and Stiglitz (1986) and Spence (2002).
The evidence offers, to some extent, validation and assurance of accountability accreditation Accountability
among NPOs. The link between stakeholder influence and such certification process shown in accreditation
this study may help motivate more organizations to seriously consider allocating the of NPOs
resources necessary to become accredited for accountability. This is consistent with the
empirical evidence of more subsequent resources resulting from certification documented by
Feng et al. (2016), consistent with the signaling theory. Our findings should also help to inform
NPOs, academia, and regulators about the associations between stakeholders and whether 231
NPOs obtain accreditation, which add to the nonprofit certification and stakeholder literature.

Notes
1. See details about Form 990 Part VI in Appendix 2.
2. Amy Coates Madsen, the Director of Standard for Excellence Institute, reported that about
94 percent of organizations that apply for the certification with complete applications are able to
obtain it and nearly 20 percent of organizations that have incomplete applications either drop out
of the process or place their applications on a hold longer than one year. Once their applications are
completed, they would be advanced to the peer review phase, where they may continue with the
process or may drop out there.
3. Form 990 requires an NPO to report total compensations for its current officers, directors, trustees
and key employees (Part IX line 5a). In most instances, board members or directors serve an NPO
without payment and on a voluntary basis. The individuals paid by the organizations being
studied are typically the chief executive or executive director and other key employees.
4. See details in Appendix 3: A Summary of Standards for Excellence® Guiding Principles and Standards.
5. We have been working on this study for a couple of years and used the most recent years of data
available from the National Center for Charitable Statistics. It has taken us time hand-collecting
associated data elements for our data sets.
6. Table IV results are qualitatively similar if lag control variables are included in the model in lieu of
concurrent variables.

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Appendix 1

Variable name Variable definition Connections with hypotheses

SFX Certified One if the organization had attained the Standards The dependent variable
for Excellence® certification as of fiscal year 2011. 0
otherwise
Governance Score A composite governance score ranging from ‒2 to Related to H1. We build a
12. The governance score is derived by scoring as governance score based on
one answering “yes” to each of the following answers to the governance-
questions from Part VI: 6 + 7a + 7b + 8a + 8b + 11a related questions on Form 990s
+ 12a + 12b + 12c + 13 + 14 + 15a – 2 – 3. Note
questions two and three are subtracted from the
score since answering “yes” to either question is
suggestive of weaker governance
Program Revenue The total reported for program service revenue (Part A control variable
Percentage I, line 9) /total revenues (Part I, line 12 current year)
Total Assets End of the year total assets. Part X, line 16 A control variable
Compensation The total reported for compensation of current Related to H2. It measures the
Percentage officers, directors, trustees, and key employees (Part
degree of investments that an
IX line 5a)/total expenses (Part I, line 18 current year)
NPO makes on its executives
Professional Total professional fundraising expenses. Part IX, Related to H4. It measures the
Fundraising Fees line 11e column A level of professional fundraising
activities
Restrict Percentage Percentage of net assets temporarily or permanently Related to H3. It measures the Table AI.
restricted donor sophistication Variable definitions
Independent Board The percentage of the board members who are Related to H1. It measures the and connections
independent (Part VI, line 1b) independence of an NPO’s board with hypotheses
JPBAFM Appendix 2. Department of the treasury, internal revenue service form 990 – return for
31,2 organization exempt from income tax part VI: governance, management and disclosure

234
Appendix 3. A summary of Standards For Excellence® guiding principles and standards Accountability
accreditation
Standards for Excellence® Institute of NPOs
The Standards for Excellence® Institute aims to raise the level of accountability, transparency, and
effectiveness of all nonprofit organizations to foster excellence and inspire trust. The Standards for
Excellence®: An Ethics and Accountability Code for the Nonprofit Sector (2014) provides a framework
and step-by-step guidelines to achieve a well-managed and responsibly governed organization. The
code builds upon the legal foundations of nonprofit management, governance, and operations to
235
embrace fundamental values such as honesty, integrity, fairness, respect, trust, compassion,
responsibility and transparency.
The Standards for Excellence® code identifies six major areas of nonprofit governance and
management and each of these areas is supported by a Guiding Principle. These six areas are further
divided into 27 different topic areas which each include specific benchmarks and measures that
provide a structured approach to building capacity, accountability, and sustainability in nonprofit
organizations. The Institute helps the nonprofit sector operate in accordance with the Standards for
Excellence® code by providing educational resources that include information on implementing
specific standards, justification for the standards, best practices associated with the issue, model
procedures and sample policies. These resources are available to members of the Institute and
collectively cover each of the benchmarks in the Standards for Excellence® code.
The Standards for Excellence® Institute encourages all nonprofit organizations to adopt the
Guiding Principles of the Standards for Excellence® code. Nonprofits that adhere to these benchmarks
can become formally recognized or accredited by the Standards for Excellence® Institute. By
implementing the performance benchmarks in the code, nonprofit organizations will meet the highest
ethical standards for effective service in the public interest. The Standards for Excellence® Institute
also licenses individual consultants and regional and affiliate associations to offer various resources
and trainings to nonprofits interested in implementing the Standards for Excellence® code throughout
their organization.

Standards for Excellence®: an ethics and accountability code for the nonprofit sector
Listed below are the six major areas of nonprofit governance and management that make up the
Standards for Excellence® code, and the topic areas addressed in each section. For a complete version
of the code, including specific guiding principles and specific benchmarks, visit
standardsforexcellence.org/code:
(1) Mission, strategy and evaluation:
• mission and impact;
• planning strategically;
• organizational evaluation;
• program evaluation; and
• strategic partnerships.
(2) Leadership: board, staff and volunteers:
• leadership and governance;
• leadership and operational management; and
• diversity, equity and inclusion.
(3) Legal compliance and ethics:
• maintaining legal compliance;
• required public disclosures;
• reporting misconduct and whistleblower protection;
JPBAFM • conflicts of interest; and
31,2 • ethics.
(4) Finance and operations:
• financial budgeting, reporting and monitoring;
• internal controls and financial policies;
236 • personnel policies;
• administrative policies; and
• risk management and insurance.
(5) Resource development:
• resources plan;
• sources of income;
• fundraising activities;
• donor relationships and privacy;
• acceptance of gifts; and
• fundraising on behalf of the organization.
(6) Public awareness, engagement and advocacy:
• educating and engaging the public;
• advancing the mission through public policy and advocacy; and
• engaging in lobbying and political activity.

Corresponding author
Nancy Chun Feng can be contacted at: [email protected]

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