• September 19, 2014

Evaluation Service Helps Small Donors Make Giving Decisions Like the Wealthy Do

Paul Penley, who advises donors who give at least $1-million a year to charity, thinks everyone should have access to the same information about where to donate as his wealthy clients. So he helped put together a service, Intelligent Philanthropy, that offers a database of in-depth information about nearly 500 charities in areas such as finances, leadership, donors, strategy, and impact.

Mr. Penley is director of research for Excellence in Giving, a donor advisory firm, and the database includes evaluations the firm has done for its clients, along with others that have been made following requests by subscribers—all available for a fee.

Intelligent Philanthropy, a for-profit operation that started in 2011, bills itself as a superior alternative to veteran services like Charity Navigator, which rates about 7,000 charities on a four-star scale, and GuideStar, which offers information about more than 2 million nonprofits, including Form 990 tax returns for those required to file them.

Intelligent Philanthropy criticizes Charity Navigator for using “confusing formulas” to calculate its ratings and both groups for relying on data from Form 990 tax filings, which can be up to two years out of date. The service draws up a two-page “analytical overview” of a charity after intensive questioning of its officials.

However, that approach, by its nature, limits the scope of the efforts—something Ken Berger, president of Charity Navigator, is quick to point out. “We are collectively attempting to provide evaluations and guidance for a sector that is $1.5-trillion in revenues annually,” he said in an email. “There are plenty of good efforts out there and we should be spending more time working together rather than trying to knock each other down.”

Subscription Fees

Mr. Penley acknowledges that Intelligent Philanthropy’s approach is not comprehensive. “The tension is, we want to be up-to-date,” he says. “We can’t go to scale and be up-to-date.”

Mr. Berger also criticized Intelligent Philanthropy for failing to clearly explain its governance structure and finances, particularly its relationship with Excellence in Giving, on its website.

After The Chronicle asked Mr. Penley about that criticism, he posted a new online description explaining that Intelligent Philanthropy is a subdivision of Excellence in Giving, “structured as a business to test our value to donors through earned revenue.”

Intelligent Philanthropy charges an annual subscription, ranging from $59 for an individual to $1,995 for an organization that wants as many as 50 people to have access. So far, about 100 subscribers have signed up.

They get access to evaluations that offer information in 160 areas, for example, on growth trends in revenue, number of donors, paid staff members, and clients.

The charity describes the problem it is solving and how it approaches it and provides information about an “exemplary project,” a big organizational goal, and significant program improvement made recently.

Subscribers do the work of analyzing those data, however, to decide whether a charity meets specified “health and performance standards.” Intelligent Philanthropy provides a worksheet that advises users to give lower marks to a charity if, for example, the chief executive is also the board chair, the organization has less than three months of cash reserves on hand, or it gets more than 15 percent of cash contributions from a single donor.

“We’re training them to operate with the sophistication and insight of foundation staff,” Mr. Penley says.

Form of 'Vetting’

Each Intelligent Philanthropy user can request assessments of up to five new charities a year.

In August, Intelligent Philanthropy started offering a free service: brief profiles of charities it has assessed, with basic information about a group’s budget, mission, staff, three-year growth trend, and impact in terms of how many people it helps, along with the amount of money spent to raise a dollar.

Nancy Jones, president of the Community Foundation of North Texas, in Fort Worth, says she uses Intelligent Philanthropy’s database to get assessments of the foundation’s top 30 grantees and makes that information available to donor-advised fund holders. Some have been leery of donating to charities that haven’t been, in their words, “scrubbed,” she says.

Thanks to the vetting done by Intelligent Philanthropy, she says, “people have given more because they feel increasingly confident.”

Asked about Intelligent Philanthropy, Jacob Harold, president of GuideStar, said in an email that “on one hand, it’s great to have a variety of approaches to nonprofit evaluation—the more the merrier.”

But he worries that the proliferation of charity raters and online services that guide people to charities—now totaling 171, according to a GuideStar analysis—could be confusing for donors. Furthermore, “it can put a huge burden on nonprofits when many different platforms request data directly from nonprofits, as Intelligent Philanthropy is doing.”

He says GuideStar also collects data directly from nonprofits but asks them to fill out only one form, and it makes the data available to others. 

 Mr. Penley says that of the 171 outlets counted by GuideStar, only a handful do actual charity evaluations, excluding a couple that focus only on religious groups. He adds that competition drives innovation and improvement.

Christie Gloster-Bierman, director of operations at a charity in the database—Extollo International, a small Christian humanitarian group that spun off from a parent organization and set up as an independent group in 2012—says the Excellence in Giving review helped the young nonprofit learn how to gather data that matter to donors.

Elizabeth Portland, development director at the Damon Runyon Cancer Research Foundation, which provides grants to early-career cancer researchers, says her group is in the database because one of the charity’s major donors is an Excellence in Giving client.

She says she does not find it particularly burdensome to provide the details for the assessments since the charity must gather similar data when filling out grant applications.

Ms. Portland says she wasn’t aware, however, that the information was now being provided to a wider audience and worries that potential donors could misinterpret figures showing that the charity experienced budget deficits in 2012 and 2013. She says the group’s endowment covers such gaps, but the evaluation form does not provide a space to explain that.

Mr. Penley says every organization that is assessed has the option to provide explanatory notes, which happens most often with financial information. “That’s the reason why simple formulas don’t work,” he says.


Some of Intelligent Philanthropy’s Criteria for Analyzing Nonprofits

Leadership

The CEO is not the board chair.

Staff turnover was less than 25 percent last year.

At least five people serve on the board.

Financial Management

Ended in the black two of the past three years.

Current debt level is less than 30 percent of annual cash donations.

Pays for annual independent financial audits.

Leverage

Lowers expenses through use of volunteers.

Collaborates with multiple organizations.

Percent of cash donations spent on fundraising is less than 15 percent.

Strategy

The one- to five-year plan has specific milestones and deadlines.

The near-term plan is realistic based on previous results and growth trends.

A recent program improvement named by the charity is a significant upgrade.

Impact

Employees use internal scorecard to track performance.

Program outcomes get independent evaluations.

Results include outcomes that last, not just annual activities and one-time events.

Financial Sustainability

No single donor provides more than 15 percent of cash donations.

Revenue has increased during the past three years.

The number of annual donors has increased in the past three years.

Send an e-mail to Suzanne Perry.

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