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Measurement of production efficiency in not-for-profit organizations: An application and extension of GASB concepts statement No. 2
Abstract
Historically, production efficiency measurement has not been considered part the accounting function in not-for-profit organizations. Recently, the Governmental Accounting Standards Board (GASB) and the US General Accounting Office (GAO) have called upon accountants and auditors to measure and report the production efficiency of governmental entities, but neither GASB or GAO has proposed a coherent approach to do so. This study examines the production efficiency of Nebraska county governments and discusses how the information generated as a result of such measurement can be integrated into the accounting system in these organizations. More specifically, this study uses the mathematical programming and stochastic frontiers approaches to measure the production and scale efficiencies of Nebraska county governments. In addition, it examines the consistency of the measures produced and relates these measures to the issues of standard cost setting and performance evaluations, Moreover, it examines the effectiveness of three cost containment mechanisms, proposed by the X-efficiency theory, in enhancing the production efficiency of governmental entities. The evidence suggests that county governments' cost structure is nonlinear and the production technology exhibits variables returns to scale. Over the two-year period of analysis, the cost of inefficiency amounted to over $131,280,750. The mean of efficiency ranges from .81 to .98, and the percentage of inefficient units ranges from 24 to 80, depending on the estimation schemes used. The evidence also suggests that the three cost containment mechanisms are effective tools in enhancing the production efficiency of these units. The results also indicate that the consistency between the two set of measures produced is low and insignificant.
Subject Area
Accounting|Public administration
Recommended Citation
Wakid, Ibrahim Abu, "Measurement of production efficiency in not-for-profit organizations: An application and extension of GASB concepts statement No. 2" (1998). ETD collection for University of Nebraska-Lincoln. AAI9917867.
https://digitalcommons.unl.edu/dissertations/AAI9917867