Where Does Your Money Go?
By chrissy jeske
January 25, 2012
If you stood in an entire football stadium filled knee-deep with dirt and held a tiny electric vacuum to clean up the mess, where would you start? You would start by the power outlet.
Bart Campolo, Walnut Hills Fellowship leader and director of the Evangelical Association for the Promotion of Education (EAPE), uses this question and answer when suggesting how to spend time and money. This world is knee-deep in important work. The United States alone has more than 1 million registered nonprofits, each ready with convincing appeals and promises to make a difference. You, however, are just one person, with only so much to give. So where do you start? When it comes to donating your hard-earned money and your all-too-rare time, you want to work with an organization that’s reliable and effective—one that’s plugged into a power source.
Imagine, for example, that you spend your own donated time or money for Agape Villages, an organization trying to find safe homes for children. Now imagine discovering that the organization is included on Charity Navigator’s “Ten Charities in Deep Financial Trouble” list, with a one-star ranking, and owes $4 million more in debt than their total assets. Wouldn’t you rather start supporting an organization that can give those children a truly safe home, rather than throwing your pennies down the black hole of a doomed and dangerous organization?
Finding a better organization is another story. How do you know an organization will accomplish what it promises? Will donated money go toward effective programs, or toward more fundraising appeals and triple-digit salaries of top executives? How do you know the organization isn’t fudging its finances or approaching financial collapse?
Today you can find dozens of evaluating services that check nonprofit organizations for accountability, financial stability and transparency. While these services can be helpful in sifting through information, a high or low ranking from one evaluation doesn’t necessarily mean you should start or stop giving. What, then, does a wise donor need to ask, and what does a wise nonprofit need to check and share?
Letting 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 money goes. Too many organizations that start with “nice intentions” learn the hard way that without accountability, anyone can slip quietly into unethical practices.
In a report for InterVarsity Christian Fellowship on the importance of numerical measurement goals, Daniel J. Denk wrote: “One common accusation that comes against nonprofits generally and against Christian ministries in particular is that we don’t like accountability. We don’t like to be measured, and so we set vague goals with fuzzy numbers and unclear outcomes. Some Christians in the corporate world wish we would learn a few things from their world, such as that accountability can be a good thing. Constructive evaluation can be a liberating experience and a healthy corrective.”
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 their 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 evaluation, personal stories and opinion. Evaluating companies provide their services to a wide range of donors, from average Joes with $50 donations, up through foundations and philanthropists moving hundreds of thousands of corporate, family and personal dollars.
Organizations that start with “nice intentions” learn the hard way that without accountability, anyone can slip into unethical practices.
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 include 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 ECFA, with more than 30 years of history as an accreditation agency, 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, Busby stresses, “ECFA members must comply with all the standards—all the time.” ECFA’s online ServantMatch helps more than 20,000 donors each month match their giving interests with ECFA-accredited projects.
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. Nonprofits can also join numerous networks with accountability standards, including Humanitarian Accountability Partnership (HAP), InterAction and Accord Network. Larger donors may benefit from services like Excellence in Giving that offer personal goal assessment consultation and philanthropy training.
Other organizations, including Philanthropedia and Root Cause, strive for excellence in humanitarian work by providing research on best practices.
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?
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 high-quality organizations have cared about transparency and accountability long before websites came along.
InterVarsity Director of Development Josh Hall explains that regardless of rating websites, an organization needs to keep high standards of accountability. For InterVarsity, he says, “this starts with having a strong board and a clear board policy manual that carefully and legally delineates checks and balances.”
Duties are clearly separated between board and staff, and InterVarsity’s board policy manual includes around 75 pages of policies and procedures on succession of trustees, running meetings, ethical money use, whistle-blower policies and more. InterVarsity also values external audits and is a charter member of the ECFA.
World Vision is another star performer when it comes to donor accountability. Charity Navigator places World Vision second on its list of “Ten Super-Sized Charities.” Between 1998 and 2010, World Vision United States nearly tripled its overall income from $358 million to $1.04 billion, while the amount of funds sent to programs helping children more than tripled. Richard Stearns, who became the president of World Vision U.S. in 1998, has become known for bringing corporate best practices to the nonprofit sector and inspiring a culture of outcome-focused management.
Julie Regnier, the senior vice president for human resources for World Vision U.S., says: “Rich brought clarity, focus, accountability and, most of all, leadership. One of the first things he did was to help the organization crisply articulate its mission, strategy and goals. Then he added the scorecard process to bring focus, clarity and accountability.”
When it comes to the organization’s ability to uphold their transparency, World Vision U.S. Controller Doug Risser credits their compliance with best practices in financial accountability and watchdog agency standards. “We listen to our donors,” he says, “who increasingly are demanding greater transparency.”
Charity: water, a fast-growing organization only five years old that has already provided safe drinking water for nearly 2 million people, uses a unique method of accountability in that 100 percent of public donations go to the field. “I truly believed one of the best ways to restore people’s faith in the process was to come up with a ‘pure’ way of giving,” founder Scott Harrison says. “Now, of course, there’s a cost to running any organization. You need to pay your hard-working staff, you need to spend money on things like an office, computers and phones, and flights around the world to develop and monitor water projects.” For charity: water, these expenses are paid by just a few hundred private donors of $12,000 or more each. Harrison estimates he spends a third of his time “building and developing relationships with the visionary small group of people that fund the incredibly important behind-the-scenes costs of the organization.”
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 make adjustments when it doesn’t meet outcomes. InterVarsity’s Josh Hall admits that organizations struggle to measure qualitative aspects of success. “How do you categorize the movement of the Holy Spirit, anyway?” he asks.
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.