Seeing the Big Picture on Charities

A few high-profile transgressors have put charities under a microscope. By all means stay informed -- but remember why you give

by Cristine Cronin

Giving to charity has become more challenging for donors in recent years. The U.S. charity sector is much admired abroad, yet here at home it's subject to intense and sometimes painful scrutiny -- both from those within the philanthropic field and from the outside. So much is known about the liabilities and failings of various charities that donors sometimes wonder if it makes sense to give at all.

This is a distressing state of affairs for people who have spent much of their professional lives in the nonprofit sector, as I have. We're acutely aware of the problems, yet we also know how much good is accomplished by charities, and at what sacrifice.

In recent years, some of our most historically revered charities -- the American Red Cross, the United Way, and the Nature Conservancy -- have been caught up in disturbing investigations. In other instances, regulators have uncovered scandals in charities that had previously enjoyed widespread public admiration. We've been made aware of groups that have violated the public trust to attain their goals more quickly or easily.

LOSS OF FAITH.

At other times, a board of directors is accused of failing in its fiduciary responsibilities. Even the misdeeds of one individual -- such as a bookkeeper who has regularly stolen miniscule amounts of money over extended periods -- can take a severe toll.

Each time such a story comes to light, donors feel let down. Their faith in the nonprofit sector lessens and they begin to eye other -- if not all -- charities with suspicion. To an extent, all charities suffer because of the transgressions of the few. How did it come to this -- to so many donors questioning how and why they should give? And how can trust be restored?

The spotlight is shining brighter on the nonprofit world than ever before. In part, this is because of the unprecedented wealth coming into the sector, and also because of transformations resulting from the Internet. As a result, the media now gives more coverage to charities than before, often carrying out their own investigations. Some business and nonprofit publications issue their own annual reports on the philanthropic sector, offering analyses of some of the nation's larger charities.

SOMEONE'S WATCHING.

There's also increased transparency in the nonprofit sector. Charities' tax returns can be viewed on the Internet, most notably on Guidestar.org, which provides a database of information on more than 1.5 million tax-exempt organizations. This information is available to the public at no cost. Such accessibility was unheard of merely a decade ago.

Another contemporary dynamic is the publicity and credibility given to numerous charity-ratings organizations. The major third-party charity evaluators -- American Institute of Philanthropy (AIP), the BBB Wise Giving Alliance, Charity Navigator, and Ministry Watch -- attract millions of visitors to their Web sites.

Ratings of individual charities are frequently based on administrative expenses reflected in tax returns without taking into account other important factors, such as program effectiveness. These reports are widely quoted by journalists, regulators, and the public, who use the ratings to assess how well charities are serving the public good.

MANY FACTORS.

The problem, though, is that numbers tell just part of a charity's story. Tax returns were never intended to be an all-inclusive indicator of an organization's effectiveness in carrying out its mission. Nor are administrative expenses necessarily the best or the only indicator of an organization's fiscal responsibility. Ratios can be helpful if comparisons are made among organizations with essentially similar missions and programs, or where there's comparability of such factors as charities' size, longevity, or location.

However, other pertinent factors have to be considered when evaluating a charity. There are numerous reasons why a nonprofit may have high operating costs or be struggling financially even while doing good. It may be a young organization with a less powerful board.