Where Do Your Donations Go?

Recent demands for transparency highlight the difficulty of tracking charity funds. Here’s what you need to know.

In the midst of the Invisible Children firestorm surrounding their massively viral documentary, one question that’s regularly come to the surface is, “How does Invisible Children spend its money?” Concerns about the organization’s focus on awareness and travel have led many to wonder why so much of their money is spent on campaigns instead of on work in Uganda. Such questions are worth asking—and worth the research to find answers. Being informed about how an organization will spend your money—and ensuring it’s for the reasons you want to donate (whether that’s for awareness or for work done in the field)—is an important responsibility of every donor. But how can you know for sure? Is it possible to really track where your money is going?

Let someone evaluate for you

Even for the optimist who will throw a few dollars toward organizations still walking on shaky young legs, there is wisdom in checking where the money goes. Too many organizations that start with “nice intentions” learn the hard way that without accountability, anyone can slip quietly into unethical practices.

That’s where outside evaluation comes in. Evaluator organizations provide a service to donors wanting to sort through the details behind heart-gripping websites. They aim not only to help donors make informed choices but also to improve the overall quality of charity work by motivating nonprofits toward greater financial sustainability and accountability. Accountability protects and benefits all the stakeholders of nonprofits, particularly their beneficiaries, who are often the least able to speak up and demand accountability.

Evaluation services differ. Some evaluate as objectively and as broadly as possible, but that means limiting criteria to easily obtained data, particularly from tax forms. Others try to dig deeper into the “feel” and “effectiveness” of an organization, but that means depending on more subjective evaluations, personal stories and opinions.

The nation’s largest evaluator, Charity Navigator, is free and easy to use. It uses a four-star rating system and shows reports of historical and current financials. It currently evaluates more than 5,500 charities and aims to expand to 10,000. With 3.3 million annual unique visitors to their website and 92 percent of those visitors claiming the site influenced their giving decisions, the organization sways billions of dollars of philanthropic giving decisions.

Charity Navigator bases its rankings on data available through Form 990, filed to the IRS annually by most 501(c)(3) nonprofits. When it began evaluating charities 10 years ago, Charity Navigator evaluated charities for financial responsibility and sustainability. It has since added a second level of evaluation for accountability and transparency, which began affecting star rankings in September 2011. By 2015, it plans to add a third and more qualitative element to evaluations—a category evaluating results. Charity Navigator also creates more than a dozen Top (and Bottom) Ten lists in topics such as “Ten Super-Sized Charities,” “Ten Highly Rated Charities with Low-Paid CEOs” and “Ten Charities in Deep Financial Trouble.”

The Better Business Bureau (BBB) at Give.org also provides a free service with similar financial and transparency qualifications. It has "20 Wise Giving Standards for Charity Accountability" that includes details of governance, spending of money, truthfulness of representations and willingness to disclose information to the public. Charities that meet all 20 standards receive their seal of accreditation. Those that do not meet all the standards still have a report published that describes the standards they did not meet and gives the organization a chance to respond to its missed marks. 

Dan Busby, president of the Evangelical Council for Financial Accountability (ECFA), points out that “rating groups attempt to determine whether a nonprofit is worthy of a donor’s contributions simply based on certain financial and other data—virtually an impossible challenge.”

The Evangelical Council for Financial Accountability (ECFA) attempts to dig deeper into the quality of specifically Christian charities by evaluating “Seven Standards of Responsible Stewardship.” These include high standards of board governance, financial transparency and integrity in fundraising, much like the BBB and Charity Navigator, but also an evangelical Christian doctrinal requirement for qualification. Unlike a four-star rating system, ECFA members must comply with all the standards all the time.

Other evaluating and accreditation organizations are becoming more prevalent. GuideStar, Ministry Watch, Intelligent Philanthropy, GreatNonprofits and GiveWell all offer credibility rankings, though several require a fee to access information, and donors are always wisest to give directly to the charity rather than through buttons on evaluator websites, which usually keep a percentage of donations.

Beyond earning high rankings

Start plugging your favorite organizations into evaluation websites and you’ll find you still walk away with unanswered questions. Many religious organizations are exempt from filing IRS 990 forms, so Charity Navigator does not have data for many prominent organizations like Campus Crusade for Christ and the Salvation Army. Other websites simply do not have the resources to evaluate broadly, or they use vague criteria like “any unexplained odd aspects of a ministry” (Ministry Watch).

Besides, not all evaluation criteria have universal best answers. Is paying a CEO a top salary bad if it means the organization can attract top talent into leadership? How much of an organization’s total assets should be held back for emergencies versus how much is in use in its current budget? And, like in Invisible Children’s case, is awareness a marketing expense or a critical mission that in itself brings results?

Not every nuance of an organization is explained in the minimal space allotted on evaluator websites. If an organization doesn’t appear or looks poorly ranked on an evaluating website, it’s worth asking the organization directly for their explanation. The good news is that high-quality organizations have cared about transparency and accountability long before websites came along.

Numbers as a starting point

Just as the best nonprofits go beyond evaluating service assessments, the best donors also dig deeper than rankings. Sandra Miniutti, the vice president of marketing and CFO of Charity Navigator, said that in 2002, when Charity Navigator opened, many nonprofits felt that evaluating nonprofits couldn’t be done effectively. Now the mindset has shifted and most charities want to be evaluated. Still, she sees Charity Navigator as a place to start, recommending that donors contact an organization directly or volunteer to uncover the more subjective aspects of an organization. Charity Navigator CEO Ken Berger recommends starting by asking for an organization’s outcomes.

Any organization should be willing to share where its money goes and who makes decisions. It should be able to articulate and provide evidence of what outcomes it intends, how it will reach and measure those, and how it makes adjustments when it doesn’t meet outcomes.

While measuring transparency, accountability and success is not easy, that doesn’t mean we shouldn’t try.

Chrissy Jeske is the author of Into the Mud (Moody). She and her husband, Adam, have lived around the world and in Wisconsin and are working on their next book This Ordinary Adventure: Settling Down Without Settling (IVP, October 2012). She blogs at www.intothemud.com.

16 Comments

84,878

Anonymous commented…

Please do not take my words and twist them out of context... I was not implying that it was a glamorous situation. For the hundredth time, I think the situation is deplorable and it breaks my heart. I was saying that compared to other issues in the world such as establishing highways or working plumbing, the issue is marketable to us (especially young people).... and believe me, Invisible Children knows this better than anyone.

And great. You and I are aware. Invisible Children's ability to market their cause has never been in question. They've done a fantastic job with it. However, is this where you want to leave the issue? Maybe I was confused because I thought the whole point of raising awareness was so that it would eventually lead to action... But if you are fine popping the champagne now, might as well.

Here is the bottom line: Invisible Children (the organization) are not the cause. The cause is freeing the child soldiers/ending the LRA. There is nothing wrong with supporting the cause; I support the cause myself... why would I want harm to occur to innocent children, families torn apart, etc.? However, there seems to be a critical misunderstanding that if I don't support Invisible Children (the organization) that it must mean I don't support the cause... this is not my point nor the point of this article.

The point is that we are called to be good stewards of what God has entrusted to us; our finances included. Thus we have the responsibility to see that we when we do give to an organization, they are to use their finances responsibly (for a Biblical perspective, see the parable of the talents in Matthew 25). There are other organizations that I believe do a better job serving and supporting the victims of this crisis with what they have been given: Human Rights Focus, Africare, or AMREF USA.

You can support the invisible children without supporting Invisible Children.

Aaron

24

Aaron commented…

I'm glad to hear that there are organizations able to keep financial honesty in their cross hairs.

84,878

Anonymous commented…

Most televangelists will not fill out a 990 which excludes them from scrutiny by Charity Navigator (http://www.charitynavigator.or... nor are they willing to voluntarily join the ECFA and therefore are not accountable to anyone but themselves. This is the first clueconcerning which ministries to give to and which ones to avoid. God has blessed my house tremedously when I quit giving to the rich (i.e. televangelists) and started giving to the poor (both directly and indirectly through accountable charities).

84,878

Anonymous commented…

As a clarification to Chrissy's piece on "Where Do Your Donations Go?" the online charity evaluation platform www.IntelligentPhilanthropy.co... neither produces charity rankings nor processes donations and takes a cut like some of the others. Whereas the popular sites Charity Navigator and Guidestar rely on 2-year old tax forms for their data, Intelligent Philanthropy annually updates (in the 2nd quarter) 150 data points related to organizational health and performance in a searchable database of 2-page nonprofit Analytical Overviews. IntelligentPhilanthropy.com provides 30 basic standards in 6 categories (Leadership, Leverage, Financial Management, Strategy, Impact, and Sustainability) for donors to use in doing a cursory evaluation of each charity. Subscribers to the online evaluation service can request a nonprofit Analytical Overview for any registered 501(c)3 not already in the database. There is no more user-friendly, comprehensive, and up-to-date online evaluator that can quickly present a charity's financial management, leadership quality, future strategy, and past outcomes.

Invisible Children was in our searchable database of Analytical Overviews in 2009. If you were a subscriber to Intelligent Philanthropy who spent a couple minutes reviewing their data, you would quickly learn in the "What is your mission?" section that Invisible Children's primary purpose is sharing the story of the LRA's devastating actions. In the section on "RESULTS," you would read that their success is measured predominantly in terms of film screenings, millions of viewers, hand-written letters to congressmen about the LRA, and number of youth who traveled to DC to lobby. Once you clearly understand their mission and results, then you know that the money spent on "program services" is significantly tied to "AWARENESS" and advocacy efforts. It would be disingenuous to critique them for not being something they never set out to be. So although they have added the "schools for schools" program and other initiatives to help areas affected by the LRA recover, their central mission has always been advocacy and awareness for one of the many tragedies unfolding in the world. That is why an online evaluator like www.IntelligentPhilanthropy.co... that facilitates a clear understanding of a charity's operations and impact is an essential element to both effective and informed giving.

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sbmccarrier commented…

Well said!

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