Moderate regulations are optimal for NFP program expense allocations: Findings from the combination of mechanism design and k-means clustering

<ns3:p>Background The context of this study is the ethical dilemma faced by not-for-profit organizations’ (NFPs’) executives. This study examines the ways in which regulators determine the degree to which expense allocations should be limited or prohibited, whereas there is a lack of consensus in the literature. California has moderate regulations on the expense allocation of NFP programs. These regulations can influence those of other states and foreign countries. Methods Actual data can provide clues on how to resolve disagreements. Through the adoption of a combination of mechanism design and k-means clustering, this study explains how regulators can optimize regulations on NFP program expense allocations. Results The k-means clustering results were calculated. There were 966 cases in the first cluster and 37 in the second cluster. The cluster center of the first cluster was 9,343, and the cluster center of the second cluster was 160,581. The required number of repeats was 12.34%, which is]the breakpoint ratio for sanctions to be imposed. Conclusions One method to achieve this goal is to intentionally limit the scale of imposed sanctions on expense allocations while maintaining some necessary sanctions to maintain mutual trust within the donation market. While the findings here contradict the views of some rating organizations, they are consistent with prior academic literature.</ns3:p>