Friday, July 25, 2008

Nickel and Diming Charity

A Salvation Army truck backing into a building had emblazoned on its sides “Doing the Most Good.” Who does the most good? Among nonprofit organizations, it is nowadays determined by who has the best answer to another question: how much of a donor’s dollars is spent on program.

This metric reflects the nonprofit sector’s “professionalization,” its embrace of the business sector’s practices and to some degree, culture. It also signals Americans’ abiding trust in capitalism. And numbers.

Often, an organization’s effectiveness and efficiency is measured by how funds are allocated among administrative, fundraising and programmatic costs. A webpage captures the various responses to the all important and encompassing query.

What percentage of my donation actually goes to help horses?
Habitat for Horses - In the past four reporting years, an average of 90% of all donations are spent on the horses. The other 10% is being spent on administrative and fundraising cost.

What percentage of my donation goes to administrative/operational costs?
Greenville Hospital
System - None. 100 percent of your donation goes toward the program or area of your choice.

What percentage of funds raised by NamasteDirect actually goes into loan funds?NamasteDirect - Not less than 70 percent. We are committed to keeping administrative costs to less than 25 percent and to retaining up to five percent for reserve funds to meet special borrower needs.

Based on Charity Navigator’s criteria, all of the above are sterling agencies. Charity Navigator claims to be the largest and most utilized charity evaluator in America. It measures the health of over 5,000 nonprofits through “an unbiased, objective, numbers-based rating system.” It scrutinizes how responsibly an agency functions daily and how sustainable programs are. Basically, organizational efficient nonprofits are those that spend less money to raise more. Fundraising and administrative costs are kept at a minimum in order that a majority of its spending is on programs and services. A good agency gets four stars while a bad one, one star.

It is commendable that charitable organizations are held accountable. However, experts caution against using the discussed metric as the ultimate and only measure of a nonprofit’s health. A professor and senior fellow at a think tank emailed:

Percentage of dollars for overhead is a commonly used metric but it is very blunt. There may be very good reasons why the percentage is high for some nonprofits. And there can be reasons to worry if the percentage is too low. I would urge great care in using this measure. There are a good number of people who have written about this.

A deputy director of a national program that educates family foundations and individual philanthropists wrote:

Hi – my opinion is that such a measure might be interesting, in that the relationship to success may not be there at all. My bias is toward operating support and to not linking a NP’s success to dollars purely designated to programs—because the presumption and general practice of most funders is toward programs, to the detriment of operating support. Beyond that fact, the least interesting (but most often cited) so-called NP measurement vehicles like Charity Nav and such use this operating to program $$ ratio as an indicator of success and positive value. I would disagree with the premise…and would be cautious about giving any more credence to it.

While donors have the right, and indeed the responsibility, to ask nonprofits how donations are spent, they have to go beyond mere dollars and percentages when gauging success. They ought to probe deeper and ask more questions. What do people and communities being served really need and want? How can these needs be met? How can agencies mobilize their resources? What do staff require to do their jobs better? How can board members become more engaged? How can executives be more inspired and effective leaders? What is needed to fulfill a nonprofit’s mission?

Answers to these questions will vary. Narrowing it all down to percentages and cents does not give anyone a clear picture.

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