Should the media have a role in rating charities?

No one wants to be ripped off in the name of charity.

Everyone has heard of charities whose practices may be or are questionable. When the situation is serious enough it makes the news.

In response to public concerns several institutions exist that "rate" charities. The information published by these organizations is accessed by individual donors, foundations, employees, volunteers, independent contractors, and even private and government watchdog groups.

As a freelance grant writer and consultant, I can attest that if you aren't rated by one of these organizations, or you have received a poor rating or some sort of alert it will impact your fundraising capabilities.

How they work.

The information available to the public on rating sites can range from simple proof of nonprofit status to an actual assessment of the legitimacy of the organization and its practices.

Spoiler Alert!  Almost without fail, these private, usually nonprofit organizations have a minimum revenue qualifier that determines which charities they will rate.  For most it is in the one million dollars and up range, but at the very least it requires the filing of a 990, not just the postcard.

For that reason, you are not likely to find your local food pantry or animal rescue on some of these websites.  Some, like GuideStar, will list the basics even for smaller charities, which at least allows you to be sure they are registered.

You can also search the IRS website for verification of approved status, the general web for anecdotal reviews or consult your local Better Business Bureau.

I don't recommend social media sites like Facebook as a single source for rating a charity, but they may flesh out the dry facts available elsewhere.

   

But who rates the raters? Are these just online collectors of  raves and rants by fake reviewers, disgruntled employees, clients or donors?

For the answer to that you have to ask yourself a few questions. Questions such as: how did they come to be in existence, how reliable is their information, and what criteria do they use to assign ratings?

One well known organization is Charity Navigator or CN so let's see what they have to say about their process.

Charity Navigator has been in business as a nonprofit since 2001 according to their website, arising out of a perceived need to shed light on the inner workings of charities.

Originally conceived by Pat and Marion Dugan, whose story is available on the website, CN is a bellwether rating organization.

It is definitely one of the top three starting points on my list of charity verification sources.

On September 1, Charity Navigator instituted a new rating scale.

The website goes into great detail about their methodology. You can view it here.

I mentioned that CN is one of several sources I use before deciding whether to agree to offer my services, as well as my own donations to a nonprofit.

One thing has always caused me to view some of the information  available throughout the industry with a squinty eye, and the CN website details it perfectly.

That is the way media reporting is included in a list of rating criteria alongside nonprofit experts, seemingly assigning those reports the same level of credibility as those done by experts.

For instance, one of the ways to get a poor rating is to have an employee or official who  embezzles from your charity, a story often first reported by a news agency.

While some might see that as blaming the victim, there is sound reasoning behind it.

It goes to the ability of the charity to monitor its use of funds by having adequate financial security safeguards in place and actually using those safeguards to prevent theft.  It addresses the character of the organization itself.

But it also goes to the accuracy of the information.

CN freely admits that it does not, and indeed has no ability to, assess the accuracy of the media information it uses.

For me that's a cautionary flag.

Yes, where there is smoke there is usually fire, and news reports are definitely a smoke signal.

Conversely, one has only to look at the media's conduct during this election season to have serious concerns about the ethics, veracity and credibility of the media.

For that reason, if the allegation of financial mismanagement or criminal activity is one of the major knocks against the organization being rated, I tend to hold my opinion in abeyance until I can ascertain if it was an isolated incident in an otherwise sterling record.

I would also want to know whether anyone followed up with actual arrests and/or prosecution of the persons involved and whether there is any past history or indication of financial malfeasance or incompetence.

Charities, even more than Caesars wife, have to be above reproach and the larger and more visible they are the less leeway they have.

Still, accusations usually make the front page, while any retractions or exonerations are usually  buried on page 52 under last week's stock market report.

I am not saying that you or CN should disregard this type of information. I don't, and neither should you.

I am saying that media reports should be vetted as thoroughly as the charity before it they are used as a criteria for either approval or condemnation.

Cancer Charities Fraud Fallout – Will it affect you?

Current news is bad news for online and small scale charitable giving programs.

When four cancer charities were charged with fraud, one of the disturbing facts published was that most of the actual money that was donated came from small donors, $20 or $30 at a time.

The total amount, as charged in the settlement was reported at more than $187 million. The published terms of repayment apportion repayments between the main defendants, but give no specific date for final payment. Consumers will likely not receive more than pennies on the dollar, since the proceeds of the scam have been spent.

Another disturbing fact was that although these charities (all tied to one family) had been under scrutiny for several years, their websites and fundraising activities were not shut down

.

Charity related fraud is one of the FTC's most often reported offenses. That puts all charities in a bad light.

There were indications that these charities weren't on the up and up, and donors who regularly decline telemarketing calls until they have vetted the charity in question through sites like Charity Navigator soon saw that something was amiss.

It's apparent from the amount of money in question that most people didn't bother to check them out at all.

   

The problem is that going forward, most people still aren't going to do that. They are simply going to say no to any and all fundraising calls.

There were red flags for those who did the research, particularly the amount of in-kind donations and fundraising costs, but most people aren't going to do that. It just isn't worth their time for a measly $20 or so.

Smaller nonprofits seeking to expand are going to bear the brunt of that public distrust. Larger organizations can withstand temporary revenue downturns but the little guys and startups can't. Given that very new charities depend mostly on individual donations, they may well be the real losers.

How can you counteract the bad press?

It goes without saying, or should, that you need to establish as much publicly available legitimacy information as you can.

•          Have a well done and informative website in addition to social media accounts.
•          Make your contact information easy to access, including a phone number.
•          Have an IRS determination letter and corporate documents.
•          Have good board and executive staff bios online
•          Have unrelated board members with online profiles on the board of directors.
•          Have audited financials on hand to back up your 990 filings.
•          File long form 990's even if you qualify to use the e-postcard
•          Keep detailed and accurate records of your donors.
•          Limit your large-scale fundraising costs. Frankly, if you are only getting 15 cents on the dollar, they aren't worth your time anyway. That's only viable when you are talking about millions of dollars in donations.
•          If you are truly new, have a business and strategic plan, complete with financial projections.
•          Track your results and impact and be prepared to provide that documentation when asked. 
•         Where possible, provide names of people or agencies that you partner with or who have received assistance from your charity.
•         Register your charity with one of the ratings sites, like Charity Navigator or GuideStar. (Although they may not actually rate you, since rating criteria are often based on minimum revenue amounts, often over $1 million, just the fact that you proactively offered up your information helps interested donors make decisions.)

Eventually, the bad PR will fade, but it's going to remain important to avoid even the appearance of impropriety or mismanagement. You can do that by being as business-like and professional as possible. 

Board development webinar

GuideStar is offering a free webinar on March 11 addressing board recruitment and formation. Since this is one of the questions I get on a regular basis, this might be for you.

Check it out at:


http://tinyurl.com/o475yrz

AHA! - It costs money to run a nonprofit.

GuideStar, Charity Navigator, and the BBB Wise Giving Alliance recently put out a letter cautioning donors against placing too much emphasis on artificially low administrative costs. It seems that they finally recognized that ranking the effectiveness of nonprofits by how little they spend to keep their business operations running might be harmful to the health of nonprofits.

The problem is, they have spent many years carefully and repetitively convincing  (dare I say brainwashing?) donors that there was some magic percentage that nonprofits should not exceed for administrative costs. It might be just about too late for these revered ranking organizations to have their "AHA" moment.

The truth is, just like any other business, nonprofits have to have a certain amount of money to keep their operations going, and that number, or more properly the ratio of administrative (overhead) to program costs, is going to differ according to the operational needs.

Nonprofits with  large staffing requirements, expensive equipment like trucks or warehouse racking or who require large buildings  to house and distribute goods are going to spend a higher ratio of their funds to maintain those than a nonprofit that runs a say, a suicide hotline in the basement of someone's home. Both should be equally evaluated for funding according to how effectively they accomplish their mission.

Very few businesses can operate efficiently and effectively and still keep overhead below 35%. All the ranking organizations accomplish by encouraging reporting of those expenses at 10 or 20% of revenue is to encourage creative bookkeeping. The result is that many good, useful and effective nonprofits go under because they simply don't have the infrastructure to maintain the organization at even minimum operating efficiency.

Another truly irritating metric that is often evaluated is whether key staff salaries are "too high". Too high compared to what?  It is undeniably true that some charitable organizations are simply a way for the founders and their cronies to get paid an exorbitant amount of money. But to say that the CEO of a nonprofit with 100 million dollars in revenue is overpaid just because of the dollar amount of their salary is ludicrous. If the CEO of a comparably sized for-profit is making $500K a year, why should the CEO of the nonprofit be expected to make a third of that figure?

If the salaries of nonprofit key staff are considered as a part of the whole, they often make in the aggregate less than 3% of the total revenue figure. Try hiring a competent CEO, CFO and COO for a for-profit and stay at that level. The turnover and retraining costs at nonprofits are the subject of much hand-wringing. Perhaps if the staff was compensated at levels comparable to for-profit industry standards and evaluated based on results instead of cost, that wouldn't be such a problem.

No one is advocating that nonprofits should spend the bulk of their donations and financial donor support on overhead. That's as ridiculous as spending too little. There is a point where overhead, including fund raising costs do exceed an acceptable level when compared to results.  But starving any operation of reasonable operating capital is a sure way to put it out of business, and far too many nonprofits are facing that reality every day.

I'm ecstatic that these three organizations have finally recognized that their effectiveness measurement metric is flawed.  Hopefully they can apply some common sense to their operations and provide better donor guidance reporting in the future.