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December 10, 2007

Opinion: Charities Should Be More Open and Accountable

In a special section devoted to philanthropy, an opinion article in The Wall Street Journal says that charities should be more forthcoming about their effectiveness and adopt more thorough forms of evaluation.

The opinion piece — written by Sally Beatty, a Wall Street Journal writer — cites a recent study by the Center on Philanthropy at Indiana University that found that wealthy Americans would give more if charities spent less on administrative costs and did a better job of showing how donations make a difference.

The Better Business Bureau’s Wise Giving Alliance, which evaluates charities, reports that about 30 percent of the charities that the alliance asked for information failed to provide it, an increase from 22 percent four years ago.

In an interview, Brian Gallagher, chief executive of United Way of America, says nonprofit groups can be reluctant about being evaluated. He says, “We get irrational pushback from nonprofits who say, ‘You can’t measure mission-centered work.’ You most certainly can. The question is, ‘Are you committed to do it?’ And then, ‘Are you committed to report on it?’”

The article makes three recommendations for how charities can be more accountable: 1) Provide more information online; 2) Adopt high standards of measuring efficiency; and 3) Adhere to those voluntary standards.

The special section also includes a guide to giving and financial planning, information on how to research charities, a story on how philanthropy assists disaster relief, an article about charitable foundations, and a piece on British philanthropy.

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Monday December 10, 2007 | Permalink

Comments

1. Great!

   — Lindsay    Dec 10, 04:10 PM    #

2. The problem here is that efficiency means “financial efficiency” and is just one measure (but the most popular one because its the easiest) that most rating groups look at. It is certainly possible (but expensive) to assess whether organizations are meeting their constituencies needs, whether their programs are effective in meeting their goals and objectives, and again with some difficulty -whether they are effective in working to accomplish their missions. These are much more difficult but not impossible to measure. What donors (and nonprofit raters need to understand) is that this type of evaluation takes money….money that will not be spent on programs hence another administrative expense. The kind of expense that donors hate to see!

   — Ann Lehman    Dec 10, 05:49 PM    #

3. I agree with Ann. In essence, this demand for reporting without wanting to pay for it is an unfunded mandate. Until there is money available, there will not be any better reporting.

   — Julie, MPA Student    Dec 10, 08:48 PM    #

4. I agree, “financial efficiency” is a shallow replacement for true measurement. Rather, the industry must demand more strategic work — of itself. Even without funders clamoring for metrics the drive should be toward effective program design and delivery. This is more than possible. We need to move beyond a debate about administrative costs and look at program effectiveness in its entirety. Nurse-Family Partnership, Youth Villages, Roca, and the Latin American Youth Center are are the forefront of the issue.

   Steve Butz

   — Steve Butz    Dec 11, 09:01 AM    #

5. There are several problems with this approach. First, developing effective evaluative systems requires administration many nonprofits haven’t got. It’s interesting to note that in the same period donors were grousing about spending less on “overhead” the number of non-respondents to the Alliance survey increased – perhaps because the non-respondents lacked the time and resources? It has been remarked by many nonprofit leaders that the NPO sector as a whole is incredibly efficient compared to the private and governmental sectors. We make incredible things happen with what amounts to recycled or discarded infrastructure, and when we try to pay competitive salaries, we are criticized for spending too much on administration. I think it’s all well and good for Mr. Gallagher to point fingers at nonprofits who don’t measure up to these standards, but as one of the largest NPOs around, I’m sure the United Way can muster the adminstrative resources to be compliant with the standards – ironic, no? F. Warren McFarlan says, in a 1999 article published in the Harvard Business Review “it can be very difficult to measure performance along [the service] dimension.” Although I am a proponent and beneficiary of much research and study in the nonprofit sector, I have a growing concern about the cottage-cum-mansion nonprofit support industry that has grown to meet all of these evaluative demands. The support industry often blurs the line between profit making companies and NPOs missions, in addition to enriching an army of consultants that must replace the former army of good-hearted folks who came together to fix a problem in their community or society. Further complicating the matter is that there are NPOs and there are NPOs – training donors and foundations to demand high accountability, reporting, and evaluation standards from multi-million dollar NPOs is not a bad idea, until those donors start demanding the same kind of standards from two-handed operations in their communities. Further, the Nonprofit Finance Fund has published studies showing the most “expensive” gifts NPOs can accept are ones with low fluidity and high restriction. The least expensive gifts are unrestricted cash contributions. Every effort made to complicate the reporting requirements for Nonprofits increases the cost of unrestricted cash gifts, as the burden of reporting creates a proxy restriction on the gift. Indeed, some balance must be struck, but I suppose there is a lot more benefit in donors and foundations making the effort to form lasting, mission driven relationships with organizations than in idle posturing and a set of rules that divert energy and funds from services, and discourage board membership for fear of being found asleep at the wheel by the hungry watchdogs of the NPOs.

   — Chris Casquilho    Dec 11, 12:08 PM    #

6. A comment on the WSJ article asserts that “It has been remarked by many nonprofit leaders that the NPO sector as a whole is incredibly efficient compared to the private and governmental sectors.” I really don’t know that reference and besides, the claim itself is made by “many nonprofit leaders,” who can hardly be unbiased about NPO effieiency.
   Arthur Urrows

   — Arthur Urrows    Dec 11, 02:49 PM    #

7. Program effectiveness should be the goal, no matter the mission. What gets measured and how those measurements are reported to donors can lend tremendous insight into what matters. NPOs cannot expect to continue being funded if we can’t prove that what we do is making a difference. There is a difference between direct client assistance and ‘program related expenses’ and they are both part of the costs of providing help to those in need.

   — Kimberly Humphries    Dec 19, 03:06 PM    #

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