March 10, 2013

Charity Tax Data Are Too Valuable Not to Have in Digital Form

This winter’s flu epidemic would be stronger and deadlier than ever before, the Centers for Disease Control warned Americans months ago. Armed with this knowledge, older Americans, people with small children, and others at increased risk moved quickly to get flu shots.

What would happen if nonprofits were hit by an epidemic? Suppose they faced an acute shortage of volunteers or record nonprofit layoffs. Or what if nonprofit revenues took an unexpected dive? Would nonprofits have at the ready the knowledge they need to take precautions against such an epidemic?

Unfortunately, the answer is most likely no. Most nonprofit statistics, if available at all, are almost two years old or more. That is way too late to deal with problems as they arise or to signal to nonprofit leaders, donors, and policymakers that a crisis is on the way.

While a growing number of organizations and researchers are trying to find ways to help nonprofits get better information, one of the efforts that could be especially helpful focuses on the Form 990, the tax form that nonprofits are required to file annually with the Internal Revenue Service and make public to anybody who asks for it.

The tax forms are not perfect, but they are one of the best sources of information available on the nation’s nonprofits. Yet, as a new report released by the Aspen Institute’s Nonprofit Data Project details, the system for delivering Form 990 data to the public is hardly efficient, cost-effective, or timely.

But imagine what would happen if the 990 data were free, downloadable in bulk, and easily searchable. That’s what Beth Noveck, who formerly directed the White House Open Government Initiative, and Daniel Goroff, an open-data expert, have done in the new Aspen study “Information for Impact: Liberating Nonprofit Sector Data.”

“Liberated” 990 data, sometimes combined with other data, could produce truly useful information for everyone who cares about nonprofits. It could:

  • Unleash new apps that help average citizens do good faster and more easily by giving them better, more comprehensive information on nonprofit organizations.
  • Show nonprofits, donors, and policy makers the real effects of the economic downturn. Have certain types of charities disappeared in the cities and towns hardest hit by the recession and slow recovery?
  • Help state charity officials identify fraud by making it easier to locate potential problems. Today, state officials deal with bad nonprofits case by case, but a better data system could reveal patterns of potentially fraudulent activity through computer analysis.
  • Help individual donors understand the flow of charitable donations in their communities, answering questions like, Where are the needs the greatest and what is the best use of my contribution?
  • Track nonprofit financial information, such as salary, expense, and revenue data, helping nonprofit leaders gauge where their organizations stand in comparison with others in the field.

So what is getting in the way of making these things happen in an era in which it seems that anything we need to know can be found through a quick Google search?

Although Form 990s are available to the public, that doesn’t mean they are “open” or easily accessible. More nonprofits today are filing their tax forms electronically. However, most still file paper returns. The Internal Revenue Service turns all of this information—whether submitted electronically or by paper—into images that it releases to the public on DVDs.

As a result, state charity offices and nonprofit organizations helping to make the Forms 990 public, such as GuideStar, the Foundation Center, and the Urban Institute, spend millions of dollars redigitizing the information on the forms, further delaying access to the data and increasing the potential for error.

The end product is a system that is fine for digging into the finances and services of one nonprofit but not for easily getting information on, say, all environmental organizations created since 1990.

It is the searching and analyzing of data over time that are particularly valuable for leaders who wish to learn from the past and shape the future. While Web tools using Form 990 are now in use, open data would spur many more tools and approaches, ones we cannot even imagine today.

So how do we move from the current Form 990 system to an open-data system that gives nonprofit organizations expanded informational tools?

After interviewing dozens of experts, Ms. Noveck and Mr. Goroff say Congress should require all nonprofits to file their 990s electronically and direct the Internal Revenue Service to release 990 data in an accessible and “computable” format.

In the meantime, they urge the creation of a third-party platform that posts open Form 990 data, enabling entrepreneurs, nonprofit leaders, and others to develop new applications, products, and services. That would demonstrate the value of open Form 990 data more immediately and possibly accelerate the likelihood of universal electronic filing.

Given the urgent nature of nonprofit work and the state of technology today—in which real-time data are increasingly possible and uses of such data are expanding exponentially—efforts to liberate nonprofit data must be a priority. To move toward this goal, we must work toward change and show how open data can be used to improve the results, efficiency, and creativity of our nation’s nonprofits.

Cinthia Schuman Ottinger, deputy director for philanthropy programs at the program on philanthropy and social innovation of the Aspen Institute, leads the Nonprofit Data Project.