NPOs should [still] adopt xbrl

<ed.note>Repost from May 2004 prompted by David Perera's, "Samuel Mok: Government Should Adopt XBRL", Federal Computer Week, today. I think Sage has inherited all the NP XBRL work product but it's Google-cached here. Interest in it went the way of OPX -- Open Philanthropy Exchange.</ed.note>

By EDGAR Online XBRL

Case Five: Following Government Regulations

Each year charitable organizations must file Form 990 (Organization Exempt From Income Tax). The process is similar to the following steps:

An organization manually prepares a paper-based organizer, which is supplied by a CPA firm to help prepare Form 990.

Using the paper-based organizer, the organization's CPA prepares Form 990 in a software package.

The form is prepared, printed, put into envelopes, and mailed to the IRS and state charity offices.

The IRS takes the form out of the envelope and hand-keys selected line items of information into their return processing systems.

The IRS also scans each page of the form and puts a copy of the form into a digital (but unstructured) format on a CD.

The CD is given to the National Center for Charitable Statistics (NCCS), which contains approximately 230,000 organizations.

The NCCS and GuideStar/PRI re-key the information from each scanned Form 990 into their databases, approximately 75% of the information (which is about 400 pieces per organizations).

The information is used for GuideStar reports and NCCS statistical analysis.

Each state charity office takes the form out of the envelope and hand-keys selected line items into their systems.

RESULT: The cost to the IRS, state charity offices, NCCS and GuideStar/PRI is approximately $5,000,000 per year to key in information from Form 990 for the 230,000 organizations. Assuming a keying error rate of approximately 1%, the data could easily contain 920,000 errors (230,000 organizations times 400 pieces of information per organization)!

Now, assume each of these organizations uses XBRL. The process would look like this:

$ An organization prepares an organizer using a computer application that guides them through the process. For example, the application might be a web-based service provided by their CPA.

$ The organization's CPA imports the information from this organizer (and from the organization's accounting system using an XBRL format) into Form 990 preparation software.

$ The CPA prepares the Form 990.

$ Once the form is completed and approved, the software generates an XBRL file. A file is exported from the system, which contains all the Form 990 data and is compliant with the specification for creating such a file using XBRL.

$ This XBRL file, with the Form 990 data, is transferred electronically using the Internet (HTTP, SMTP, FTP, or other protocol) to a Form 990 Electronic Reporting System (FERS) Web site/server.

$ The FERS system runs a published, publicly available, automated, validation routine to check the data, and adds the resulting 'Possible Reporting Error Analysis' to the end of each Form 990 record. This information is available to the preparer and others accessing Forms 990.

$ Data from the FERS web site is transferred in XBRL to state charity offices and automatically imported into their database systems.

$ The National Center for Charitable Statistics (NCCS), GuideStar, and other users of Forms 990 data receive their daily or periodic downloads of Form 990 information from the FERS web site via the Internet. All data is in XBRL.

$ NCCS, GuideStar, et al, import the XBRL file information into their databases.

$ The information is used by all stakeholders for analysis and reporting.

$ For the next few years, while the IRS implements electronic filing of Forms 990, the Form 990 return is also printed, put into envelopes, and mailed to the IRS.

$ When the IRS implements XML/XBRL the Forms 990 tax filing data will be automatically (rather than manually) entered into their operating and audit systems, further reducing costs for the IRS.

RESULT: There will be no cost to have the Forms 990 of approximately 230,000 charitable organizations available to everyone in electronic form. The error rate of re-keying data is now 0% because the data is processed automatically. When the IRS implements electronic filing, all information on the Forms 990 can be captured into the transactions system, rather than re-keying only portions of the data. The IRS error rates will be reduced.